Category: Management

The UK’s Modern Industrial Strategy

The UK Government has published its Industrial Strategy – see https://www.gov.uk/government/collections/the-uks-modern-industrial-strategy-2025 .  It claims the Industrial Strategy is a 10-year plan to increase business investment and grow the industries of the future in the UK. It says the Strategy will make it quicker and easier for business to invest and will provide the certainty and stability needed for long-term investment decisions, but this is mainly hogwash.

With politics in such chaos at present (it is uncertain who might win the next General Election) betting on stability in government would be rash. But it might be worthwhile to skim the executive summary. The document is short on specifics although it does point to certain things that the government intends to tackle – such as the burden of regulation, the speed of planning, the high cost of industrial electricity and the reduction in regulatory burdens to speed innovation – previous governments have had such objectives but have conspicuously failed to achieve them. Why? Because the political leadership has been weak and the civil service has been adept at resisting change. In addition we are a nation of “nimbys” – full of people who oppose revolution in any form.

Even when some change is supported, implementation tends to be abysmal, as has been highlighted by the recent debacle at HS2. Originally planned to run from London to Birmingham, Leeds and Manchester the last two arms have axed but the cost will still be more than £100 billion – a quite fantastic figure.

This is a management problem in essence but the Government thinks that throwing money at the problems will resolve the difficulties – such as a new £500 million “Local Innovation Partnership Fund”. Socialist governments are always adept at spending money but not on how to manage where it is spent.

In summary I have no hope that the latest “Industrial Strategy” will improve the UK economy.

Postscript: This is what the AIC had to say on the Government’s proposals, which I agree with: Richard Stone, Chief Executive of the Association of Investment Companies (AIC), said: “It’s encouraging to see the government recognise VCTs’ important role in the venture ecosystem. VCTs could do even more to support the government’s growth ambitions if they had greater freedom to invest in scale-ups. We’d like the government to increase the investment limits and abolish the age limits for VCT investments. This would allow VCTs to effectively mobilise capital to invest in more British companies with great growth potential.”

Roger Lawson (Twitter: https://x.com/RogerWLawson  )

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Aberdeen – Basic Branding Mistakes Repeated

Highlighted in a lead article in the FT today is the failure of what used to be named Standard Life Aberdeen to get their branding right. They report that several advisors told the company not to use the proposed name of Abrdn which has been widely ridiculed. The company has now decided to use simply “Aberdeen”.

Now I have some knowledge of this subject and the latest choice is no better. Aberdeen is the name of a city and hence not easily protectable as a registered trademark. The web address http://www.aberdeen.com is also already in use by someone else.

They should have started from scratch with a new and easily protectable name. Better late than never is the motto here.

Aviva is a good example of a wise and successful name change from CGNU, Commercial Union and Norwich Union. It can be done even if it takes some time for customers to get used to a new name. But trying to use a name like Aberdeen just shows that whoever made that decision does not understand the basics of sound branding.

Roger Lawson (Twitter: https://x.com/RogerWLawson  )

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Polar Capital Technology Removes Performance Fee

The Polar Capital Technology Trust (PCT) announced their interim results this morning. It includes a statement that the Management Fees are being changed and that includes removal of the performance fee. This is to be welcomed as performance fees do not improve performance and just impose additional costs on investors. Managers have sufficient incentives to perform to the best of their ability without adding such fees.

The changes were summarised in the announcement as follows:               

Current fee arrangements: 

The current base management fee is structured over three tiers:

§  Tier 1:      0.80% on NAV up to and including £2bn  

§  Tier 2:      0.70% on NAV between £2bn and £3.5bn  

§  Tier 3:      0.60% on NAV above £3.5bn 

Performance fee: The performance fee participation rate is 10 per cent. of outperformance above the Benchmark, subject to a cap on the amount which may be paid out in any one year of 1 per cent. of NAV. Further information is provided in note 6 below as well as the Company Annual Report and Accounts for the year ended 30 April 2024.  

New fee arrangements:

The new base management fee will be structured over two tiers, and the performance fee will be removed entirely: 

§  Tier 1:      0.75% on NAV up to and including £2bn

§  Tier 2:      0.60% on NAV above £2bn

Performance fee: none

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Roger Lawson (Twitter: https://x.com/RogerWLawson  )

You can obtain notifications of new posts in future by following me on Twitter (now “X”) – see https://x.com/RogerWLawson where new blog posts are usually mentioned.

Alliance Trust GM and Greggs Trading Statement

I was hoping to attend the General Meeting of Alliance Trust (ATST) this morning on-line to approve the merger with Witan but at the time of writing despite having registered for it no invitation has been received. I voted against it of course.

Another company I hold shares in is Greggs (GRG) who issued a Q3 trading statement this morning. It is good news with total sales up 10.6% and LFL sales up 5.0% in company managed shops. They opened 152 new shops and closed 66 with a number of relocations.

This company shows how effective a change of management can be in reviving the fortunes of a business which happened a few years ago. But the share price fell over 5% this morning on negative media comments about slowing sales growth. I will ignore this “noise” and continue to hold the shares.

Paul Scott on Stockopedia reported positively on sampling the products recently. He said “Revenue growth slowed in Q3, but is still good. Maybe that’s to be expected as inflation moderates? Profit expectations are in line for FY 12/2024. Is “in line” good enough when shares are on a punchy 21.6x forward earnings? Lovely company, but shares look fully priced”. See the Small Cap Value Report for more information.

Personally I don’t mind paying a high price for shares in businesses that are well managed and generally meet forecasts.

Yesterday I had a visit from T.M.Akers who repairs antique furniture in London. It’s more than 20 years since I last saw him. Isn’t it annoying when you meet someone who appears not to have aged after 20+ years while I have become quite decrepit!

We have the Conservative Party Conference running at present but it’s not a very exciting affair. This is what John O’Connell, chief executive of the Taxpayers Alliance, hit the nail on the head when he said: “Labour came in promising to step more lightly on people’s lives, but the change they are set to deliver looks likely to be yet another round of spending increases and tax hikes that only further damages household budgets while doing little to reform gravely underperforming public services.”

Where are the positive proposals from the Tory leadership candidates that will capture the public’s imagination?

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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The Causes of IT Meltdown

In the last couple of days, many IT systems have been down due to the release of a new version of the Crowdstrike security software. I don’t personally use that software so the impact on me has been minimal but it is widely used in the NHS, in a few banks, by airlines (one of my neighbours had their holiday flights cancelled) by some retailers and others. It affected those running Windows software. For example it affected the EMIS software that my GP practice and many others use for appointment booking.

As a former IT manager, these are the questions I would be asking: 1) Was the new software version adequately tested on all the common environments before release? 2) Was a staged release done so that only a few organisations were affected before the fault was discovered? (It seems it was not). 3) Was there a roll-back plan in place to recover quickly when the fault was discovered? Apparently not! 4) Did all users of the software have disaster recovery plans to enable them to revert to back-up manual systems or alternative IT systems?

In essence this failure is due to incompetence by Crowdstrike and among their customers. This kind of failure arising from a new software release simply should not happen.

As a member of the British Computer Society, the professional body for IT staff, I think it is unfortunate that they have not taken a lead on establishing standards to avoid this kind of failure.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Failures in IT Services – They Should Not Happen

The big new story yesterday was the closure of Manchester airport due to power failures. All flights were cancelled on Saturday from two of the terminals with passengers left stranded and nowhere to go for many hours.

Now as a former IT manager I can advise this simply should not happen. Even 40 years ago when I ran the IT operations of a major UK retailer the object was to keep our IT systems up and running for 24-hours a day with minimal downtime and that was achieved. We had disaster recovery plans to cope with hardware and power failures. We needed 100% uptime to enable us to process shop orders. We were never out of action for more than a few minutes.

The NHS is plagued with similar problems of lack of provision for IT failures. The latest news is that the service who provide blood testing to Guys Hospital have been subject to a ransomware attack and have exposed my personal information on the web, presumably after they refused to pay. The service was out of action for some days. Did they not have a back-up and recovery plan they could invoke?

The exact reason for their exposure to a ransomware attack has not yet been revealed but it is probably due to hacks of password access or insecure web systems. Intercede (IGP), in which I hold shares, can improve the security of personal log-ins via identity verification which is essential for any large organisation which is vulnerable to attacks. The failure of the NHS to protect its systems and that of its sub-contractors is surely down to incompetent management which is a persistent theme in the NHS.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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AI Tipped for Rapid Adoption by PCT, and Understanding Business Models

It’s summertime and the stock market continues to drift downwards with little share trading. It’s certainly not the time to be trading small cap stocks.  So I decided to catch up on some reading. I always like to read the Annual Report of Polar Capital Technology Trust (PCT) and that’s not just because I hold the shares but because the commentary on the technology market by Ben Rogoff is usually well-informed. This year is no exception but he is betting on AI to be a new growth phase stimulant.

He says: “After decades of unrealised hopes around artificial intelligence, we believe that generative AI is likely to prove the technology’s so-called ‘iphone moment’”, with mass adoption to follow. I am not so sure. There is no doubt that software such as ChatGPT might enhance search engines such as Google and Bing but will they enable lower cost or faster production of products? It might be just another over-hyped technology that will find a place in the market but not cause a revolution.

The latest book I have read is entitled “The Business Model Navigator” by three business school academics Gassman, Frankenberger and Choudury”.

Understanding a company’s business model is very important. I said this in my own book entitled “Business Perspective Investing”: “A company’s business model describes how the organization creates, delivers, and captures value via its adopted business processes. The accounts are only a good pointer to the future if the world, and the markets in which the company operates, are in stasis, i.e. nothing about the market and the company is going to change”.

The Business Model Navigator covers how companies can and have transformed their operations and profitability by adopting new models and includes many examples. It’s full of useful ideas that can be applied to any business.

The book is not light reading so might best be studied by those with an academic bent or business management background but there is certainly good content to fill up your summer holidays.

Roger Lawson (Twitter https://twitter.com/RogerWLawson  )

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Revolution Demanded at Abcam – Quite Rightly

The former CEO and founder at Abcam (ABC) is planning to call an EGM to replace the Chairman. He has published an open letter to shareholders which spells out the reasons – see https://www.globenewswire.com/news-release/2023/05/17/2671109/0/en/Jonathan-Milner-Announces-That-He-is-Taking-Steps-to-Call-an-Extraordinary-General-Meeting-of-Abcam-Shareholders.html

My comment is the sooner the better. His letter is a very good summary of where Abcam has gone wrong recently. I hope shareholders will support him.

I purchased Abcam shares in 2006 soon after the company listed on AIM in 2005. I still have my analysis of the shares made at the time which included a cash return on capital of 78% and a prospective p/e of 22. Revenue was growing at a fast pace and all went well under the leadership of Jonathan Milner as CEO for several years.

But even before he stepped down in 2020 the business was clearly in some difficulties. I commented on this blog negatively about the large expenses on new IT systems (which was capitalised) and very generous remuneration schemes. I could not get my reasonable questions answered by the Chairman at the AGMs I attended and subsequently voted against him.

You can search this blog for the past articles on Abcam which reinforce what Mr Milner is saying.

But the last straw was the delisting from AIM and the move to NASDAQ in 2022. As Mr Milner points out, this was pointless and has not benefited shareholders. I sold most of my shares starting in 2020 and the balance only recently – overall return of about 30% per annum since 2006. But the recent financial figures have been disappointing with margins declining and way too many adjustments.

The conversion of Abcam shares to ADRs for the NASDAQ listing may help to frustrate the calling and voting at an EGM.

Mr Milner says the current Chairman is weak – I agree. He needs to go with a refreshed board put in place.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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The Productivity Puzzle and Fixing the Energy Crisis

There was an interesting article by Arthur Sants in last weeks Investors Chronicle. He highlighted the productivity problem in the big tech companies such as Apple, Meta, Alphabet and Microsoft. Part of the reason is that their workforces have been increasing and revenue per employee has been falling.

It is suggested that part of the problem is that to develop new products and services requires a lot of staff hacking code. Automation of manufacturing processes is relatively simple in comparison with developing programs that can write other programs – they are an order of magnitude more difficult to create.

This has been the Achilles heel of the software industry for the last 50 years. It remains a very labour-intensive industry when it need not be. The technology of software development has changed little since my era when I was involved in it – there are still too many people writing code.

Is this one reason why productivity in the UK and other developed countries has not been improving as it should have been? It’s been too easy to hire bright young things to write code because labour has been cheap. We need to make it more expensive to ensure tools to automate their work are developed with a concentration on the development of standards to assist. Teaching children to write code in schools is not the answer.

Richard Tice on the Energy Crisis

I watched a webinar presented by Richard Tice of the Reform Party this morning. He pointed out the energy crisis the country is facing and what his Party would do about it. He argues that this is not a short-term problem but that we face a long-term global energy war so vigorous action is required – in effect putting our energy economy on a wartime basis.

He presented some interesting data to support his arguments and made more sense than many politicians on the issue in my view.

You can watch in on the Reform Party’s Facebook page: https://www.facebook.com/TheReformPartyUK

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Selling Technology, Intercede at Mello, and Sir Frank Whittle

I have just listened to a recording of the Mello event which took place on Monday evening. In the “Bash” section one of the companies presented was Intercede Group (IGP). This company sells security software and is based in Lutterworth, which is in Leicestershire in case you have never been there. Bearing in mind the company’s client list of banks, US Government bodies and companies such as Boeing and Wells Fargo you might think the location a bit odd.

I first purchased the shares in 2010 and I still hold them. But it became clear to me very quickly that this was a typical example of a company with great technology but unable to convert it to profits. The company was founded by Richard Parris who remained Executive Chairman for a very long time – until 2018 in fact when a new CEO took over. Losses have been turned into profits although revenue is still not great (£10 million last year).

I did visit the company’s AGM in Lutterworth a few times and at one meeting I discovered that the company’s operations director was actually Richard’s wife under a different surname. It’s always interesting what you can learn from attending AGMs! The problem was the dominance of the company by someone with a technology background rather than a sales or marketing background. At least that was what I perceived. The culture was I suspect a negative.

Oddly enough there was another company based in Lutterworth which I only recently learned about which had an analogous history. Great technology which became a world beater but where the owners never made much money out of it. This company was Power Jets Ltd which was the baby of Sir Frank Whittle – the inventor of the jet engine.

A recent biography of Whittle is called Jet Man. Its author is Duncan Campbell-Smith and it’s well worth reading. Whittle lost control of the invention and associated patents (being a serving RAF officer did not help) and his company was eventually nationalised. Rolls-Royce acquired some of the technology and it was also given to the USA for nothing. What should have been a great money-spinner for the UK and for Whittle after the war years was lost due to commercial incompetence.

There is apparently a memorial to Frank Whittle and a small museum in Lutterworth if you ever visit Intercede.

Will Intercede ever make real money? It’s a bit early to tell I think but I am certainly more confident in the new management than the old. A slight downside is the recent announcement that they are rewriting the LTIP to reduce the share price targets. I never like to see options rewritten but there may be some justification in this case and certainly the CEO, Klaas van der Leest, has achieved a remarkable turnaround. I’m even finally showing a decent return on my investment in the company.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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