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Is this worth smiling for?

Are you happy when you spend money? I guess the answer depends on what you’re spending the money on but over in China, KFC have technology which enables a person to pay for their KFC meal with a smile.

Yes, a smile.

Nothing else is needed – no bank card, no phone app. Just a smile.

That’s a pretty advanced system and involves facial recognition technology.

Customers who want to get their dose of fast food at the KFC branch in Hangzhou can leave their cash and cards behind and instead smile at a scanner, press confirm and then hey presto you’ve paid for your meal without moving your hands and you will soon be tucking into your Kentucky Fried Chicken.

Payment is taken from a cash account which has been linked to the person’s face.

China has some of the most advanced facial scanning technology in the world. Collecting images of the public doesn’t need any consent in China and the technology is likely to spread.

For example, it’s been reported that students in several universities in China are now registering by scanning their faces and lecturers will soon be able to track the facial expressions of students to see how well they are following the lectures.

It may be advisable for these students to master the act of hiding those yawns during a boring lecture and instead start to practice for the KFC they’re planning to get after the lecture…

Grab your goat and let’s go…

Creativity and innovation in any organisation should always be welcome and whilst technology is often at the forefront of innovation it is sometimes the really simple ideas that can create benefits.

Unfortunately, in this particular situation it didn’t quite go according to plan.

The initial idea was good. Officials in charge of the 1,200 acre Minto-Brown Island Park in Oregon in America were concerned that several invasive plants were taking over the park and killing off a number of the native flora including maple and hazelnut trees.

The solution put forward was to create a crack team of 75 goats who would eat the invasive plants such as the Armenian blackberry and the English Ivy which would then mean that the native flora would thrive.

75 goats were duly obtained from a company called Yoder Goat Rentals (as an interesting aside I wonder how many of you were aware that you could rent a team of goats. I certainly wasn’t.)

The goats got down to work but 6 weeks later the project was cancelled.

There were a number of issues.

Firstly, the goats were fairly relaxed about what they ate. In terms of the invasive Armenian blackberry for example they decided to eat the tasty blackberry leaves but left the prickly bramble. This resulted in the plant carrying on growing.

Secondly, they didn’t show any distinction between the (tasty) maple and hazelnut trees which they were supposed to be helping and the invasive plants.

Thirdly, the total cost of the 6-week pilot programme was $20,719 which was nearly 5 times the $4,245 cost for a normal parks maintenance man supported by a prison inmate work crew.

Finally, according to a report to the city council the goats “had a barnyard aroma”.

In summary, a nice try but it didn’t quite work. Still, as any successful business person will surely agree, you don’t progress unless you try. Better luck next time and at least the goats had a nice 6-week holiday in a lovely park…

It’s a dog’s life…

Greece has had a bad time of it over the last couple of years in terms of their finances but a recent announcement by their Finance Ministry may result in animals coming to the rescue.

When I say animals, I should be more specific and say that dogs will be helping out and not just any dogs but dogs who can sniff out money.

Let me explain a bit.

It’s been well documented that Greece has had a few financial problems. There were fears that they would crash out of the euro. Capital controls followed and there was a new international bailout for the country.

As a result, a lot of the Greek population perhaps understandably didn’t feel that confident in trusting the banks to look after their cash and a significant amount of money is being held outside of banks.

From November 2014 to July 2015 over 50 billion euros was withdrawn from the banks and It’s been estimated that between 15 to 20 billion euros is still being held by Greeks outside of the banking system.

That’s a lot of mattresses to be storing cash under and people are looking at avoiding capital controls and instead take the money out of the country without the authorities knowing.

Taking a suitcase of cash out of the country is seen as a safe option for a lot of people.

So, where do the dogs come in?

Well, a recent posting on a government website said that a team would be put together to assess tenders for the provision of dogs whose job is to detect cash. The dogs would be in place to sniff out significant amounts of cash being taken out of the country at border points.

Given all the money problems in Greece, one big advantage of this plan is that the dogs won’t be paid in cash. Instead, they will be more than happy to be rewarded with a biscuit or two…

A football star who can’t kick…

When you were young did you dream of being an accountant when you grew up? My guess is that most of you probably didn’t fall asleep at night dreaming of spreadsheets and calculators. Perhaps a more common childhood dream was playing for your favourite football team or being a famous actor or actress.

There have been some interesting developments recently though when it comes to playing for your favourite football team and some of the top teams are now signing players who will never be kicking a ball for their team. Instead, they will be representing their teams in the world of gaming, or to be more specific, football gaming such as EA Sports Fifa

Manchester City have recently signed Keiran Brown, an 18 year old gamer who has more than 12,000 followers on his YouTube channel.

Keiran will represent Machester City at Fifa esports tournaments where gamers sit in front of computers representing their team and watched by crowds of thousands of spectators.

Manchester City didn’t disclose how much Keiran will be paid but other professional gamers are reported to be paid in the region of £3,000 per month and can also win prize money at tournaments which can run into the thousands of pounds.

It’s quite a smart move for the club though as football games on consoles such as Xbox and PlayStation are extremely popular with supporters of the actual game.

Diegao Gigliani, vice-president of media and innovation at Manchester City was quoted as saying “As esport continues to gain momentum, it makes sense for our clubs to be part of the action and get closer to our fans, who love playing EA Sports Fifa as Manchester City. We will be a bigger presence at gaming tournaments, we will have more content through our digital channels and we will activate even more with our fans at matches and club events.”

So, in summary, if you want to play for your favourite football team but can’t kick a ball then maybe get out your Xbox and start practicing…

Grab your goat and let’s go…

Creativity and innovation in any organisation should always be welcome and whilst technology is often at the forefront of innovation it is sometimes the really simple ideas that can create benefits.

Unfortunately, in this particular situation it didn’t quite go according to plan.

The initial idea was good. Officials in charge of the 1,200 acre Minto-Brown Island Park in Oregon in America were concerned that several invasive plants were taking over the park and killing off a number of the native flora including maple and hazelnut trees.

The solution put forward was to create a crack team of 75 goats who would eat the invasive plants such as the Armenian blackberry and the English Ivy which would then mean that the native flora would thrive.

75 goats were duly obtained from a company called Yoder Goat Rentals (as an interesting aside I wonder how many of you were aware that you could rent a team of goats. I certainly wasn’t.)

The goats got down to work but 6 weeks later the project was cancelled.

There were a number of issues.

Firstly, the goats were fairly relaxed about what they ate. In terms of the invasive Armenian blackberry for example they decided to eat the tasty blackberry leaves but left the prickly bramble. This resulted in the plant carrying on growing.

Secondly, they didn’t show any distinction between the (tasty) maple and hazelnut trees which they were supposed to be helping and the invasive plants.

Thirdly, the total cost of the 6-week pilot programme was $20,719 which was nearly 5 times the $4,245 cost for a normal parks maintenance man supported by a prison inmate work crew.

Finally, according to a report to the city council the goats “had a barnyard aroma”.

In summary, a nice try but it didn’t quite work. Still, as any successful business person will surely agree, you don’t progress unless you try. Better luck next time and at least the goats had a nice 6-week holiday in a lovely park…

Nightclubs and lemons

What have nightclubs and lemons got in common? The answer may not be that obvious but the common link is the “inflation basket” of the 700 most used goods and services which the Office for National Statistics (ONS) uses to determine price movements for the inflation rate.

This inflation basket dates back nearly 70 years and the ONS currently uses around 180,000 separate price quotations for goods and services within the basket every month to come up with an inflation number for the whole UK economy.

Each year the items within the basket are updated to take account of changes in consumers spending patterns and a dozen or so items are added or dropped from the basket.

This year nightclubs have been removed from the basket as the younger generation are now preferring to do other things rather than go to nightclubs.

In the last 10 years the number of nightclubs in the UK has fallen from over 3,000 to less than 1,750.

In a great illustration of the impact that changes in the PESTEL environmental analysis model can have, there are several reasons for the decline in nightclubs including:

Economic – student grants have been replaced by student loans and as a result the students themselves now have less money to spend on expensive nightclub drinks.

Social – socialising with friends now more and more involves social media. Why meet up in a dark nightclub when you can Snapchat for example? Also, very dark nightclubs will limit the opportunities for photos for your Facebook feed…

Technology – whereas in the past people would often go to nightclubs to meet new people, websites such as the dating site Tinder now make it easier to meet new people without having to go to the trouble of trying to communicate with someone by shouting at the top of your voice in a nightclub which is so dark you can hardly see the person you’re shouting at…

Legal – the smoking ban imposed in recent years has impacted on the number of smokers who go to nightclubs (incidentally, electronic cigarette refills have been added to the basket this year following the increase in popularity of e-cigarettes)

What about lemons? Well Lemons have been added to the basket.

An increase in the popularity of home cooking driven by all of the cooking programmes currently on TV has led to a surge in demand for lemons.

So lemons are in and nightclubs are out.

Other changes include the removal of GPS satnavs for cars (more people are using their smartphones for directions) and the addition of mobile phone covers.

In case you’re interested here are the full details of the basket and how it is compiled.

Would you buy a bottle of whisky or invest in a bottle of whisky?

Buying whisky or investing in whisky – that’s an interesting question and my guess is that most people who buy whisky are planning on gently pouring it into a glass and maybe adding some ice or a mixer before settling back to savour the flavour (before possibly waking up the next day with a headache…)

But should you be buying whisky as an investment rather than as a consumable item?

Most people are aware of the leading share indexes around the world such as the FTSE 100 and the S&P 500 (which show the index for the largest 100 and 500 companies quoted on the London and New York stock exchanges respectively) but there are also a number of other indexes out there.

These indexes measure movements and one of the more interesting ones is the Rare Whisky Apex 1000 which measures the price movement for rare scotch whisky.

It’s a significant market and last year there were rare whiskies sold at auction in the UK amounting to £9.6 million.

There was also a strong demand for rare whisky in Asia. In August last year a bottle of 1960 Japanese Karuizawa whisky was sold for over £80,000 which is a pretty significant figure for a bottle of whisky!

Back to the indexes though and the performance of the rare whisky index last year was impressive. It grew by 14%. Other indexes in comparison performed as follows in 2015:

FTSE 100 – down by 4.9%
S&P 500 – up by 0.7%
Gold index – fell by 10%.

So the increase in the Whisky index of 14% looks very good when compared to the major indexes but I guess there could be one problem.

Namely, if you’ve had a bit too much to drink and are looking for something to finish the evening off you’re more likely to drink some of your whisky investment than consume some of your share or gold investment.

Is it a good idea to unfriend a colleague?

Are you Facebook friends with a colleague at work? Have you ever been tempted to unfriend them?

Whilst unfriending someone on Facebook only involves a simple click, the Fair Work Commission (an employment tribunal) in Australia has found that unfriending a colleague on Facebook was workplace bullying.

Rachel Roberts worked at the Australian estate agent View and alleged that the firm’s owner and his wife had subjected her to workplace bullying on 18 separate occasions.

Rachel Roberts argued that amongst other things James and Lisa Bird deliberately left her work unprocessed for more than a week and refused to showcase her properties in the business’s front window.

Perhaps the most interesting allegation though was that after a meeting between Ms Roberts and Mrs Bird where Mrs Bird described Ms Roberts as “a naughty little schoolgirl running to the teacher,” Ms Roberts tried to leave the room but was initially prevented from leaving by Mrs Bird standing in front of the door.

She eventually managed to leave the room and was sat in her car in a “very distressed state” when it occurred to her that Mrs Bird may make a Facebook comment about the incident.

Miss Roberts went on to Facebook to check for any comments but found that she had… (wait for the drama to unfold)… been unfriended by Mrs Bird.

Yes, shock of all shocks but she had been unfriended on Facebook…

Now, whilst a lot of you may well be thinking that being unfriended on Facebook isn’t a major deal, the Fair Work Commission specifically cited the Facebook unfriending in its decision, saying that it evidenced “a lack of emotional maturity and is indicative of unreasonable behaviour.”

Now, before everyone starts worrying about which colleagues they are friends with on Facebook and whether or not they should unfriend them, it’s worth noting that the Facebook unfriending incident in this situation was one of 8 occasions when it was considered to be “unreasonable behaviour”. In other words, it’s unlikely that unfriending someone in isolation would be considered to be bullying.

Does this winner only go out at night?

Imagine the scene. You want to go to a music Festival but the tickets are expensive.

What do you do?

I know. Why don’t you pay for the tickets with blood rather than money?

Now whilst this statement may sound a bit weird, some creative minds behind the Untold music festival in Romania have come up with an excellent idea which is a classic win – win situation.

In fact, rather than a win – win situation it’s more of a win – win – win situation.

So who are the three winners in this situation?

The organisers of the festival identified the fact that Romania has one of the lowest percentages of people who donate blood (Romania ranks second to last in Europe regarding the number of blood donors with only 1.7% of the population donating blood) and came up with a novel way of helping to increase the amount of blood donations.

They offered free tickets and discounts to people who donated blood.

It was reported that up to 500 people donated blood so all in all a very successful project.

The Blood Transfusion Service was a winner as it received more blood and importantly raised awareness of the need for more blood.

The organisers of the festival were winners as this was a very slick piece of PR for a first-time festival and despite having top DJs such as Avicii and David Guetta headlining the event it was great to have national and global publicity as a result of this.

The third winner were the individuals who gave blood and obtained free tickets.

Mysteriously though, was there a fourth winner?

It hasn’t gone unnoticed that the festival took place in Transylvania which is the home of Bram Stoker’s legendary Dracula.
Dracula survives by drinking fresh human blood.

Was this in fact a ploy to build up the stocks of blood for the mysterious Count Dracula…

Is it a load of bear or a load of bull?

The major stock markets around the world have had a rough ride this last week. The drop in share prices has been driven by the heavy falls on the Chinese stock market. At the time of writing the Shanghai Composite index (a stock market index of all stocks that are traded at the Shanghai Stock Exchange) has fallen by nearly 16% over the last week.

If you read the financial press words such as “bear market”, “bull market” and “correction” are being used a lot.

What do these phrases mean and where do they come from?

A bear market is where share prices are falling and is commonly regarded as coming into existence when share indexes have fallen by 20% or more. A market correction is similar to a bear market but not as bad (a market correction is where there is a fall of 10% from a market’s peak).

A bull market on the other hand is where share prices are increasing.

So, where do the phrases bear market and bull market come from?

There are two main views on the origin of these terms.

The first view is based on the methods with which the two animals attack. A bear for example will swipe downwards on its target whilst a bull will thrust upwards with its horns. A bear market therefore is a downwards market with declining prices whilst a bull market is the opposite with rising prices.

The second view on the origin is based around the “short selling” of bearskins several hundred years ago by traders. Traders would sell bearskins before they actually owned them in the hope that the prices would fall by the time they bought them from the hunters and then transferred them to their customers. These traders became known as bears and the term stuck for a downwards market. Due to the once-popular blood sport of bull and bear fights, a bull was considered to be the opposite of a bear so the term bull market was born.

Whatever the actual origin of the terms though I’m sure most people will be hoping for a bull market rather than a bear market.

Is this the most expensive typo in history?

We’ve all made typos in the past but I bet your typo wasn’t as expensive as this one.

Typos, where you misspell a word or put in a wrong word by mistake, are fairly common. This particular typo though was incredibly costly as it resulted in a company going out of business, 250 people losing their jobs and the government having to pay £9 million in compensation.

business closingBack in 2009 Mr Davison-Sebry, the MD and co-owner of Taylor and Sons Ltd was enjoying a holiday in the Maldives when he received a phone call asking why his company had gone into receivership.

Receivership is very often the first stage of a company going out of business. It typically occurs when a company is suffering financial difficulties and an independent “receiver” is called in to run the company instead of the directors.

Taylor & Sons Ltd was a successful company. It had been established back in 1875 and was doing very well so why the call to the MD asking why his company had gone into receivership?

Well it turns out that Companies House (the organisation in the UK that publishes official notices about companies) had issued a notice saying that Taylor & Sons Ltd had gone into receivership.

Unfortunately for all of the people involved with Taylor & Sons Ltd, it was a typo by Companies House and the company that had actually gone into receivership was Taylor & Son Ltd and not Taylor & Sons Ltd.

Companies House rectified their “one letter mistake” within a few days but it was too late. There was a snowball effect as one supplier after another heard about it and despite being told that Taylor & Sons Ltd was financially secure, they terminated the orders and cancelled the credit agreements.

Within 3 weeks all of the company’s 3,000 suppliers had cancelled agreements and would not supply the company anymore.

The end result was that Taylor & Sons Ltd lost all of their suppliers and as a result couldn’t produce anything for their customers so they ended up going out of business.

The end of a 140 year-old company and all due to a one letter type.

The directors were understandably unhappy about this and took Companies House to court where they were recently successful in their case and won nearly £9 million in damages.

That was probably the most expensive one letter typo in history.

Who needs champagne for a celebration?

Gin and tonic is a drink that has caused a number of hangovers over the years but for two individuals it is going to make them very wealthy.

tonic waterGin is often credited with being a traditional English drink but the first recorded date for the production of gin was actually in the Netherlands in the 17th Century.

One of the key ingredients of tonic water is quinine.

Quinine is said to have many medicinal purposes and was first discovered by local tribes in Peru and Bolivia. Some people claim that quinine has medicinal purposes which helps various ailments including malaria.

The bringing together of gin and tonic happened in the early 1800s when British army officers in India were using quinine in an anti-malarial capacity and decided to hide the bitter quinine taste by mixing it with tonic water and then hiding the taste even further by adding gin.

The drink “gin and tonic” then came into existence.

Fast forward to 2005 and the company Fever Tree which was set up by Charles Rolls and Tim Warrillow produced their first bottle of upmarket tonic water.

Fever Tree tonic water has been selling very well since then and the company is now being quoted on the AIM (AIM is the Alternative Investment Market which is a sub-market of the London Stock Exchange and allows smaller companies to float shares with a more flexible regulatory system than is applicable to the main market).

The Fever Tree company has been valued at £154 million. That’s not a bad valuation for a company that’s selling tonic water.

There will no doubt be happy faces at the company and the success of the flotation will be toasted by a glass or two of champagne. Or should that be a glass or two of gin and tonics?

This idea by Levis is certainly a good fit.

The first pair of blue jeans to be made in the world were made by Levi Strauss in 1873.

levi jeansSince then, the company Levi Strauss has gone on to sell millions of pairs of jeans and their turnover last year was $4.6 billion.

Interestingly the shares of the company are not publicly traded as the company is a private company owned by the descendants of the family of Levi Strauss.

As well as being a company with an 141 year history it is also leading the way in terms of the ethical treatment of its suppliers.

It has recently announced that it will start offering low-cost working capital to its suppliers who meet certain environmental, labour and safety standards.

It was announced that the company will provide loans with progressively lower interest rates to those of its 550 suppliers who perform well in terms of their environmental and safety standards.

This is an admirable move by the company.

Their suppliers are often from developing markets such as Bangladesh and to encourage their suppliers to adhere to better ethical conditions they will provide loans to them at interest rates that get lower the better the suppliers perform in terms of their environmental and safety standards.

A great idea and will we see other companies introducing similar schemes to encourage ethical approaches to their supply chain?

This crackdown has caused a bit of a headache.

When governments try to crackdown on corruption and bribery it is normally good news for the “good people” and bad news for the “bad people”.

ShuiJingFangUnfortunately for Diageo, the world’s largest spirits maker, they haven’t done anything wrong but have been caught up in an anticorruption drive in China.

Diageo make the world-famous Johnnie Walker whiskey and Smirnoff vodka but they also make the Chinese spirit “Baijiu”. To most people outside of China, Baijiu is unknown but for people in China it’s extremely well known and is considered to be an expensive luxurious drink.

Chinese president Xi Jinping has led an anticorruption drive which has seen businesses reducing the level of luxurious gifts that they give out. Expensive watches, fine food and expensive cigars were all commonly gifted by companies to encourage business and win favours.

The Baijiu drink was also commonly bought by companies to give away as gifts but following the anticorruption clampdown sales have collapsed in the last year.

Diageo owns nearly 40% of Shui Jing Fang, the Chinese company that manufactures Baijiu and the sales of Shui Jing Fang fell by nearly 80%. As a result, Diageo has written down the value of the investment in Shui Jing Fang by £264 million.

Which way, left or right?

It’s amazing how much you know. Whether you’re fully qualified or part qualified the professional exams with ACCA and CIMA are very comprehensive and as such anybody who has passed exams has proved that they have the ability to learn, comprehend and explain various technical topics.

left_rightAs we progress through our studies we soon start to take certain things for granted. Take debits and credits for example. Ask any qualified accountant which side debits and credits go and they will tell you (hopefully!) without even thinking.

I was recently teaching a group that were new to the joys of double entry. Some of them were initially finding it a bit of a struggle to remember which side the debit and credit went.

A couple of quick memory techniques for anyone starting out on double entry bookkeeping which will help you remember that debits go on the left and credits on the right:

1. AC/DC

Think of the Australian rock band AC/DC or the electrical system AC/DC and then remember that A/C’s = D’s and C’s [Accounts = Debits (on the left) and Credits (on the right)].

2. The driving reminder.

WARNING – I’d only recommend that you use this is you’re from one of the countries that drive on the left such as the UK, Australia, Hong Kong, Bangladesh, Malaysia and South Africa (there are other countries that drive on the left but for brevity sake I won’t list them all here!)

If you think that you Drive on the left but Crash on the right then it should help you remember that you Debit on the left but Credit on the right.

Again, it’s probably not worth using this memory technique if you’re from one of those countries that drive on the right!

Is now a good time to eat more chocolate?

It’s Easter weekend and in many countries around the world people celebrate by giving each other chocolate Easter eggs.

There could be some worrying news though for people who enjoy eating these chocolate eggs as well as anyone who enjoys eating chocolate in general.

chocolate-pricesThe price of chocolate is rocketing and in the last year alone cocoa prices have risen by 20% and it seems that the price rises will continue.

So, what is causing the increase in chocolate price?

The answer is that it is a simple case of supply and demand.

In December, the International Cocoa Organisation said there could be a 150,000 tonne deficit in the amount of cocoa beans produced in 2014.

There is a significant lead time in cultivating cocoa crops so the supply of cocoa will remain relatively static. In addition, the supply problems are being compounded by prospects of an El Nino weather pattern which can result in crop damaging dry winds in some of the leading cocoa growing countries in West Africa such as Ghana and the Ivory Coast.

Demand on the other hand is surging.

According to Euromonitor the value of chocolate consumption in major emerging markets such as Asia and Latin America will grow at more than double the rate of the world average in the next 5 years.

It’s estimated that consumers in the Asia Pacific region will eat 1.096 million tonnes of chocolate by 2018. This represents a 27% increase from 2013 and compares to a 5% increase in Western Europe (the biggest current buyer of chocolate) over the same period.

So in conclusion, there are supply problems, rocketing demand and higher chocolate prices seem inevitable.

What better excuse therefore is needed to buy that extra chocolate bar now before prices rise?

It looks like Saturday could be a record day…

When I was younger I can remember queuing with friends to get the latest album by my favourite group. At the risk of showing my age though it’s been a long, long time since I last did that.

It’s not because I don’t like music anymore but rather that it’s now so much easier to buy music online.

PrintThings have changed quite dramatically for the music industry when it comes to their distribution methods.

In my youth it was pretty simple. Record companies would distribute the albums via the record shops.

Fast forward several years and over the last decade music has been increasingly distributed online via platforms such as iTunes and Amazon. There’s also the not insignificant impact of illegal downloads of music.

Even if you still want to buy the more traditional CD versions of the albums rather than the digital version, then supermarkets such as Tesco sell the leading CDs at very cheap prices.

The high street music shops have struggled to stay alive. Several high street music shops such as Virgin Megastores, Our Price and Zavvi have all gone out of business.

Students of strategy though would not really be surprised by this as according to Michael Porter’s generic strategies there are two main ways of competing. Namely, cost leadership or differentiation.

In simple terms, cost leadership is where a company can produce something at a lower cost than its rivals whilst differentiation is where an organisation can charge a premium for its product as it’s “different”.

A high street chain of music shops is going to have a significantly higher cost base compared to companies that sell music over the internet. Property costs are going to be significant and will make it impossible for high street record chains to ever win the cost leadership battle.

Whilst it’s not looking good for the big chains of record shops what about the smaller independent record shops? Clearly they could never compete via cost leadership so what about differentiation?

On Saturday the seventh annual UK Independent Record Store Day will be held.

More than 240 stores have signed up to this year’s Record Store Day and tomorrow’s event is aimed at reinvigorating interest in the independent music stores.

At last year’s event people were queuing to get into the shops. Not to buy the cheap music but to savour the atmosphere, talk to people who were interested in similar types of music and to buy some of the more unusual music.

Hopefully this differentiation approach will work as in my opinion it will be a sad day if all the independent music shops disappear and we can only buy the music online or at a supermarket when buying our weekly shop.

Are Manchester United getting it wrong?

Manchester United are dropping down the table.

Now, I’m not talking about the Premier League table where at the time of writing they are 7th in the League and are guaranteed to obtain their lowest points total in a season in the Premier League era. No, instead I’m talking about the Deloitte Football Money League.

man-utd-financesDeloitte are arguably the top accounting firm when it comes to dealing with UK football teams and each year they profile the highest earning clubs in the world.

The 17th edition of their report highlights the financial results from the 2012/13 season and it seems that Man Utd falling down league tables isn’t restricted to the Premier League table.

For the first time since the Deloitte Football Money League began they have fallen out of the top 3 big earners in the world. European champions Bayern Munich from Germany, leapfrogged Man Utd into third place behind Real Madrid and Barcelona.

Like most clubs in the top 20, Man Utd did generate more money than the previous year and the financial position going forward in the short term should be ok as there is a new Premier League television contract as well as some lucrative commercial deals present.

The problem could come though if they fail to qualify for the Champions League over the next few seasons. Dan Jones, partner in the Sports Business Group at Deloitte, said: “Consistent non-qualification for the Champions League would be a problem because, in round number terms, it is worth circa €50 million”.

So, it’s potentially a rough couple of years ahead for United.

The top 10 earners according to the Deloitte report are:

1. Real Madrid: €519 m
2. Barcelona: €483 m
3. Bayern Munich: €431 m
4. Man Utd: €424 m
5. Paris Saint Germain: €399 m
6. Manchester City: €316 m
7. Chelsea: €303 m
8. Arsenal: €284 m
9. Juventus: €272 m
10. AC Milan: €264 m

A copy of the full report can be seen here.

After 118 years Barclays are saying farewell to pwc.

After getting to know each other 118 years ago in 1896 it’s looking like pwc’s relationship with the Barclays banking group is coming to an end.

barclaysBarclays has just released their 2013 Annual Report and the Report highlights that they are putting their audit out to tender and pwc will not be invited to tender.

They put this down to several reasons including being “mindful of investor sentiment regarding external audit firm tendering and rotation” and the fact that “2014 is likely to see new regulation in this area both from the UK Competition Commission (implementing its decision to mandate tendering at least every 10 years) and the European Union (requiring audit firm rotation at least every 20 years).”

Barclays is one of pwc’s major clients and the fees received by pwc were pretty significant.

In 2013 the total audit and non-audit fees paid to pwc by Barclays amounted to £45 million.

Interestingly, the non-audit fees paid to pwc represented 28.5% of the audit fee.

Allowable non-audit services are pre-approved up to £100,000, or £25,000 in the case of certain taxation services. Any proposed non-audit service that exceeds these thresholds requires the specific approval from the Chairman of the Audit Committee before pwc can be engaged.

Barclays said that during 2013 the Chairman of the Audit Committee scrutinised all such requests for approval, particularly those that concerned taxation-related services, and two requests for approval were declined.

Whilst losing the Barclay’s audit is no doubt a £45 million disappointment to pwc, it’s fair to say that the other accounting companies are looking forward to the opportunity of tendering for a £45 million audit.

Will this model mean you’ll drink less?

It’s one of the classic economic models. Changes in supply and demand can impact on prices but should you be interested in this model if you like to drink a glass of wine?

wineMorgan Stanley, the American financial services firm has released a report on global wine supply and demand. Assuming that you haven’t had too much wine to drink already today then it does make some interesting reading.

First of all, global wine consumption has generally been rising since 1996 and the current consumption is approximately 3 billion cases per year.

This consumption (demand) of 3 billion cases of wine compares to the current production (supply) of 2.8 billion cases of wine. Unless you’re now on your second bottle of wine of the day you’ll be able to work out that demand exceeds supply by 200 million cases.

The report by Morgan Stanley predicts that in the short term “inventories will likely be reduced as current consumption continues to be predominantly supplied by previous vintages”.

In other words, the shortfall between annual demand and supply will be satisfied by wines that were produced in earlier years.

Once this stockpile has been used though it will simply be a case of demand exceeding supply and we all know what happens when demand exceeds supply. Yes, prices will increase.

If you’re a wine drinker then you’re likely to be facing a more expensive drinks bill in the future.

Does it matter if the swimmers are naked or not?

During the summer holidays at university I was lucky enough to have a temporary job as a life guard at the local swimming pool. Thankfully there were no emergencies and the most exciting thing that happened was when a locker became jammed.

businessman-in-poolI graduated from university and now I’m an accountant. My job now involves looking at figures on spreadsheets rather than figures in the pool.

In Austria, the management of Vienna’s public swimming pools carried out a survey and found that bathers were consuming on average 5,000 litres of chlorinated pool water a day.

5,000 litres of water a day is a significant amount of water. Looking at this from a finance point of view this in turn means that this is a significant amount of cost in replacing the water. In addition, the authorities have to spend £20 per day to replace the chlorine that disappears with the water.

How come so much water is being lost? Surely the swimmers are not drinking the water and it would take an awful lot of splashing to lose that amount of water.

The answer is that apparently a lot of water gets removed from the pool via the material of the swim wear. When a person wearing Boardshorts for example leaves the pool 2.5 litres of chlorinated water is trapped in the material and is removed from the pool.

So, picture the scene. You’re an accountant at a sports complex and are attending a meeting to discuss cost saving initiatives for the year ahead.

Given the above findings then would a cost saving solution be to suggest that swimwear should be banned?

Now whilst this would save the cost of chlorinated water being replaced I think the number of swimmers would decline dramatically.

Importantly though I think they would save on the cost of your salary as you probably wouldn’t be in the job for much longer after that suggestion.

Fancy nipping down the pub for a quick pint and maybe grab a latte and a croissant?

When I was in my teenage years, pubs in England were a very distinctive place; dark, smoky, slightly smelly, overwhelmingly male and mostly shut.

A legacy of previous societal norms meant that women rarely went into pubs unless they were with men.

A legacy of World War One legislation meant that drinks could not be served after 10.30pm or 11pm.  This generally meant a few hours of seriously intensive binging from about 8pm to 11pm, mostly on two nights per week.

croissantThis state of affairs was not great for earning a commercial return.  Pubs often occupy prime sites at expensive rental.  Trying to recover the operating costs of a business when the assets are only utilised for 10% of the time is a challenge and a half.

The first marketing innovation was to make pubs far more female friendly.

Curtains over windows were abolished in favour of plate glass windows.  Pubs started to sell a choice of wines.  The smoking ban came in.

Women were far now more likely to go to a bar with friends because the environment seemed less intimidating.  Unsurprisingly, where groups of young women went, groups of young men followed.

Doctors worried about the effects of all this on the nation’s health, but the tills kept ringing.

Laws governing opening hours were relaxed a few years ago, with some predictable, but probably transitional, issues of overindulgence, as a nation used to nanny closing the bar at 11pm now continued to serve, as people continued to drink at the, erm, efficient rate the previous law had dictated.

JD Wetherspoon runs a chain of bars in the UK, mostly in sites that previously were not bars. Car showrooms are a particular favourite choice of location because of the big windows that attract passing impulse customers.

They have started to open their city centre bars early in the morning, in an attempt to attract an extra crowd.

Some chains have slightly different staff uniforms in daytime and the evening; pseudo-Parisian coffee bar by day; unfussy drinking den by night.

The result is that JD Wetherspoon claims to sell 400,000 breakfasts per week (only McDonalds are bigger, with 600,000).

A recessionary environment means that customers have become open to the idea of hanging out in Wetherspoons with a cheap latte instead of a more expensive option in Starbucks.  It has achieved this growth remarkably quickly, as it only started to open for breakfast last year.

It’s a wonderful example of innovative business change, asset utilisation and absorption costing.

So, what’s this all about? Are things changing? Is it a load of bear or a load of bull?

The major stock markets around the world have been bear markets for the last couple of years but with the end of the recession looking like it’s here we should soon see a switch to a bull market.

Analysts around the world will be arguing one way or another on the timing of the recovery but where do the terms “bear market” and “bull market” come from?

There are two main views on the origin of these terms.

The first view is based on the methods with which the two animals attack.  A bear for example will swipe downwards on its target whilst a bull will thrust upwards with its horns. A bear market therefore is a downwards market with declining prices whilst a bull market is the opposite with rising prices.

The second view on the origin is based around the “short selling” of bearskins several hundred years ago by traders. Traders would sell bearskins before they actually owned them in the hope that the prices would fall by the time they bought them from the hunters and then transferred them to their customers. These traders became known as bears and the term stuck for a downwards market. Due to the once-popular blood sport of bull and bear fights, a bull was considered to be the opposite of a bear so the term bull market was born.

Whatever the actual origin of the terms though I’m sure most people will be relieved when we return to a bull market.

Who earns the most out of the Top Gear presenters?

BBC Worldwide has just published its latest annual report and for any fans of the TV programme Top Gear there are some interesting figures.

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Top Gear is an incredibly successful TV programme. The programme which is so loved by car addicts around the world is the world’s most widely watched factual television programme and is shown in 174 territories. That’s pretty impressive and shows what a global success the programme has become.

It stars Jeremy Clarkson, Richard Hammond (the Hamster) and James May (Captain Slow) but who earns the most out of the 3 presenters?

It will probably come as no real surprise to find out that Jeremy Clarkson received the most last year.

Interestingly though the majority wasn’t from his salary but rather from dividends and a sale of shares.

5 years ago a company called Bedder 6 was set up with the aim to exploit the commercial opportunities of the Top Gear brand.

Top Gear Magazines, live shows and DVDs followed.

So who were the original shareholders of Bedder 6 when it was set up?

Well, the BBC was a 50% shareholder whilst Top Gear executive producer Andy Wilman had a 20% stake and Jeremy Clarkson had a 30% shareholding.

Alas for poor Hamster and Captain Slow the other 2 presenters didn’t hold any shares.

The recently released BBC accounts show that the BBC bought out the shareholdings of Clarkson and Wilman.

How much did Clarkson receive in total from the BBC last year?

He received a salary of £1 million, dividends of £4.86 million from Bedder 6 and £8.4 million for selling his shares in Bedder 6 to the BBC.

In total, he received £14 million from the BBC.

That’s not a bad amount is it?

To be fair to the guy though he’s been instrumental in building the Top Gear brand into a global success with millions of viewers around the world so arguably he deserves the financial rewards that go with it.

With that amount of money hitting his bank account in the last year though one thing he can definitely do is to buy any car that he wants.

Is it better to be loyal or disloyal?

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We’ve all heard of the big coffee chains such as Starbucks and Costa Coffee and with their growth over recent years it’s become more and more difficult for the smaller independent coffee shops to compete.

Over in Singapore though a novel approach to competing with these “coffee shop big boys” has just been introduced.

Lots of businesses have a “loyalty card” programme whereby people earn various points each time they spend money with a company. They can then use these points to buy various items with the company.

The giant Tesco supermarket chain for example has one of the largest loyalty card schemes in the UK whereby “Tesco points” can be used to purchase Tesco products. Most international airlines also have loyalty programmes such as Sky team and Star Alliance where the points earned can be exchanged for free flights.

Antic Studios, a creative agency in Singapore has just come up with a new concept and it’s a “disloyalty card”.

The aim is to help a group of 8 smaller independent coffee shops in Singapore develop.

The idea is that an individual picks up a disloyalty card at one of the independent coffee shops. If they then visit the other 7 independent shops they get their card stamped and can then return to the original coffee shop to claim their free drink.

It’s a novel way of smaller companies who are in effect in competition with each other joining together to create awareness of themselves and encouraging people to try them out instead of staying with the big guys.

Smaller competitors working together to create stronger competition against the big coffee chains – a nice idea and well worth discussing over a cup of coffee.

So are they top or bottom of the league?

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In most industries if a company had revenue of £153m and a wage bill of £174m there would be serious questions asked.

Manchester City are the current leaders of the Premier league in the UK and they have just released their annual financial results.

The figures show that as well as being top of the league in terms of football they are also bottom of the league in terms of their financial results.

Their income was £153m and their expenses £348m. The resulting loss of £195m is the largest loss ever reported in English football history.

A loss of £195m on sales of £153m would have alarm bells ringing for most companies but Manchester City have got wealthy investors.

Sheikh Mansour of Abu Dhabi has so far invested over £460m on players since 2008 and has plenty of cash to invest.

The European footballing body Uefa though have introduced “Financial Fair Play rules” which come into full effect in 2013-14 and require clubs to break even over three years.

The reason for this is that Uefa are keen to prevent football becoming a rich man’s toy and these new rules will prevent wealthy backers from simply throwing money at a team to make it successful without caring about the loss that arises.

After all, if you’ve got a personal wealth of several billion then what does the odd hundred million here and there matter?

Manchester City have stated that they are confident that they will achieve a break even position over a 3 year time period and one of their recently announced revenue streams is a lucrative 10 year sponsorship deal worth £400m with Etihad Airways.

Press reports though have pointed out that Etihad Airways is based in Abu Dhabi, the home of Sheikh Mansour who is a member of the emirate’s ruling Al-Nahyan family and questions have been asked as to whether the £400m sponsorship deal was higher than would normally have been the case and was simply undertaken at an inflated price to artificially reduce the loss to get to the required breakeven point.

As a lifelong supporter of Bristol City (struggling in the division below the Premier League) I sometimes question whether it’s good for the sport of football if only a handful of clubs get huge amounts of money pumped into them.

It’s worth noting however that I would of course quickly change my mind should a wealthy backer invest in Bristol City…

Are the young ones always smaller?

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I’m willing to bet that nearly all of you have used a Microsoft product. Probably an equally high proportion have used Google and a reasonably significant number of you will own an Apple product.

What about LinkedIn? Most of you have no doubt heard of it and a number of you will be registered with the website.

But did you know that Microsoft currently has one of 9.40, Apple has one of 13.61, Google has one of 20.30 and LinkedIn has one of well, … well, you’ll just have to wait a moment to hear the figure as it’s rather impressive.

So, what figures am I talking about?

The figures mentioned above refer to the PE ratio or the Price Earnings ratio.

In an attempt to astound you with my knowledge, the Price Earnings ratio measures… (wait for it)… the ratio of Price to Earnings (a round of applause please for that brilliant explanation).

In other words, the share price of Microsoft for example is such that the market is currently prepared to pay 9.40 times the earnings to own it.

The PE ratio is also sometimes known as the “price multiple”, “earnings multiple” or simply “multiple” and whilst share prices can be affected by a number of different things, a high PE ratio generally implies that the market is expecting earnings to rise in the future.

If we round up the PE ratios of the companies above we get:

Microsoft: 9

Apple: 14

Google: 20

That other tech giant on the market, LinkedIn currently has a PE ratio of 1,498 (yes, 1,498).

Wow – that’s not bad is it?

So hang on. A PE ratio this high implies that the market has factored in an expectation of significant growth in earnings for LinkedIn.

This really is an expectation of pretty significant growth as at the moment for every $1 of current earnings an investor gets he or she has to pay $1,498.

So, for the sake of the LinkedIn shareholders let’s hope that in the future more people become linked in.

Is this a children’s fairy tale or an adult horror story?

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Forget about the Eurozone crisis that is currently dominating the news and instead, here’s a nice bedtime story to tell your children…

So children, are you feeling tired and ready for your story?

Once upon a time, in a land far far away there was a man called Gordon Reece (or Mr G.Reece).

Now Mr G.Reece was enjoying himself in the sunshine when suddenly everyone in the world started feeling happy and some wealthy friends and banks offered to lend him as much money as he wanted.

Mr G.Reece shielded his eyes from the sun and shook his head in disbelief. He couldn’t believe it but he gladly accepted the loans and with all that money he decided to treat himself.

He bought some houses, cars and a new Sony Playstation.

He even employed a couple of people to help him keep his house and garden tidy.

Things were going well but suddenly people around the world started becoming unhappy and didn’t buy as many things as they used to.

Mr G.Reece suddenly realised he had spent all of the money he had borrowed and didn’t have any money left to pay the interest on the loans.

He had an idea though. He could surely just go to another bank and get a new loan so that he could pay the interest.

Alas for Mr. G.Reece the banks didn’t want to lend him any more money as they knew he couldn’t afford to pay them back.

He then had another idea. To reduce his outgoings he would get rid of one of his employees and pay the other one a lower salary.

His employees were so upset that they messed up his house and garden and told him that they would carry on messing up his house and garden until he reinstated the job and the previous salary.

He then suddenly remembered his wealthy friends that had lent him money (a Mr F.Rance and Mrs G.Ermany). He gave them a call, explained the situation and they kindly agreed to write off some of the debt he owed them and also gave him a bit of cash to help him through the next few weeks.

His interest payments were now lower which was good but he was still struggling to pay the interest and the wages of his employees.

He decided that maybe this time he should actually go and visit his wealthy friends Mr F.Rance and Mrs G.Ermany and persuade them to write off even more of the debt and maybe give him some more money.

He jumped on a plane and headed to see them. He was feeling fairly positive when he arrived to meet his wealthy friends but then his face suddenly dropped.

There, heading to see the wealthy friends were none other than Mr P.Ortugal, Mrs S.Pain and Mr I.Taly. Three of his poorer friends who were also hoping to be given some money.

The problem though is that the wealthy friends don’t have enough money to give to all of the poor friends.

So children, what can they do?

Well, it’s time to go to sleep now kids and the story will be continued another night so sleep well, sweet dreams and don’t have any nightmares…

Sorry to break the news to you but Christmas is cancelled…

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3 years ago in the middle of the financial crisis when some of the best known banks in the world were on the verge of collapsing, the Royal Bank of Scotland (RBS) was rescued by the British tax payers to the tune of £45 billion.

Since then the bank has been under a lot of scrutiny. Not just from the point of whether it would survive but also when it would turn things around so that the business became profitable and the tax payer would start to get their money back.

Along with lots of other companies that have suffered in the crisis, RBS has undertaken a cost cutting exercise over the last couple of years.

Chris Kyle, the CFO of the Investment Banking division of RBS yesterday announced some additional cut backs to his staff.

An internal memo to his staff told them amongst other things that:

– No-one will be given a new Blackberry phone or other handset.

– There will be no magazine or newspapers subscriptions (I guess this now means that they won’t be able to do the daily FT crossword over morning coffee in the office)

– People working late in the office will not be able to claim a taxi expense to take them home unless they are working past 10pm (it used to be a 9pm cut off)

The bank has also banned all staff entertaining for the rest of the year so there will be no bank funded Christmas party for the RBS investment bankers and instead the bankers will have to pay for their office Christmas party themselves.

Now, whilst some people will think this is good cost control some others may feel that this is just “window dressing” to give the impression that the investment bankers’ excessive remuneration and benefits are being stopped.

Some of the RBS employees may well be a bit upset about having to pay for their Christmas party but last year over 300 key staff within the bank reportedly shared a bonus pot of £375 million which equals an average bonus of over £1.1 million each.

I guess these particular individuals are quite relaxed about buying their own Christmas drinks…

Can I have a skinny latte, a blueberry muffin and a corporate loan please?

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One of the real challenges facing a lot of companies at the moment is access to funds.

The economic turmoil over recent years has led to the loan markets largely drying up and without access to suitable cash reserves a number of firms have hit cashflow problems and have gone out of business.

Similarly, a lot of businesses that have wanted to start up in the recession haven’t had access to loan funds to enable them to do so.

The end result is that jobs have been lost.

The global coffee chain Starbucks though think that they may have an answer to some of the funding problems.

They have just launched a campaign to try to stimulate job growth in America by launching a “Create Jobs for the USA” initiative.

They are partnering in this initiative with Opportunity Finance Network (OFN), a group of private financial institutions that provide affordable loans to certain parts of the American population including low-income people and communities.

As well as donating $5 million to get the project off the ground Starbucks are also covering the admin expenses of OFN as well as paying for the manufacture of wristbands which will be given to any of their customers who donate $5 in one of their coffee shops.

Starbucks Chairman and CEO Howard Schultz said “Small businesses are…employing more than half of all private sector workers – but this critical jobs engine has stalled. We’ve got to thaw the channels of credit so that community businesses can start hiring again.”

100% of the donations made will go to OFN to help fund loans to community businesses including small businesses, microenterprises and nonprofit organizations.

Starbucks themselves though have also been a victim of the recession with several hundred stores being closed in the US alone in recent years and some sceptics may argue that this is just a PR initiate by them.

My personal view though is that if this initiative helps to create jobs then it can only be a good thing.

Are you a better negotiator than your child?

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Although the recession that has hit many countries around the world appears to be coming to an end, there are still millions who are impacted by pay freezes and higher prices.

It was recently announced however that one particular segment of the population has seen some good news this year.

For the first time in 7 years, “pocket money” given to children by their parents has increased.

The annual Halifax Bank pocket money survey results have been released and it’s good news for children.

This year, the typical child in the UK receives pocket money of £6.25 a week. This works out as an extra £18.72 a year and is a 6% increase on the previous year.

There were some interesting findings in the survey.

For example, there is a difference between the amounts that boys receive compared to girls. Boys now receive an average of £6.41 a week which is 32p more than the average for girls.

Just over 50% of the children polled believe they receive the right amount of pocket money whilst 43% of the children think they deserve more money (some interesting wage negotiations are no doubt ahead for these 43% when they start working as an adult!)

A total of 1,202 children aged between eight and 15 across the UK were questioned as part of Halifax’s research.

Flavia Palacios Umana, head of savings products at Halifax, said: “It is encouraging to see the amount of pocket money children receive has increased from last year, this gives kids the chance to save their money as well as spend it … teaching children important financial life lessons by using pocket money will quickly give them understanding of basic financial issues and more important the consequences associated with making and spending money.”

Is this a sign that the recession is definitely over or is it a case that children have become better negotiators with their parents?

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You’ve heard of the iPhone but what about iMerica?

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$75,876,000,000 is a lot of cash. But who does it belong to?

We blogged recently about Apple’s latest set of successful results but if you look into the figures you’ll see a staggering amount of cash that they hold.

Cashflow is a key factor for most businesses but by anyone’s reckoning $76 billion of cash is a hefty amount that will cover most eventualities.

Apple are reportedly holding onto the money for potential big ticket acquisitions but if you look at the latest market capitalisations of some well known companies on the London Stock Exchange then you can see what Apple could buy with their cash of $76 billion (£47 billion).

For example, they could purchase ALL of the following household names with cash:

BSB (Sky TV) (market cap = £14.8bn)

Burberry (£6.2bn)

Sainsbury (£6.1bn)

Marks & Spencers (£5.7bn)

Ryan Air (£4.7bn)

Next (£4.2bn)

Pfizer (£4.1bn)

Easy Jet (£1.5bn)

So, without taking out any loans or raising any additional funds Apple could buy all of the above.

These are phenomenal amounts of cash that they are holding.

They even have so much cash that they currently have more cash at hand than the US government!

According to the US Treasury, the total operating balance (in effect the amount of money the US government can spend before it hits their debt ceiling) was $74 billion. This is $2 billion less than the cash that Apple has at hand.

So, Apple has more cash than the US government. Will we shortly be seeing a picture of Steve Jobs on the one dollar bill?

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Get rid of the Michelin star and you’ll be a better restaurant…

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Running a successful restaurant is tough.

Whilst a good restaurant can me it look easy, there are a lot of things you need to get exactly right to be successful. Everything from the ingredients, the menu, the chef, the ambiance and the waiting staff have to be just right.

Plus don’t forget that it’s a very competitive industry with new restaurants popping up all the time.

Perhaps one of the best differentiators a restaurant can hope for is to earn the renowned Michelin star. This award it only given to the most elite of restaurants.

As with a lot of businesses that adopt Porter’s generic strategy of differentiation, creating differentiators comes at a cost.

La Lisita restaurant in the French city of Nimes is run by top chef Olivier Douert and received its first Michelin star in 2006. It has however just done something that many people would consider unthinkable.

Namely, they have voluntarily given back their Michelin star and reverted to a “standard” restaurant.

Surely this is commercial suicide?

Giving up the most prestigious award a restaurant can achieve can’t help the restaurant, can it?

In fact though they may well be better off as a result.

The restaurant has given up the star so that they can reduce their costs to a more reasonable level. There are several requirements for having a Michelin star. These include having a minimum ratio of one waiter for every five to six customers compared to a standard restaurant where the ratio is closer to one waiter for every twenty customers.

It was proving difficult for La Lisita to recover these additional costs as higher spending customers weren’t visiting as often as they were before the financial crisis so they decided to drop the star.

They are still planning on serving great food but under a slightly different model.

Could this be the first of many restaurants that obtain the Michelin star to prove that they can but then revert to a different model to make more money?

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Would you criticise me if I spent ALL of YOUR bonus on alcohol?

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One of the ways that governments around the world have tried to kick start the economy during the recent recession has been through the reduction of interest rates.

10 years ago the Bank of England base rate was 11.38%.

Today, the current rate is 0.5%.

If individuals have variable rate loans or mortgages on their home and the interest rate falls, their interest payments will also fall.

As a result these people will have more money in their bank account and in theory this additional money should make them feel more relaxed about buying goods. If these additional goods are purchased then the economy is stimulated.

Lower interest rates may also encourage individuals and organisations to take out new loans. This money can then in turn be used to buy products which again should stimulate the economy.

Now, whilst low interest rates are good for people that are borrowing money, they are not so good for people who are investing money and looking to receive interest on the cash they’ve invested.

Certain parts of the population are more reliant on interest received as part of their income than others. Pensioners for example, who are no longer working can be hit particularly hard as they often rely on interest income.

I’ve just had a quick look at the internet bank Egg.

Egg was established in 1998 and 4 years ago was bought by Citigroup (Citi). It’s one of the top internet banks around and offers good interest rates when compared to some of their competitors.

But what sort of interest rate do you get?

The Egg site today includes the following text:

“Egg Savings Account – watch your money GROW.

Get 0.60% gross pa/AER variable and watch your savings grow.

Includes a fixed 12 month introductory bonus rate of 0.10% gross pa/AER from the date your account is opened on balances from £1 to £1 million.”

The accountant in me likes to play with figures so let’s just think about this for a moment.

If you open an account with Egg with a £1,000 deposit, after the first year you’ll receive a bonus of £1.

Yes, a whole £1.

My favourite drink is London Pride beer and a pint will set me back £3.50.

Just think, in one year’s time if I invested £1,000 in the Egg savings account I could blow the bonus on just over a quarter of a pint of beer.

Then again, I couldn’t actually buy a quarter of a pint as I’d have to pay tax on the £1 bonus received…

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Are they really going to get their money’s worth for $8.5 billion?

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What was founded 8 years ago by 2 entrepreneurs and was last week bought by Microsoft for $8.5 billion?

Little did Swedish entrepreneur Niklas Zennstrom and his Danish colleague Janus Friis realise that the Skype product they introduced back in 2003 would be worth a mighty $8.5 billion 8 years later.

Skype, whose name comes from the abbreviation of the initial project name of “Sky peer-to-peer” has turned into the most successful online voice and video phone service.

It has over 650m users with the vast majority of users only use the free call facilities.

Even allowing for its success in terms of the numbers that use it, it’s still a pretty hefty amount that Microsoft paid for it.

If you look at the history of the company you’ll see that Zennstrom and Friis founded it in 2003, it was then purchased by eBay for $3.1 billion in 2005 in the anticipation that it would be integrated into their online auction site to help people negotiate over their purchases.

This wasn’t a huge success and eBay cut their losses when they sold it 4 years later to a group of investors with the company valued at $2.75 billion.

The investors that bought it from eBay though have done pretty well.

With Skype being valued at $2.75 billion in 2009 here we are 2 years later with Microsoft buying it for $8.5 billion – a pretty healthy return of approximately 300% over a couple of years.

If you look at the figures behind Skype then some people will argue that Microsoft have paid over the odds for Skype.

In summary, the latest reported annual figures for Skype are:

Sales: $860 million

Profit (eh, actually it’s a loss): ($7 million)

Amount Microsoft paid for it: $8.5 billion (or $ 8,500 million)

So, Microsoft paid $8,500 million for a company whose most recent reported annual results showed a loss of $7 million.

These figures clearly show that Microsoft are hoping to create a lot of value from the acquisition of Skype and possible integrations discussed include using Skype within Microsoft Outlook and their computer game XBox.

This is a big amount of money to recover though and only time will tell whether the largest acquisition in Microsoft’s history will turn out to be a good call or not.

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I trust the Sugar trader but not the salt trader…

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At the core of many businesses is the relatively straightforward concept of “trading”. In simple terms you buy an item for a certain price and then sell it for a higher price.

A slightly more complex version is where you buy individual components, get them assembled into a new item and then sell the newly constructed item for a higher amount than the sum of the individual parts.

I’ve just finished reading the autobiography of Alan Sugar, or Lord Alan Sugar to give him his full title.

It’s an excellent and inspirational read.

For any of you outside of the UK that haven’t heard of Lord Sugar he’s a “rags to riches person” who through a combination of hard work and good ideas created various very successful business empires. He’s also the star of the hit TV show “The Apprentice”.

I personally feel that Lord Sugar is a role model for business men and women around the world and people can learn a lot from him.

At the other end of the spectrum though is Mr Guo from Wuhan in China.

Unlike Lord Sugar, Mr Guo showed a complete lack of ethics, research and business acumen. Following the terrible tragedy of the recent earthquake and tsunami in Japan, Mr Guo decided to purchase 6.5 tonnes of salt.

His purchase decision was made on the basis of rumours that were spreading in China that the iodine in salt would help prevent any radiation sickness from the disaster at the Fukushima nuclear plant. He was expecting the price of salt to increase so arranged for 3 truckloads of salt to be delivered to his apartment in the expectation of selling it at a high price to people that were desperate to avoid radiation sickness.

Alas for Mr Guo the Chinese authorities announced that Chinese residents would not be affected by any radiation from Japan and the salt wouldn’t help.

The end result was that salt prices didn’t increase.

It gets worse for Mr Guo though.

Apart from the salt prices stabilising, he has been told that it will be illegal for him to sell the salt as he doesn’t have a receipt for the purchase.

The end result is that the unsuccessful trader is currently sat in his apartment accompanied by 6.5 tonnes of salt.

Perhaps Mr Guo should buy a copy of Lord Sugar’s book?

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What’s the link between the London Metal Exchange, a little old lady and Armenia?

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If you have some friends that are normal in most ways apart from a strange interest in different types of metals then head over to the website of the London Metal Exchange (LME) to get hold of some information to impress them.

The LME was established over 130 years ago and is the world’s premier non-ferrous metals market offering a range of futures and options contracts for metals.

Dig a bit deeper into the site and you’ll find some background on copper.

According to the LME, copper was first traded on the Exchange back in 1877 and was “the first mineral that man extracted from the earth and along with tin gave rise to the Bronze Age. As the ages and technology progressed the uses for copper increased.

Copper is an excellent conductor of electricity, as such one of its main industrial usage is for the production of cable, wire and electrical products for both the electrical and building industries. The construction industry also accounts for copper’s second largest usage in such areas as pipes for plumbing, heating and ventilating as well as building wire and sheet metal facings.”

I’m not sure any of this was on an elderly Georgian Lady’s mind this week when she was digging in the ground for copper to sell for scrap.

The 75 year old had been digging near the capital of Tbilisi when her spade damaged a fibre-optic cable. This cable was quite an important cable as it in effect provided 90% of the internet access for Georgia’s neighbouring country of Armenia.

The end result of this 75 year old lady’s action was that 90% of the web users in Armenia’s 3.2 million population were unable to access the internet for 5 hours. This Grandmother’s spade had cut through the cable and in essence, internet connectivity for a whole country was lost for the majority of the working day.

On Friday, copper prices were up 2% and the three-month copper prices on the LME closed at $9,875 per tonne, its highest in more than a month.

This spike in prices is reportedly nothing to do with a shortage of copper due to the little old lady being arrested and taking a break from her copper digging…

I’ll have two beers, some peanuts and 50 shares please…

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Fancy having a drink of beer and getting some shares in the company as well?

Well, if you’re in Australia that is exactly what you can do at the moment.

Taking a novel approach to raising finance the Australian beer brand Broo is currently offering free shares with purchases of their beer.

Consumers need to purchase between one and fifty cartons of Broo via their website for AUD 54.99 each (approximately £35) and then they are entitled to get 10 free shares in the company for each cartoon.

The company is hoping to give away up to 10 million shares and these will be shares with full voting rights so it’s definitely more than a PR exercise.

The share prospectus can be found here but shares are only available to Australian residents who have until the end of the month to apply for them.

If you’re a heavy drinker then you won’t become the major shareholder in the company as the maximum number of shares each individual can get is 500.

All in all this seems a great idea by the company. Drinking beer and investing at the same time – sounds like a nice strategy!

Just how many mines are there in London and Toronto?

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It’s Valentine’s Day next Monday and love appears to be in the air as far as stock exchanges are concerned.

Last year, the Australian and Singaporean stock exchanges announced plans to merge.

Earlier today the London Stock Exchange and Toronto Stock Exchange announced that they had formally agreed to merge and Deutsche Borse and NYSE Euronext, two of the world’s largest stock exchange operators, have now just disclosed that they are in “advanced merger discussions”.

Wow – it’s all happening on the exchanges.

If you look at the transatlantic merger between the London and Toronto exchanges then the merger has been valued at an impressive £5.5 billion.

It has been presented very much as a “merger of equals” and not a takeover (although the London Stock Exchange shareholders will get 55% of the newly created entity).

The new entity will have its headquarters in both London and Toronto and whilst some people may say that having two headquarters is a bit of a “cop out”, it does avoid the accusation that one organisation has taken over the other.

There will of course be an interesting internal discussion about where THE boardroom will be located. The more likely situation though is that they will have two boardrooms, one in London and one in Toronto.

Either way the new enlarged entity will certainly become a dominant player. It will have over 6,700 listings and will become the largest exchange in terms of companies traded with an aggregate market capitalisation of approximately £3.7 trillion.

Mining companies will also no doubt be interested as the Toronto exchange claims to be the world’s leading resources market and approximately a third of the companies in the FTSE 100 Index (the 100 largest companies on the London Stock Exchange) are from the mining and energy sectors.

The proposed benefits of the merger include anticipated annual savings of £35 million by the second year of the merger.

Whether they could save more by only having the one boardroom table is a separate discussion point.

The flight is cheaper than a single piece of paper…

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Ryanair is Europe’s largest low cost airline.

Their strategy is very much based on cost leadership and is a classic “no frills” approach on the strategy clock model.

In simple terms you don’t pay a lot for the service but at the same time you don’t get a lot. This approach can be very successful when comparing for example to another extreme where you pay a lot but don’t get a lot!

It released its results for the final quarter of 2010 today.

Air traffic control strikes and the bad weather in December were blamed for the Euro 10 million loss that was reported although the company is still confident of achieving full year profits of between Euro 380 million and Euro 400 million for their year ended 31 March 2011.

The average fare during the last quarter was reported as being Euro 34 and this will get you the flight and that’s about it. Extras which require additional payment include taking hold luggage, payment by credit card and seat allocation.

Their whole ethos is to minimise their costs. For example, they have a pretty aggressive policy when it comes to boarding passes.

Their terms and conditions state that passengers must print out their boarding pass at home. If they fail to do so and need one printed out at the airport then Ryanair will charge the passenger £40 to print the one piece of paper.

£40 to print a single piece of paper is pretty high but Ryanair argue that if passengers print out the boarding pass at home then it saves the cost of employing check in staff at the airport.

They have reported that people who forget to print out the boarding pass and are subsequently charged £40 remember to print it the next time.

Of course, it could be that if they’ve been charged £40 for printing one piece of paper then “next time” may well be with another airline as opposed to Ryanair.

You can raise your profile on LinkedIn but will LinkedIn raise $175 million?

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The professional networking site LinkedIn yesterday announced plans to raise up to $175 million (£110 million) by way of a public offering.

Many of you may well be members of LinkedIn and in terms of registered users it has been very successful since it started back in 2002.

Financial information about the company though has historically been difficult to obtain as such information was kept away from the public domain.

The IPO document released yesterday however provides some interesting figures.

For example, LinkedIn gains a new member every second and now has more than 90 million total members worldwide.

Although the majority of LinkedIn users are subscribers that sign up for the free version the company does generate significant income. It was able to double its 2009 revenues to $161 million in the first nine months of 2010. The $161 million can be broken down as follows:

  • Hiring solutions (job listings): $66 million (41% of revenue)
  • Marketing solutions (advertising): $51 million (32% of revenue)
  • Premium subscriptions: $44 million (27% of revenue)

2010 was the first year that LinkedIn was profitable with a net income after tax of $10 million.

Cash at hand as at 30 September 2010 was $90 million whilst total assets were $197 million.

The IPO document also has to provide details of shareholders with more than a 5% stake.

The founder and chairman, Reid Hoffman owns 21.4% of the company together with his wife whilst 3 venture capital firms own approximately 39% between them.

The shareholders should do very well out of the IPO and indeed Mr Hoffman is no stranger to successful e-businesses having previously been an executive at PayPal.

If you’ve got a relaxed day at the office and a love of detail then the full document submitted to the US Securities and Exchange Commission can be found here.

I’m sorry madam but it’s not in stock. Just press that button though and…

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Luxury fashion house Burberry has just announced a 36% increase in retail sales in the final quarter of last year.

Their shops in Asia Pacific, the Americas and Europe all reported double digit sales growth.

This is pretty impressive given that the economy is still facing turbulent times. So what’s behind the success?

One of the main drivers of this growth is China and in particular the growth in the Chinese luxury market.

Last year, Burberry acquired 50 stores in China from their Chinese franchise partner and seem to have been making the most of having them fully back “within the family”.

One of the key strategic issues facing fashion retailers is “merchandising”. In other words, making sure that the right clothes are in the stores at the right time.

There is always a balance between having money tied up in high inventory levels versus ensuring that shoppers have the item that they want to buy in stock.

Burberry reportedly have had some issues in the past when they were operating with very lean levels of inventory in some of their shops.

This meant that if people went shopping at a Burberry store and saw something they liked but found it wasn’t in stock then the chances were that they wouldn’t come back another day to buy it.

The end result was a lost sale.

The company seems to have better control of their inventory levels now and they have also piloted a new digital store format in Beijing.

If the item isn’t in stock in the shop then the customer can quickly get access to an in-store iPad and purchase the item online for home delivery. A relatively simple but effective way of trying to make sure the customer doesn’t walk out of the shop without making a purchase.

How many sandwiches can a stockbroker in Hong Kong eat in 2 hours?

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What did you have for lunch today? Did you manage to get out of the office or did you grab a quick sandwich at your desk?

If you’re a stockbroker working at the Hong Kong stock exchange then the chances are you had a rather nice long lunch.

The Hong Kong stock exchange has one of the shortest “opening hours” out of the major stock exchanges.

It is open for business 4 hours a day and also enjoys a rather pleasant 2 hour lunch break.

It also does fairly well when looking at the opening hours of the other major stock exchanges around the world:

  • London, Paris and Frankfurt – 8.5 hours
  • New York – 6.5 hours
  • Australia – 6 hours
  • Tokyo – 4.5 hours

For anyone that has lived or worked in Hong Kong this may come as a bit of a surprise as it’s one of the busiest most frenetic cities in the world.

Alas, it seems that their 2 hour lunch break is now under threat.

A consultation paper has recently been issued and it is raises the proposal of:

  1. Starting half an hour earlier at 9.30am (surely it’s virtually impossible to have a nice breakfast if you have to be in the office at 9.30?)
  2. Reducing the lunch break from 2 hours to an almost impossible to fit in a 3 course meal and a bottle of wine timescale of 1 hour.
  3. Luckily there are no plans to change the closing time of 4pm so the brokers will at least have a reasonable time to get ready for dinner.

The arguments in favour of adjusting the opening hours are to enable it to tie in with the mainland Shanghai exchange opening hours.

In what can only be described as “hardly the surprise of the century” it was reported that 70% of the Hong Kong Securities Professionals Association members that were asked their opinion on the proposals felt that the 2 hour lunch break should remain.

Closing for lunch isn’t something that you find in the majority of stock exchanges elsewhere around the world.

If for example you wanted to get the views of somebody from London who had actually experienced the London stock exchange closing for lunch you’d have to find a very elderly broker. The London Stock exchange last closed for lunch 60 years ago in 1950.

A bank run? Don’t worry, it’s only a bit of fun…

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It hardly seems possible that the bank run on the UK bank Northern Rock happened over 3 years ago but last week some people thought that there was a similar run on the Spanish bank BBVA.

A bank run occurs when a large number of people with deposits at a particular bank head to branches of the bank to get their money out as quick as possible.

It often follows a rumour about problems with the bank and can lead to a self fulfilling prophecy.

Large numbers of people withdraw money. This can cause liquidity problems at the bank which in turn causes more concern which leads to more people rushing to withdraw their money which leads to liquidity problems with leads to….. and so on until a vicious circle develops.

A bank makes its money from lending.

If it just keeps depositors money without using the deposits to generate revenue by for example lending to borrowers then the bank is in effect just a safe deposit box for the deposits.

In the great depression of the 1930s sudden withdrawals by panicky depositors caused liquidity problems to such an extent that a number of healthy banks were forced to close.

Nowadays, as long as the bank is solvent, any short term liquidity problems should be resolved by borrowing cash from its central bank as a “lender of last resort”.

Bank runs can still happen though and last week the queues of people outside of BBVA bank in Madrid caused rumours that resulted in the share price falling sharply.

It took a while for the markets to identify what was going on and it wasn’t so much a bank run that was causing the queues but rather a “fun run”

There was a 10km fun run sponsored by BBVA and joggers were queuing up to get their race numbers and t-shirts from the bank for the run on the Sunday.

Unfortunately rumours quickly spread around the financial markets that there were large queues outside the bank and in the jittery post financial crisis atmosphere the share price plummeted by nearly 4%.

Luckily a hour or so later the markets realised that the bank withdrawals were race t-shirts rather than cash and the share price recovered.

Finally, to test your knowledge of the financial markets there are two pictures in this blog entry. One shows a bank run whilst the other shows a fun run. Can you tell the difference…

Don’t worry about the £117 million you can’t find. Instead, just go on a nice long holiday…

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Paul Bowtell, the CFO of Europe’s largest travel company TUI Travel will soon be able to go on a very long holiday.

TUI recently announced that Mr Bowtell will leave the company at the end of the year.

Why is this I hear you ask?

Put bluntly, the reason is that he messed things up in a big way when he was in charge of the finances of the company.

TUI stated that they would be writing off £117 million of “irrecoverable balances” and restating their prior year financial results.

£117 million is a significant write off in anyone’s books. The share price of TUI fell by over 10% as a result.

It also highlights one of the challenges faced by organisations that merge.

The write down originates from “failures to reconcile balances adequately in legacy systems in the retail and tour operator businesses in TUI UK”. In other words, back in 2007 when TUI merged with First Choice Holidays they had to integrate different systems and simply didn’t manage it.

Questions have got to be asked as to why they couldn’t reconcile the systems. After all, given there’s been a recession on for a few years there must have been a few IT consultants available to work on the reconciliation of the systems and who would have charged a lot less than £117 million.

Mergers often have problems with integrating areas such as the culture of the companies but it’s clear now that the integration of these IT systems has also been far from easy. Being unable to reconcile £117 million makes for a spectacular suspense account.

Publicity around mergers tend to focus on their advantages, real or perceived, but the behind-the-scenes work that has to be done can be substantial.

It no doubt proved to be a real headache for Mr Bowtell. For his sake we hope that this will prove to be the biggest write off he has to oversee in his career.

Was it a good bet or not? 10 years and £1.4 billion later and the answer seems to be…

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Although people have been gambling for a long time, the profile of the betting industry has changed dramatically over recent years.

The bookmakers that were seen on many a high street seem to be gradually disappearing.

People are still gambling though but the delivery method of the industry is switching to internet based gambling rather than placing bets at a physical bookmakers.

Ten years ago former professional gambler Andrew Black and former JP Morgan trader Edward Wray started up a betting business that addressed matters in a new novel way.

For years the typical approach to gambling had been where a bookmaker set the odds and it was up to the individual gambler whether or not he or she accepted these odds and placed the bet.

Betfair pioneered the concept of person to person betting whereby individuals bet against each other rather than the bookmaker. Betfair provide the platform for the betting and take a commission on each transaction.

A gambler will say that they want to bet on a certain event happening (or not happening) and if another gambler wants to accept the bet then the transaction goes ahead. Betfair provide the mechanism for this to happen.

This is known as a betting exchange and is a great example of where first mover advantage really counts.

In order for the business model to work there has to be a critical mass of gamblers that are willing to offer and accept bets. Without this critical mass the business simply would not work.

Another example of where first mover advantage has been critical to business success is in online auctions. After all, who are the main competitors to eBay?

Back to Betfair though and it certainly is a good business model. Risk for example, is nicely reduced as the company is not standing to lose on the bet but instead takes a nice commission on each transaction.

So how well has it done over the last 10 years?

The answer to this can be found last Friday when 15% of the company was floated on the London stock market and the company was valued at £1.4bn.

Betfair’s advisors were some of the biggest names in the business and included Goldman Sachs, Morgan Stanley and Barclays Capital to name a few.

Amongst other things their job was to identify the price range of the proposed offer. Initial indications were that it would be between £11 to £14. The final initial public offering (IPO) price was set at £13.

With some of the top investment bankers involved and Betfair being in the gambling industry (which is not necessarily renowned for being generous to gamblers) it was something of a surprise to some people to see the share price rise by nearly 20% in the first day of initial trading after the IPO. After all, this could imply that the IPO was undervalued if there was such an initial jump in price.

I wonder what odds you would have got from Betfair that the IPO share price would rise by 20% on the first day of trading?

Get out your sketch pad if you want to overcome a barrier…

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If an organisation can create a successful barrier to entry then it will have a great competitive advantage.

In simple terms, a barrier to entry can prevent competitors entering the market.

We’ve blogged before about a good example of a barrier in the Indian telecommunication market but a recent attempt to create a barrier by Southampton Football Club in the UK was met by a truly artistic response.

Southampton FC decided that they would try to boost their income by preventing any non Southampton FC photographers from taking photos of their match with Plymouth Argyle.

This barrier meant that the only photographers present were official Southampton FC photographers and hence any photos of the match would have to be purchased from the official agency. A nice revenue source for the club.

Ignoring the rights and wrongs of this in terms of impact on other clubs and setting a precedent, this is indeed a pretty tough barrier to overcome.

Understandably upset at having to pay for photos of their local team, the Plymouth Herald newspaper approached well known local artist Chris Robinson.

Chris watched the match on television and then drew “comic strip style” pictures of the football action which were then published in the paper instead of photos.

As you can see, the results were pretty impressive.

It also resulted in a pretty unusual answer to the question of “How do you overcome a barrier to entry”.

The answer now includes, “Draw some cartoons”.

Do you own a iPhone or is it a Hiphone, an Ephone or a Ciphone?

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On Saturday Apple officially launched the iPhone 4 in China. They also opened up two new flagship stores in Shanghai and Beijing.

China is the world’s largest mobile market with more than 800 million subscribers so it would seem to make sense that Apple sell their products there.

Why has is taken them so long to launch the iPhone 4 in China though? After all, the iPhone 4 was originally launched in the US back in June and in countries such as Australia, Netherlands and Singapore in July.

The handsets themselves are manufactured in China so it’s not as though they haven’t had any experience of doing business in the country.

There are various reasons why companies have phased product roll outs in different countries. The sheer scale of a “global launch” for a company like Apple would be extremely challenging. Having sufficient inventory in stock on global launch day would not only be a logistical nightmare but would probably be physically impossible.

An additional challenge for Apple is that they need to agree matters with their strategic communication service providers in each territory (in other words, the mobile phone operator they will be partnering with in each particular country). This also takes time.

Anyway, from now onwards we’ll be seeing the iPhone 4 in China but anyone that has been to China recently though could be forgiven for thinking that the iPhone 4 has already been in the country for a while.

A significant issue for Apple is the increase in the number of iPhone clone companies.

As well as clone companies that produce illegal fake copies of the phone there are also businesses that produce reasonable quality phones which are very similar to the iPhone. They are designed so that they try not to break any patent protection that Apple has set up. I’m sure though that Apple’s patent lawyers are monitoring these products very closely!

A quick search on the internet for example shows websites selling products such as the HiPhone, the Ephone and the Ciphone. With prices starting at less than $100 there will be a significant number of people opting for these items.

Oh, and in case you were wondering the photo above is of the Hiphone.

If you go to the bank today be careful in case you Kop some abuse for being a toxic asset.

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On Saturday Wayne Rooney the England and Manchester United footballer was dropped for the game against Everton.

According to the Manchester United manager Alex Ferguson, he was dropped so that he wouldn’t have to endure excessive abuse from the Everton fans (whilst the married Mr Rooney has recently gone through a barren patch of scoring on the pitch he was reported in the press last week as having scored off the pitch with a number of prostitutes).

So, the Everton supporters didn’t have the opportunity to direct their witty chants towards Mr Rooney.

The Accountants amongst the Everton supporters though must now be looking forward to when they play their neighbours and fierce rivals, Liverpool.

Last week it was reported that Liverpool FC’s loan with the Royal Bank of Scotland (RBS) had been reclassified and moved to RBS’s toxic debt division. In other words the £260 million loan is now within the “bad bank” part of RBS which was created to put all their toxic assets from the recent worldwide financial crisis.

Even though RBS were reportedly getting £1million interest per week on the loan it is now considered clear that they have severe doubts over whether they will get their money back.

We blogged a couple of months ago about the going concern risk with Liverpool FC and this latest news can only add to the excitement.

One thing’s for sure though and the toxic debt division of RBS won’t be very sympathetic with Liverpool and will be looking to recover their money as soon as possible. A quick sale of the football club at a knock down price is expected.

Now, all you accountants in the Everton crowd get your singing voice ready and altogether “You’re toxic and you know you are, you’re toxic and you know you are….”

Hair today, gone tomorrow? It’s certainly a risk for Procter & Gamble.

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As one of the best known and most successful companies in the world Proctor & Gamble certainly know a thing or two about branding. It also seems that they are pretty switched on when it comes to risk.

Over in the States, American Football is huge. One of the most well known players is Pittsburgh Steelers player Troy Polamalu.

Anyone that has watched a game that he has played in will instantly recognise him. He has very distinctive hair.

He is of Samoan descent and has not cut his hair for 7 years. Far from being in bad condition though his hair is in excellent condition and his flowing locks would no doubt make many a woman jealous.

P&G make the famous Head & Shoulders shampoo and when deciding on a suitable person to promote the product settled on Polamalu. If you’re interested you can even play a Polamalinator game here.

No details have been disclosed of how much he’s been paid for the sponsorship deal but it’s no doubt a significant amount.

Successful, healthy, sporty and a sex symbol to a lot of women in America meant that he was the ideal person for promoting Head & Shoulders and the return was no doubt there.

“Risk and Return” is an issue that is involved in all major decisions within business. Whilst the return is there with Polamalu what about the risk?

P&G seem to think that one of the risks is in the loss or damage to his famous hair. They announced earlier this week that they had just insured his hair for $1 million. Apparently if Polamalu loses 66% or more of his hair during the next 7 months then Lloyds of London insurance will pay out $1 million.

So, the branding works well. Risk seems to be covered but what about the legal aspects? Did anyone check the small print to the contract as to whether a haircut is allowed during the next 7 months? I hope so otherwise it could very well be the most expensive haircut in history.