Saturday, 26 March 2011

Macro Level Trends - UK Manufacturing – GM & Renault Assist the Mid-term Economic Outlook.

This week saw the UK's new Budget spelled-out to the nation, the unsurprising theme of which is ongoing effort to cut the country's total debt level by 2015, not just by half, with a necessary re-structuring of Health & Education, and 'platforms for growth' said to primarily consist of SME assistance and the re-creation of Enterprise Zones.

These philosophically supersede the Regional Development Zones created under the previous government, yet now with a manufacturing bias as compared to the previous aspiration for nation-wide paper-less offices devoted to start-ups, but led to thousands of square meters of new office-space standing dormant, often in areas in which high-value entrepreneurial ism was an anathema, given the social realities Then the money flowed from government coffers whilst teams regional bureaucrats created overtly over-ambitious – ultimately empty - ideas for transforming run-down, post-industrial towns into the local silicon valley. As such, office construction work temporarily assisted the local economy, but a failure to 'snow-ball' the new small business ideology left a series steel & glass 'white elephants' standing on the edges of flailing towns.

So, today the Tory focus is back on manufacturing and the creation of tangible goods and services for domestic and export consumption. The previous creation of Economic Zones led to the attraction of FDI, the then contracting UK auto-sector seeing the likes of Nissan set-up green-field manufacturing in Sunderland, Honda in Wiltshire and Toyota in Derbyshire and latterly of its own accord BMW investing in the historic Oxford plant. But perhaps the most memorable case-study of the FDI good was the creation of the Hitachi television factory in South Wales that was hailed as a savior until its Asian re-location years later in 2001. Similar Sony and Panasonic plants were built but unfortunately shuttered after the Asian Tiger Crash. However, this month a different division of Hitachi announced opening of a £90m train production plant in Newton Aycliffe, Durham, which will build locomotives and rolling-stock that serves the N.E – London route, and the London – S.Wales route.

When it comes to world-class manufacture of high-value consumer goods the need for FDI – indeed arguably a reliance upon it – is crucial to the British economy. To this end the UK must once again demonstrate itself to the Japanese, S.Koreans and Chinese manufacturers, automotive and otherwise, from Japan's Big 3 and its others, to Hyundai-Kia to SAIC et al.

Beyond buying MG Cars' including the production plant in Longbridge, Birmingham, SAIC also has relations with 'China Ventures' which bought the assets of LDV Vans after its fall into administration. China Ventures partnered with Malaysian Weststar-LDV for a 'lift and shift' of tooling so as to serve the Asian van market, however simultaneously an announcement was made that a new company called 'Eco Concept Ltd' would create a low-volume light commercial vehicle in the Midlands. Yet, thus far little progression appears to have been made, the Longbridge plant once cited as a production base for 'old' MGTF having to wait for the engineering of a replacement car, whilst the trial production of the 'eco van' also at Longbridge is due now. The unfortunate inference is that China could be stalling with false promises, its ultimate intention to use Longbridge as a beach-head for the importation of Chinese made MG branded cars and otherwise branded vans. Reading between the lines, a possible business model would be the importation of basic low-cost Sino-Malay vans which are internally and externally modified in Longbridge for specialist customer demands, the company then able to under-cut present specialist van builders whilst also gaining large profit margins.

Thus in stark contrast to the rhetoric and 'real politik' of such promises, the UK must also look to leveraging manufacturing – large and small – which is 'live' (ie ongoing) or 'confirmed'.

On the global stage of automotive manufacturing GM Luton in the county of Bedfordshire here in the UK is relatively “small-fry”. Size-wise, from a production capacity viewpoint, at only approximately 70k units per year it hardly compares with the likes of VW's Wolfsberg plant in Germany at 500k units, let alone Hyundai's Ulsan plant in S.Korea at 1.9m units. Nor does it offer the touristic 'brand experience' seen at Wolfsberg's 'Autostadt', nor the national GDP contribution of Ulsan.

But this would be to compare Chalk and Cheese. Luton operates a no-nonsense focus on co-developed van production at what are realistically the auto-manufacturing margins, whilst Wolfsberg's & Ulsan's roles are as each respective country's innate socio-industrial heartlands.

GM Luton then is a very different industrial beast, in comparative terms somewhat niche and on the industrial fringe. One which unlike its super-sized Korean and German counterparts, GM executives argue as being well beyond its manufacturing heyday; when it served as GM's counterpart to Ford's Dagenham. (Dagenham ceased what was uneconomic whole vehicle production long ago). GM UK passenger car production has been re-location of car manufacturing to Ellesmere Port, Merseyside in the 1960s which meant that Luton was centred on commercial vehicles alone, experiencing a decrease of UK market share from the early 1980s onward and forced into product-line rationalisation, the adoption and 'badge-engineering' of other VMs vans, and the home-grown generation of smaller car-derived vans that acted as portfolio plugs which maximised cross divisional synergies.

Yet whilst Vauxhall (as Isuzu partnered IBC) was able to previously conquer UK competitor LDV it could not dislodge Ford and its Transit, and itself became open to attack from mid-size Japanese vans aswell as the crop of an ever-expanding van-variant offering from Daimler & VW. The Isuzu JV was latterly replaced with a Renault agreement, producing the Trafic badged Vivaro, and Master badged Movano, alongside the self-generated Corsa-Combo small van. (This model now discontinued in Luton, its successor manufactured by a GM-FIAT Tofas JV in Turkey re-badging the FIAT Doblo).

Increasingly harsh competitive terrain and a high UK cost-base have been the real-world 'headwinds' which have historically and today required Luton plant staff to be flexibility in attitude and labour demands. These headwinds also presented to the UK government when describing the structural picture to politicians and civil servants. As such over the last 2 decades a metaphorical axe has hovered over the plant when model life-cycles and production plans ended, in truth a very necessary bargaining tool for GM executives that could have likewise moves van production to Asia in the WestStar-LDV manner.

Thus the relative UK relief at the recent announcement that a new co-licensing and contract manufacturing deal had been struck with Renault-Nissan for ongoing development and manufacturer of the Vivaro model. It appears that Renault has decided to re-balance its Trafic production strategy away from its partner Nissan's Barcelona plant, instead focus upon capacities efficiencies at Luton aswell as re-organising the French Sandouville plant for Trafic. This leaves Luton as the Vivaro/Trafic European production hub – something welcomed by both the plant management and the union Unite, since it appears to safeguard over 1,000 jobs.

So much needed good news for not only the Luton plant itself but also for the regional economy in which workers spend their earnings, as well as of course for those UK parts and service suppliers that support the Vauxhall plant with components and activities.

The present basic Vivaro/Trafic model has been in production for 10 years (with facelift) during which 1.25m units have been built, so averaging 125k units per annum over what has been a boom decade. Instead the new 2013 vehicle programme's projections is for a more conservative 100k units.

This to be only expected given the level of pan-EU economic contraction with commercial focus targeted at Northern European countries which are in better 'rebound' shape than the periphery 'PIIGS' nations, even if 'anti-budget cut' demonstrations (such as London's this weekend) appear similar to those held in Greece. Moreover, this largely 'northern vs southern' European fiscal divide, could possibly become more evident if others follow Portugal's unwillingness to drastically cut its national budget spend, or in Greece and Ireland's case decide on a fiscal policy U-turn – unlikely but possible, and then creating a stale-mate for Brussels.

At face value Portugal's actions appear very cynical, taking such a turn after its peers have constricted themselves, it looks like it wants disproportionate access the low cost financing from the new ESF to support its state spending. Its attitude seems to be “why worry about a national credit rating fall and consequential added weight to longer-term liabilities when 'easy' money is on the table?”.

Such actions only serve to fracture Europe and concentrate investor confidence in the northern core; this viewpoint perceptively intrinsic to the GM announcement for Luton.

In stark contrast the Renault-Nissan lithium battery factory announced for Cacia, Portugal (next to Renault gearbox build, and a sister of similar UK, France & US plants) might well be contingent upon Portugese government assistance given the partnership deals agreed, which then would have the economic perversity of having other EU members indirectly paying for Portugal's hi-tech manufacturing future, when the state should by rights be self-supporting, and critically a manufacturing threat to those very same 'bail-out' member states. If this is the case, it highlights the ridiculousness of the situation – especially to the UK which itself must seek its manufacturing future by standing on its own feet and absorbing the economic pain to do so.

Hence, as mentioned in previous posts, the the UK has to create its own manufacturing and eco-tech future, one which whilst simultaneously listening to those new 'FDI promisorees' such as China, must be more acutely tuned to those that have already shown willingness to invest into the UK. And beyond this must create tenable visions for UK manufacturing and its correlated services, both with proven FDI partners, seeking out new stable possibilities, as well as undertaking wholly British R&D, development and market-reach endeavours; as displayed by many past achievements ranging from the 'public-good' Routemaster bus to the 'private-delight' of NAIM Audio.

Positioned between these two spheres is the UK auto-industry, spanning diverse sub-sectors from the niche production of track-orientated 'naked' sportscars (eg Ariel Atom & new BAC Mono) to the very opposite as illustrated with the mass production of basic vans, many vehicle companies located at various points along this line, with concomitant links to up-stream and down-stream commercial companies and activities that creates an effective UK automotive eco-system, itself externally and internally integrated with global commerce.

Many of the 400,000+ protesting in London's streets this weekend against the budget cuts are directly or indirectly employed by the state, in reality marching to protect their own futures - an understandable reaction. However, they should equally ask themselves how exactly value is created and paid for, and what the future shape of British industry to create a competitive Britain must look like. And whether they themselves - having been effectively cosseted for so long in the credit bubble at personal and employment levels - are truly equipped to add the necessary human value of knowledge and skills to this ambition?

The protesters would be advised to take an educational trip to the British Museum, to not only view the story of human advancement inside, but to also view a beautiful 1962 Vauxhall Bedford CA model Ice Cream van that sits by the front gates. It appears refurbished yet authentic, with a two-tone 'wave' livery of sea-blue & cream-white and big period Vauxhall Cresta rear lamps. It sells 'real' Cornish ice-cream, not the synthetic kind, and is able to charge a premium for doing so. A sensory delight that reflects the 'Best of British' and 'Made in Britain'. Built in Luton at a time when the country was also depressed soon after the Suez Crisis, yet those very tail-lamps high-light the direct links between its specialist body provider and Vauxhall itself, illustrating the scale and strength of UK industrial inter-relations that once were.

Moreover it served as a social beacon of optimism, for both children, their parents and its workforce. What's more this example is still serving the community 50 years on; the very example of sustainability, achieved by those who saw its innate worth. Luton's new 2013 Vivaro in its typical 'white-van' guise may not have its innate character but the truth is that it serves thousands of large British companies and SME's across the country – witnessed with van fleets of the AA, Sky, BT, and the emergency services. It is also an export earner for GME and ultimately the UK Treasury. Moreover, as the highly fragmented set of state-run agencies which also use the van are transformed into leaner privately run state-serving enterprises, so greater procurement scale economies can be achieved for both the new entities and GM Luton itself, so providing a basis for additional plant and product investment – to the good of the region.

Of course, like Nissan, Honda and Toyota, GM Luton is foreign-owned, but its very presence is vital to the UK economy, given that 12% of UK manufacturing is auto-related. Equally along with Nissan's R&D base on Bedfordshire, Ford's R&D base in Essex, and TATA's L-R-Jag R&D base in Warwickshire, so a secured GM Luton must also be seen to contribute to the national R&D agenda. Doing so via efforts such as NAIGT's recommended 'TESTBED' programme (presented in mid-2009) which itself is a critical part at overcoming the the auto-ambivalence of former governments since the early 1980s, and which NAIGT argues has undeniably resulted in innate structural disadvantages as a consequence of becoming an autos-assembler as opposed to autos-originator.

With that important 2013-2020 production announcement by GME in Luton comes a realisation that UK van manufacturing must be anything but “Headed for Bedfordshire”, instead very much part of the nation's industrial fabric, and if moulded properly, ripe for further exploitation. Critically, the Vivaro - aswell as Ford's iconic Southampton built Transit which had similar good news in late 2010 with a £1.5bn investment promise - to be seen as an essential part of a re-awakened “Alarm Clock Britain”: with its implicit overtones of making the most of the manufacturing base.

In this vain, the writers of BBC3's new comedy 'White Van Man' might well script their character to visit Luton, Southampton, Westminster and The City. Perhaps humourously don a plastic bowler hat instead of the usual tradie's cap as he drives down Piccadilly. Thus, a nod to Luton's own hat-making industrial past...a nod to his brown-coated bowler-hatted 1960s forebear...and when passing The Ritz or RAC Club, a warm nod to 'Michael the Doorman' who could doff his own top hat in return. Such a plot-line would then seek to heal any social wound created by the anarchistic actions of a small but virulent quarter of the 'anti-cuts march' who it seems wish to create social divisiveness, when the very opposite is needed.

With new production schedules set for Southampton and Luton, in the mid-term “the new van man cometh!”

City institutions seeking signs of ongoing and renewed corporate & SME growth will be viewing vehicle replacement actions as an indicator of capex confidence, and may wish to themselves doff their imaginary bowlers at such good news.

Better still, buy a real one - or any other type - from Lock & Co in St James's, and help keep economic activity on the home-front going.

Friday, 18 March 2011

Company Focus – Edwards Group Ltd – Catching the Eco-Tech Light & Implying 'Strategic Stretch'.

As has been aired before, the last web-log piece questioned the ability of various well publicised clean tech solutions and companies to make the fundamental eco difference.

As seen historically, any ideal of a metaphorical 'eco-tech train' which sees inter-relating, conjoined solutions provide powerful real-world 'eco-traction', is all to often philosophically 'derailed' by the PR noise of capital-seeking fringe technologies publicised as the great new hopes.

This then has become the norm, and almost expectant, where science meets money; a potential gold-mine for the 'commercial arbitragers' previously mentioned.

Hence, the investment-auto-motive's call for greater capital markets' emphasis on those established and emergent 'paradigm developers' / 'paradigm shapers' who are either proven in their field, and/or comprehend the commercial realities - as opposed to those 'paradigm shifters' who either may be over-optimistic and nave, or at worst deploy charisma, apparent virtue, dynamic ipad presentations and idealised business projections.

This then re-orientates eco-focus away from the big scheme ideologies that typically abound much hyped within Palo Alto, and looks toward Germany's characteristically low-key Mittelstand originating from which came many of the 20th century technical advances. This philosophical re-orientation must obviously also encompass a fly-past apprehension of pertinent eco-tech activities in the locales of Cambridge, Massachusetts and Cambridge, England. So as to gauge the scientific near-horizon and identify meaningful solutions that can practically link to our technical past, which itself created our technical present, that present linked to the global future.

In essence, not so much a flight from American optimism, more a draw toward European pragmatism and EM realism.

However, this does not necessarily mean prohibition from general logical exploration, nor restriction to only the evolutionary refinement of conventional technology and business templates. The on-going structural re-shaping of sectors such transportation (with its “M&A Deal Appeal”) and the inter-mingling of interests between energy providers and 'rail & road' operators, should create opportunities for new longer-term business models which can progress new technological developments.

[NB With such a scenario the use of PHEV bus technology which used rail-side e-charging for zero-emissions urban travel and ICE for motorway travel might eventually become feasible].

But, for the most part, without such large-scale 'sector re-formatting', technological solutions and user expectations go hand in hand. The speed of step by step advancements made typically via the equilibrium between consumptive demand and competitor-set pace. In addition to this a sector's own level of maturation must be considered since when an economic, operational & expectancy norm has been reached, the sector model itself becomes a component part of the national, regional and international economic good.

[NB This is why the UK's antiquated, labour intensive house-building process which was technically bettered by the 1920s remains virtually unchanged, an entrenched method & materials plus limited competition at the local level means little evolutionary progress].

Hence those companies positioned at the leading edge of the paradigm are arguably best placed to evolve the technological practices of the sector, with the forces of competitive threat/advantage and what will be soft regulatory demands creating the necessary impetus.

One such company seemingly arguing its case as such is Edwards Group. This British name harks back to 1919, its owners (American) CCMP Capital Advisors & (Asian) Unitas Capital, now wishing to (re)float on the LSE after a 40 year absence.

Its long held core competence is the manufacture, retail and after-sales service of vacuum-generating machinery and gas abatement systems, primarily consisting of pumps, valves & seals.

These for use in a plethora of well established industrial activities spanning steel foundries, various metallurgical methods, metal coatings processes, chemical-plants and power-plant energy generation. These heavy-industry activities were latterly joined by providing vacuum solutions for other 'intermediate' arenas, such as: scientific instrument production and use, academic & corporate laboratory equipment, 'thin film' coating of lenses and architectural glass and pharmaceuticals And latterly Edwards has focused upon 'emergent technology' spaces involving: semi-conductor manufacturing (which although not new evolves quickly), Nanotechnology, FPD (Flat Panel Display) and in the clean-tech arenas of: Solar PV (photovoltaic)and LED (Light Emitting Diode).

However, it must be stated that whilst the company serves a broad and technically intriguing client base, its primary activity is in producing vacuum-creating equipment is undoubtedly deep yet relatively narrow in its own right. Edwards is then the archetype specialist which comprehensively understands a field, the roots of which go back to the physical scientific explorations of the late 17th century.

Such deep rooted knowledge of such a prime aspect engrained in the industrial process, allied with Asian expansion demonstrates the company as one of the UK's unsung heroes. However, heroes have their challenges and the heavy weather of the 2008/9 recession saw its prime activities in semi-conductor and clean-tech hard hit by the rapid contraction of both sector's activities. Massively hit consumer and business demands for all things electrical - at both systems and hardware levels - dramatically affected over-blown inventory levels held at manufacturers and retailers, which in turn had to be price-slashed to try and move stock, this endemic situation even visible by the 2010 pre-Christmas giveways of comparatively quickly aging flat-screen TVs at retailing superstores in the US and Europe. Thus a major activity shrinkage was experienced all the way down the supply chain, from Japanese, Korean & Taiwanese consumer electrics manufacturers, to their 1st tier supply-base and below - all who had previously been riding the seeming unquenchable (credit fueled) consumer boom.

Equally, we saw portions of the clean tech collapse, solar especially hit given its over-abundance of PV production, much of it the result of international government induced interventionist demands to create the new green-tech age countries would be reliant upon.

Semi-conductor and clean-tech production activity has of course re-buoyed, but with even a notionally broad portfolio of client types, this partial over-reliance on semi-conductor highlighted a macro-driven vulnerability which it felt ought to be redressed, so exploration commenced as to what other industrial sector offered a commercial middle-ground which had income stability and inherent growth. A sector which in value-creation terms sat between the essentially 'commoditised' world of semi-conductor and the 'niche' world of scientific instruments, as well as in value-adding terms sat between 'smokestack' and 'emergent tech'.

The conclusion was expanding Edwards activity in the automotive LED lighting sector, unsurprising given its basic derivation from semi-conductor physics.

LED use has been well established within automotive for almost 40 years, its first and long-lived typical application within driver's instrument binnacles as area-warning lights for many functions ranging from engine-fault to seat-belt. However, as a more recent consequence energy use concerns, visual-safety wishes and brand differentiation desires, it has rapidly been adopted over the last 5-7 years

From an energy use perspective it draws less current and provides greater light per unit of input energy in comparison to a standard incandescent filament bulb; by 2002 offering a stable 20 lumens per Watt as opposed to 15 lm/W. Whilst Cree Inc, Soeul Semi-Conductor and Nichia Corp advanced that efficiency fourfold and far beyond in recent years (albeit in laboratory conditions).

From a traffic and driver safety perspective LEDs offer a 'cleaner light' than bulbs, and were the technology of choice for manufacturers when national vehicles regulations demanded high-visibility brake lamps situated mid-centre of a vehicle's rear. It also allowed manufacturers to programme the LEDs to create light patterns dependent upon the severity of braking. However, early adoption uses in Japan and the hotter climate states of the US did see initially high failure rates, though now well overcome. Contrawise, LED lighting becomes more efficient and brighter at colder temperatures which together with its 'clean light' means greater driver visibility and observer clarity in high latitude regions which typically suffer from harsher weather (rain, fog, snow) which deteriorate vision, thus a useful technical mutuality.

With that confidence LED automotive lighting has become far more common-place, initially as a luxury segment (benchmark) feature. In parallel to this high-end adoption process LEDs also became apparent in the high-margin 'after-market' lamp retro-fit business, it seen as a car modification differentiator for younger owners of used cars. In recent years we've seen LEDs become a new near staple feature for manufacturers, using the technology as part of feature trickle-down strategy to increase attractiveness of their mainstream cars, and by doing so gaining procurement scale economies. Thus LEDs have become either central or part integrated into front and rear exterior lamp-clusters, used as day-time running 'feature lights', plus increasingly used as interior 'lighting architecture' for premium-level and special edition variants, set to similarly become ultimately standard fitment..

The low-energy electrical draw and small size of LEDs have over the last decade provided auto-makers with increasing engineering and stylistic freedoms. Beyond reducing basic electrical voltage/wattage/ampage requirements, LEDs allow creation of both a unique night-time 'brand/product signature' for the external front & rear of a car, whilst also creating various 'mood settings' for the interior of the car, both able to be programmable for various lighting effects. BMW were the LED pioneers on its previous 5-series et al, so emphasising the famous Quad effect, whilst the face of the BMW R-R Phantom Convertible & Gentleman's Coupe perhaps most visibly shows the old tech (halogen) vs new tech difference in its roundel lamp contrasting with feature bar above. VW's Bentley uses LEDs on Mulsanne to visually replicate the large diameter & circumference of its iconic 'Blower Bentley' lamp. Ironically, the once much hated periodic initial flicker of LED (so reminiscent of fluorescent ceiling lighting) has become part of an accepted 'switch-on' character, giving a car anthropomorphic overtones.

Thus, Edwards Group noted that automotive LED incorporation into VM product lines was a very necessary strategic imperative, driven by both functional and emotional economic levers. And so attuning itself to the rise of automotive LED demand in the face of other vulnerable client bases - even if temporary – appears a natural choice. This sector offers a stable, long-term income generation stream.

Furthermore, LED tech is a rapidly advancing science, the creation of Polymer LED (PLED) revolutionised the mobile phone, smart-phone and mobile devices field by making low-cost, thin and flexible display screens available. Whilst R&D has also created OLEDs (O = 'Organic') with similar though not as well commercialised attributes.

In a 'turning full circle' manner these new generation PLEDs have made their way back into the forefront of vehicle instrument binnacle design. LCD screens are argued as a precursor to PLED, LCDs having had a near monopoly on full screen sections of the dashboard to date, able to conveying a multitude of systems information to the driver (and indeed passengers: including infotainment screens incorporated into the rear of front seats for rear passenger film & game viewing). But perhaps the best example of the trend being Toyota's use of the LCD & PLED technology in successive series and locales of the hybrid Prius, which initially used a mid-console mounted screen as an educational tool to demonstrate the flows of power delivery and re-capture.

Hence the LED world appears to offer Edwards a basket of varied clients, the simple to complex variants of LED technology allowing for a sector segmentation and targeting of potential clients.

Press reports indicate that the present owners – CCMP & Unitas - hope to set Edwards' MarketCap valuation at around £1.5bn, having since mid 2010 appointments tasked former auto-execs Matthew Taylor (ex Land Rover CEO & latterly JCB CEO) and David Smith (ex Ford and Jaguar-Land Rover's previous CEO) to seek out the LED opportunity. These appointments then provide for that all important new automotive slant, one designed to maintain or at least reduce degradation of the impressive (press reported) 20% margin in 2010.

Fortunate then that the LED sector also continue to be prospected in a week when events in Japan have dramatically changed the business terrain for Edwards. It has drastically up-ended normal business proceedings for domestic high-tech companies which also have reach into Asia, and now re-tabled the topic of power generation methods for international governments and energy companies. (As stated, the energy sector is an intrinsic part of Edwards history and operational capability)

A clear case then of strategic 'swings and roundabouts': 'intermediate' semi-conductor contracts, a new 'emergent' sector is explored, semi-conductor re-grows and now re-contracts, and an 'smokestack' re-emerges.

It is in this new light that conflicting press and web reports given opposing impressions of the expected IPO. Some indicate that the shares are for present private stock-holders only (as possibly additional buys or possibly 'paper-swaps') whilst other reports indicate that the IPO is open to professional investors.

The former scenario presents one of sound conservatism with no new liquidity sought from the broader capital markets. This then would allow the company to metaphorically and literally 're-settle' itself during this still testing but opportunistic period, demonstrating that it has the confidence to both re-organise using its own (or privately agreed) funds, and crucially illustrate that it is not using the IPO as a cynical exercise to simply 'paper-build' its market value. To quietly stepping into the public markets, and set good-governance conditions such as 'conditional dealings', would create confidence.

In the latter scenario a Prospectus for general digestion is of course all important, yet its release date was not given. Any 'tbc' date must surely be re-examined given the major ramifications of recent horrendous events in Japan on its hi-tech industrial base, and the need for strategic re-assessment.
This will be well understood by institutional investors, and unfortunately will over-shadow the 'good news' bulletin that an FY2010 revenue of £641m; with an adjusted EBIT of £130 million, yielded that 20% margin.

Investors may well view Edwards near-term fortunes in one of two ways; typical bulls and bears.

Bears may think the 20% margin a one-off, a consequence of the corporate re-bound generated across the board by previously slashed overhead costs meeting the strong demand pick-up in 2010. To them whether sustainable into 2011-2012 is unclear given the headwinds of higher input costs experienced so far and now seemingly certain tilt into a now far greater slowdown of Asian demand exacerbated by Japan's seizemic and nuclear shocks. These shocks have stalled China's own massive nuclear plant programme, and add doubt to America's, and will almost certainly put a squeeze on Asian energy costs in the interim for businesses, administrations and the public, so stifling again the previously slowed growth figures.

Bulls will see great potential for Edwards to re-deploy its core energy capability, used to counter-act the expected semi-conductor contraction, whilst also making inroads into the LED sector. They will see events as offering counter-cyclical defenses that offer horizon-line income streams.

An obvious question regards that business potential, is to what degree the company may have to re-balance operations so as to adroitly serve strategic re-positioning and expanded multi-sector focus now being so LED facing, wanting to re-prospect 'energy' and re-shape to ride 'semi-conductor'.

The time is obviously ripe, even if problematic given its IPO announcement. But markets will understand.

And given the Fukushima disaster, just how aligned is Edwards to assisting a now very sensitive the nuclear-energy sector? (since part of the radiation leak problem was seemingly caused the built-up hydrogen explosion). To this end Edwards' gas-abatement technology must be quickly aligned to uses in nuclear power stations if not already the case; either as part of normal running, or as emergency back-up devices.

This may be a vast over-simplified of a product/service offering perceptionally aligned to a possible new world-wide need, but worth basic exploration. Furthermore, is the general agreement by sector experts that gas-fuelled power stations will now dominate any new build – good news for Edwards.

Accompanying new chairman Nick Rose (ex-Diageo CFO) after the flotation will be the well-connected Keith Roberts (ex Petrofac) acting as a non-exec. He will undoubtedly assist efforts in in capturing new business regards 'oil & gas' noxious fumes abatement, with possibility a prospecting of any 'cross-over' technical systems applicable to what could also be renewed projects regards 'refurbished nuclear' or 'fail-safe nuclear'.

Thus, beyond gaining ground in serving the manufacturing process needs of automotive LED suppliers, critical internal and external questions relative to medium and long-term timelines must be asked about the potential to expand its market share of the vacuum-machinery & gas-abatement
business beyond its 17%, and how it might over-throw the incumbent #1 competitor.

Furthermore, it must also realise its very real exposure to additional, incoming competition, the company may well see itself as the NASA of vacuum pumps, but in reality the basic principles of pump-building are relatively simple, and can be gained by those countries or companies seeking greater sector integration, or indeed given vacuum-pumps broad uses, as part of a national strategy to develop indigenous industry at all levels.

In response it must strengthen any loose grasps over important Asian and South American nations, whether done with its own EM roaming agents or via the greater dedication of those 3rd parties already in place.

In parallel, it must also undertake greater R&D exploration efforts to not only replicate its 'dry-pump' advantage but demonstrate to potential investors its 'vacuum-devices' specialism – or other spin-out specialisms - can be applied in other fields.

Looking to the early 20th century for inspiration offers a various vacuum applications: from vacuum tubes for contained environment message delivery to integrated vacuum-cleaning piping within building structures to of course the vacuum cleaner. The vacuum cleaner as a lifestyle item saw a major resurgence with Dyson and his own technology story – replicating Hoover's heyday – and the market spans across from the 'classic' 1930s heavyweight to 'future-tech' styles and even includes the 'Edward' character which accompanies 'Henry'. Thus just as Dyson re-appropriated an industrial vacuum process for domestic use with a high-tech persona, could Edwards do something similar?

However, what is obvious to any seriously analytical investor is that ostensibly Edwards – though deeply professional - is not a hi-tech company in its own right, even if it presents itself as such by capturing the kudos of its hi-tech client-base. It is ostensibly a provider of air and gas pumps used for suction and filtration, which over 92 years has created a broad base of globally located client types – reached via margin sapping agents in EM countries - and variously 'tuned' pump applications.

As such its basic business model, although seemingly ever improved technically and geographically, is still reliant upon a relatively basic product type (of whatever variation) which is relatively easy to replicate by determined competitors (especially so in China, India, Brazil & Russia) and may well be open to supplier-substitution by its clients. This danger has been partially negated or at least forestalled by Asian production, hence able to secure lower-cost manufacture – no doubt assisted by its part-owners Unitas Capital.

But unless the business is properly explored and developed it seems that ultimately it will end up either being taken-over, or majority controlled by a major EM company seeking bolt-on acquisitions or or will be see its sector coverage eaten away 'bit by bit' as such EM company's rapidly development their own competencies and leverage them in more locally compliant environments.

Depending upon its CCMP & Unitas's ultimate aims – which may obviously involve part of full disposal - one possible protection route for Edwards might be greater interaction with another Unitas held company with both operational synergies and powerful Asian / EM reach.

The most appropriate appears to be China's KD Blue Sky Technologies Ltd, a provider of environment compliance solutions for air quality compliance. This company specialises in the 'EPC' (Engineering, Procurement & Construction) of (FGD) Flue Gas Desulphurisation facilities attached to thermal power-plants.

The recent Japanese disaster has halted China's own nuclear power station programme which reported had 38 stations awaiting construction. The replacement of these with gas, oil and coal thermal plants will necessitate specialist knowledge of gas abatement.

Thus the interaction of Edwards Group and KD Blue Sky could not only maintain an autonomy by Edwards Group, but would allow KD Blue-Sky to appropriate Edwards capabilities within China. Across not only its primary focus on Flue Gas Desulphurisation, but also allow it to become a strategic element of China's own desire to develop its hi-tech electronics industry and self-created LED sector which itself requires vacuum-processes.

Importantly, investment-auto-motives suspects that the likes of KD BlueSky would also serve as an entry point for Edwards to directly serve the Chinese automotive sector, beyond assisting with LED production.

In 2009 China became the world's largest vehicle market, with 13.5m sales vs the US's 10.4m, and is expected to maintain the greatest momentum. The massive uptake of cars has caused concerns for the PRC, not only regards traffic congestion, but also of course CO2 and Nox emissions. This has created a general 'nudge' directive toward the sale of smaller cars having seen the SUV and large car trend over the last decade, which in turn typically means downsized engines. To re-dress the balance of a vehicle's power & torque expectations, a new generation of smaller engines will require a form of pressure boosting, whether turbo-charged or super-charged.

Unlike the former the latter is an integral full-time aspect of the engine, either mechanically driven or electronically, the most famous of which is perhaps the Roots 'Blower' type charger as seen on the previously mentioned 1929 'Blower Bentley' and been a periodic staple of sportscar engines ever since.. It originates from an 1860s design created to pump air into blast furnaces, but is a design principle which is as useful today for small cars in fast-moving city traffic and highway speeds as on the cars created by Sir Henry Birkin which won Le Mans a decade after Edwards' creation.

Thus the real strategic company intent of may well be to advantageously 'force-feed' the Chinese auto-sector, in which case, it really has 'seen the light', for that is the major market opportunity and would supercharge the company itself.

And who knows, at a far strategic stretch the name 'Edwards' could one day become as synonymous in the Chinese household as 'Hoover' & 'Dyson' – but of course very much automated with concomitant LEDs, and of course named 'Sir Henry'!

This then is the light-hearted metaphor toward a new era of pumping as much vacuum and gas-abatement intelligence as possible, and critically looking for those all important white-space technology applications.

Friday, 11 March 2011

Macro Level Trends – Clean Tech Transportation – The Return of the 'Alternatives' Band Wagon

As seen recently, the greater any surge in oil price the more vocal the alternative energy crowd. None more so than clean tech companies who seize their opportunity for yet another 'moment in the sun'.

It is only to be expected of course, that those whose businesses are built upon a the CO2 reduction remit, and who typically critically suffer from the the cost differential between old and new technologies - should seek to take advantage of the general disgruntle created by what theorists would see as a sentiment-ruled market inefficiency.

Clean tech has an undeniable role to play in the future of power generation and personal & mass transportation. Yet before major leaps of faith are made, the true cost-benefit rationale for specific technical solutions married to specific uses must be made. A rationale made watertight at both macro and micro levels, and one which avoids proffering scenarios based upon an over-blown, fear-led basis.

This is the only way that both paradigm-evolving and paradigm-breaking clean tech solutions will be broadly adopted over time and ultimately make the 'big-picture' difference.

Historically, clean tech answers – especially in the automotive field, but elsewhere also – result from times of national or international recession. Why? Because such times are usually accompanied by volatile oil prices generated from geo-political unrest and the concomitant speculative markets' rush. In addition, the slow rebound of economic activity itself adds input cost pressures along the supply-chain so creating an inflation effect which loops back to oil price expectations, futures contracts and once again to speculative interest.

Within Europe, observers may try to simplistically parallel today's conditions to the 1956 Suez Crisis and 1973 O(A)PEC Embargo, but the context presently appears very different, given that UK military intervention in looks unlikely, which may create a general non-intervention template for NATO, using only UN mandates to affect remote influence.

Yet, even though concerns about oil-supply threats are realistically presently very remote - given that OPEC has quelled worries – recent events have once again driven sentiment to question the topic of imported oil and so re-highlight the level and efficacy of oil-use.

As many know, in response to that 1956 UK petroleum supply threat and pump-price concerns, Leonard Lord (then Chairman of Austin-Morris) briefed management to set about the task of creating a radically reformatted, but essential conventionally engineered, petrol-sipping small car. The Issigonis Mini was part of an economy (and economic) drive that was ostensibly similar in vein to the re-manufactured 1946 Beetle, the 1948 2CV and the 1955 600, and was itself partly born from this European competitive threat. These largely mechanically conventional yet evolved cars, then created a new age of more affordable, lower polluting, more enjoyable and safer motoring when compared to their pre-war counterparts: whether the heavy big-engined 'dinosaurs' or indeed the previous examples of small-cars, from the cycle-cars to the Austin 7 to the Ford Model-Y.

These auto-solutions which in turn helped generate national wealth were developers of the contemporary technical & economic paradigm, not breakers of that paradigm.

Yet also at that time more adventurous R&D efforts were at work in the UK, US and Europe, the former two bedazzled by the promise of EV's from the mid-1950s to the early 1970s. Whilst Germany forever sought to seize its technical lead in the manufacture of various gases – hydrogen of course a central theme. Rover Cars even explored jet inspired 'turbine technology' as part of Wilson's 'White Heat' rhetoric. But not unsurprisingly that future-tech programme developed little beyond exploratory prototyping, the economics of its business plan derisory compared to the ever greater capex and piece-cost efficiencies of ICE and its increasing performance proficiency.

In short, the business models devised by many future-tech ventures across most scientific energy realms did not stack-up, even when provided a commercial push-start by government or private capital.

Perhaps all the tormenting in the UK since its electrified city tram systems (born from the success of London Underground) had been joined by similar pantograph-fed trolley buses and a proliferation of (route-based) electric delivery vehicles – primarily the milk float. These notionally zero-emissions vehicles were themselves replaced by ICE-based successors when refurbishment costs of both vehicle fleets and aligned infrastructure proved too high – the milk float the only lasting representative given its very basic construction, its depot-based recharging base and its limited range non-varying delivery demands.

Industrial historians will cite that such national efforts and the more radical private ventures were born from a mixture of national 'new-age' optimism. Having seen massive progress in the early part of the 20th century and the need to physically and ideologically re-build after WW2, civil servants working with Keynesian mindsets had an effectual remit to spend the (often borrowed) public monies available. This optimism boosted by the 'tomorrow's world' stories presented by scientists, technical developers and inventors hoping to “change the world”.

Unfortunately, the transition from the essentially unrealistic protected public funding sphere into the commercial world proved impossible for many, even with the support of newly established innovation commercialisation agencies such as – here in the UK – the Industrial and Commercial Finance Corporation – which itself latterly developed into 3i. Failures typically arising from an inability to fully appreciate the true dynamics of B2C or B2B markets, as a result of 'blind new tech' insistence itself boosted by overtly optimistic marketing research and business plans.

Interestingly, placed between these 2 groups were (and are) mid-termist investors who saw an opportunity for what is effectively commercial arbitrage.

Their remit, to ride the wave of the new-tech dream so as to exploit the technical advances (or appearance thereof) made via the public purse, create a convincingly structures business from which to subtly 'threaten' the sector incumbent old-tech manufacturers. Thus positioning themselves as the archetype 'technology disruptor'.

Yet, given the primary interest in the investment story (ie maximum IRR over shortest period) such an investor takes one of 3 routes to exit his position:

1. grown to a point where seen to be credible as an IPO vehicle with a 'scale-up' story, and selling majority stakes.
2. ripened for 'trade-sale' to the old-guard industry itself, thus eliminating the new-tech competition.
3. achieve the IPO and continuing to evolve the business whilst publicly-listed so that any take-over – friendly or hostile - ultimately costs yet more and delivers greater investment returns.

Each party involved then plays a specific role in the process, respectively presenting: (long-term) 'environmental context' from government, (at-hand) 'technical opportunity' espoused by the pioneer, and (medium term) 'investment opportunity' by private equity.

This of course is not always the case, but the apparent strategic intent of developing and commercialisng innovation can be problematic as a consequence of the possible non-alignment of differing parties ultimate agendas.

Automotive manufacturers found themselves facing such a situation throughout the latter part of the last decade, having to attune to what appeared a real threat from the EV brigade, itself supported by eco-conscious international governments. Hence the push for in-house development of EVs along with primary focus on Hybrids, aswell as the purchasing of stakes in new EV ventures, such as Tesla by Daimler or Global Electric Motors by Chrysler.

[NB The fact that both EV companies simply adapted off-the-shelf vehicles as their base (sportscar and golf-buggy) as opposed to fully developing in-house vehicles, could be argued as a relatively low-cost the short-cut to creating a 'disruptive technology' business].

Yet given that VM's businesses are actually ICE focused, so they must primarily attend to their 'bread & butter' technology. A recent example being Daimler's JV intention with Rolls-Royce plc to take majority control of Tognum AG, German manufacturer of large engines generator sets across many sectors.

The acquisition presumably designed to maximise exposure to the expected truck-sector sales uplift, to broaden Daimler's sectoral reach, to leverage multi-party manufacturing synergies, to give greater global cross-marketing reach, to target rural-based, motorway-linked truck-fleet operators that often require independent in-situ power generation (esp in EM regions), and also add R&D prowess when tendering for military vehicle, specialist vehicle and marine propulsion projects.

Critically, by also gaining a foothold in the 'in-situ generator set' power market also places Daimler itself at the forefront of eco-tech regulatory demands and so learning. Learning which for Daimler assists its diesel (& general ICE) R&D development in emissions and noise - along with its usual eco-efforts in light structures, aerodynamics & mechanical parasitic loss in drive-train and chassis systems. Thus to an extent seemingly mimicking Honda's learning from its generator division, and as such should theoretically gain greater appreciation for power generation, delivery and use at a 'systems-level'.

Daimler then reflects the multi-aspect approach which most large long-lived VMs have had to take when periodically faced with assertions of technology-disruption possibilities, which in turn has driven greater innovations in their conventional technologies and provided them to explore self-involvement in broader industrial sector possibilities. It was seen in the US during 1930s-50s when GM, Ford and International Harvester expanded into household equipment for remote farms and more recently by PSA's efforts to create a rental-based consumer 'mobility package' via 'Mu'.

Of course not all clean tech ideals end in 'broken dreams', if anything the major improvements in CO2 reduction & fuel efficiency over the last 4 decades have been complimentary solutions which work with sympathetically with the PESTEL context; as opposed to the more visible attempts of 'paradigm-shift'.

Hence the success of programmes such as Brazil's previous conversion to bio-ethanols derived from agro-policy, the proliferation of CNG/LPG in Pakistan, Argentina, Iran and Brazil aswell as India's conversion of the aging Bombay taxi fleet to run on CNG. Though it should be noted that such CO2 reduction 'progress' is often politically motivated relative to the evident pollution problem (as seen with Los Angeles) or more typically the energy policy of any nation-state, itself dependent upon domestic natural resources and/or the (in)ability to properly secure the import of oil or petroleum.

This is precisely why Germany's automakers have always maintained an R&D capability focused on gas powered vehicles, ranging from CNG seven series (able to swallow the large gas cylinder) to hydrogen powered buses (able to package the fuel cell). But maintaining that kind of R&D capability for the 'last resort' good of the nation does not mean that ability naturally aligns – let alone lead – the major focus of BMW's, Daimler's or VW's commercially-based technology strategy which must pander to convention and the 'way of the world'.

Big picture changes are typically only achievable when driven by a governmental will that has both direct control of energy generation and transport issues aswell as sizable public funds to pay for the switch; this exemplified by the transportational electrification of Europe, the UK and US in the early 20th century. Yet even given this near omnipotent power for change, it seems that ultimately that maintenance of such an imposed 'alternative' system proves costly, and thus latter replacement programmes will favour 'normative' technologies that prove affordable, especially so during times of economic stress.

Hence progressive eco-change has greater chance of success if aligned – and so less disruptive - to both vested interests and end-users.

However, in direct contrast to Germany's broader energy & auto technology palette, those notionally other 'advanced' countries without a domestic auto-industry such as the UK, Spain, Norway, Switzerland and now (increasingly) Sweden, face an alternative dilemma.

They have a self-interest in promoting new and alternative technologies which at worst can serve as a national crisis back-stop (as seen by Germany) and at best can create a technology bridge into the future, by which other nations can be led.

Yet whilst a worthy cause, such progressive efforts are in reality partially-handicapped by not only the power of 'normative' conditions – such as the typically affordable oil-based global economy – but by a domestic industrial policy which seeks to attract a broad-base of FDI, some of which aligns to cutting edge eco-tech, others not.

[NB. Here in the UK we see government court the likes of leading- edge Toyota, Honda & BMW whilst also seeking to have China's SAIC re-instate the MG production which itself is based upon decades-old engineering, itself adapted to lesser Chinese tech-maturation demands by a UK engineering team].

But beyond the micro-level, perfect storms at the macro-level storms create seismic shifts – these apparent in 'normal' cyclical recessions. Yet massively exacerbated by the 2008-9 financial crisis.

Thus, unsurprisingly given the type and influence of external forces, an (historically prescribed) optimum technology path is to follow 'the middle way' – less Confucianism more necessary neo-conservatism. A viewpoint well articulated by Lord Brown here in the UK recently when assessing how the future of diminished government R&D funds should be utilised: the conclusion - better aligned to the realities of the short & mid-term than the sci-fi dreams of the long-term.

Prior to the financial crisis, the headway being made by clean tech companies appeared impressive. The consequence of a bough-wave of western governments' eco-ideology underpinned by massive (often leveraged) levels of liquidity seeking plausible homes, and birth of the carbon-credits exchange. This mix imbued even the most marginal of clean tech stories with a plausibility if set along a new-age chronology time-line. With governments broadly agreeing the intent of CO2 reduction rates to be achieved by 2030 or 2050, the general edict was that if mankind left his 'good works' to later rather than sooner, the more radical the technological solutions would need to be to contain the world's 'parts per billion' pollution rate.

Thus, the memory Al Gore's memorable 'stratospheric' CO2 chart still lingers today, even if the soundness of the science has been doubted given revelation of UEA massaged data.

However, our ability to re-act to that arguably over-blown eco-crisis has undeniably been tempered by the financial-crisis. Its consequences have now created a period when even the US $ and Euro have had the very foundations of their innate 'value' massively disrupted. Each currency's notional value arguably differing dependent upon the 'holding viewpoint': whether in domestic government hands, private enterprise hands, investment hands or in foreign hands.

This new era then demands far greater critical assessment of the viability of new eco-tech ventures, and even deeper due diligence of any company seeking such funds. This all the harder to do when the 2 foremost 'world reserve' currencies have become as fragile as the environment.

The necessary attitude of neo-conservatism toward the funding and R&D direction of eco-tech has unfortunately been undermined by the large schism between US and EU monetary policy approaches.

Contrasting QE philosophies demonstrate that whilst Europe stays candidly cautious, the US acts with immense hubris. This innate difference between monetary policy approaches will have sizable impact upon eco-investment rationale domestically, regionally and internationally.

In short, and in very general terms, the advent of European 'tight-money' and its need to co-ordinate strategic direction en mass means that it (predominately Germany & France) take greater time to assess and plot the courses of corporate and national eco-tech.

Contrarily, the US is now able to essentially throw money at self-developed and bought-in solutions, presumably then latterly applying an industrial-policy funnel to identify those solutions most appropriate for longer term refinement – ie those that fit into the contextual paradigm.

The following then expands upon this observation, itself relative to the previous web-log post 'Liquidity & Linkages”:

The US's massive QE actions beyond re-capitalising the banks and assisted select companies (GM & Chrysler) also appear intended to re-build the 'animal spirits' of Wall Street. This 'cheap money' as we see seeking-out various typically macro-theme-related opportunities, ranging from event-driven speculation regards specific commodities to taking additional equity stakes in those US companies with good EM exposures and sector relevancies.

Yet, given the need to create a renewed eco-centric US manufacturing base, such monies will be unquestionably directed at clean-tech. Beyond the prime expectation of a US shopping spree across the world to pick-up well-formed eco-tech, the question arises as to whether such monies spent within the US itself will be backed by truly meaningful business case expectations, or will liquidity be directed across the board, from the deserving good, to the questionably bad?

In contrast, here in Europe, the far more contained QE stance undertaken – directed by the Deutsche Bundesbank and Bank of England – means that liquidity whilst available is still relatively expensive, a consequence of banks having to charge high lending rates (over say LIBOR) to rebuild their own balance sheets. With the ECB seeking to raise rates and growing pressure inside the BoE to do likewise, the innate business case for any clean tech investment denominated in either Euros or Pounds must be truly convincing so as to combat the endemic cost of capital.

This very basic US vs Europe picture then appears to create very different, ideologically competing, investment agendas, and so competing behaviors between what are ostensibly competing parties seeking their individual eco-tech futures.

Unfortunately however, such macro-issues complicate what is already an increasingly fuzzy the commercial picture regards the investor purchase rationale and development routes for eco-tech.

Two examples, Modec and ITM Power are illustrated to highlight the current state of play.

Only up until very recently Modec, the electric van manufacturer, lauded as representing the new vehicular age. And as such was courted by US truck firm Navistar and struck a JV arrangement. As the FT reports, the firm had a business plan of selling 2000 e-vans per year, each costing £55,000. [As to what the split between adapted VM vans and own-design N2 vans and there exact pricing differential is unknown]. But only 400 were sold to the likes of UPS and FedEx, of which only 150 in the UK, 250 throughout Europe.

Untenable liabilities were discovered and it has now entered administration – in the hands of Zolfo Cooper advisory & restructuring – since auditors stated that it could not meet its £40m debt obligations (primarily to Federated Investments, itself owned by Lord Borwick, the founder of Modec).

As a result its capability to 'quietly change the world' has (momentarily at least) ceased. PE and 'trade' companies will undoubtedly be hovering over the company to gauge just how much money it will take to re-charge its commercial batteries. First in line would be Tanfield Group seeking to possibly replenish the operational capability and gain new products for its UK Smiths Electric Vehicles division, since it was acquired by its US sister company. Equally, Zolfi Cooper will also doubtless be reviewing the break-up value of Modec's core-competencies - whether in terms of any new prototypes, its technical demonstrators, any unsold/cancelled inventory, its production-line equipment, its engineering development hardware & software, its proprietry IPR and indeed the usefulness of its supposedly (or arguably not) 'EV knowledgeable' management and staff.

This unfortunate 'on the ground' occurance that reflects the 'tight procurement purse strings' era which stands in stark contrast to the present 'blue-sky' rousing of alternative-energy firms. They in turn undoubtedly argue that the time is right to invest into the next upswing of the eco-tech cycle, now that the trough has arrived. This reasoning no doubt the impetus for many 'tempus fugit' investment groups, as seen by the 'early trough' PE acquisition of Modec's battery supplier Axeon, and by the re-organisation of Tanfield Group's international divisions.

One such 'blue-sky' rouser enterprise is the Sheffield-based ITM Power, a young company that heralds the revolutionary capabilities of hydrogen in clean energy generation, as part of an ideal for a broader 'hydrogen economy'. It claims itself “a leading business in hydrogen systems for both niche and mass market applications”, its strategic reach is to try and gain footholds in both industrial and domestic energy use & generation, at both large and small-scale levels; offering:

A. 3 variants of (hydrogen producing) electrolysers (small, medium, large scales)
B. a hydrogen-vehicle refueller.
C. a hydrogen-based 'HHO' flame/torch fabrication unit that replicates conventional gas-bottle soft-metals brazing fabrication (ie excludes steel welding) but produces a pure flame for hi-quality work.

And thus far ITM has enjoyed R&D grants from UK government, regional & internationally for 6 projects from 6 bodies:

1. The Carbon Trust: (£108k of £241K lasting 5 months)
a new hydrocarbon ion exchange material with primary focus on automotive fuel cell applications,
2. Technology Strategy Board (CREO): (£247k of £3.8m lasting 36 months)
the adaption of ICE vehicles to Hydrogen fuel with primary focus on recaptured hydrogen emissions particulates (project includes VM & small company & university partners)
3. Technical Strategy Board (HydroGEN): (£239k of £2.3m lasting 30 months)
a solid polymer alkaline electrolyser, with primary focus on improved production of the ion exchange membrane (the heart of H20 to hydrogen conversion) (project included partners)
4. Technology Strategy Board: (£337k of £843k lasting 13 months).
A transportable high pressure fueling system for hydrogen ICE (HICE) vehicles. (includes partners)
5. Yorkshire-Forward: (£195k of £559k lasting 12 months)
development of a large electrolyser stack module
6. NextEnergy (Michigan state): ($81k of $129k lasting 10 months).
a small home-refuelling device for a hydrogen-powered car,

From this basic understanding, it appears that ITM's strategic business intent is to cast as broad a net as possible, presumably to demonstrate the feasibility of the 'hydrogen economy hypothesis' and increase potential client interest, potential investor interest and also to maximise its ability to secure government grant R&D funding. Thus its commercial and R&D activities appear to be plotted across a 'maturation time horizon'.

The 2 which appear to have closest relevance to the auto-sector are 'CREO' for adapted internal combustion engines, and 'HPRU' the development of a mobile 'hydro-car' re-fueling unit.

The CREO project is directed at ICE Emissions Optimisation with specific interests in re-capturing post combustion particles for re-circulation (ie akin to present ICE EGR & catalyst re-circ.), co-development partners being: Ford, Jaguar Land-Rover & Johnson Matthey [catalytic converters], and the university's of Liverpool, Bradford & Birmingham. The project provides for the build of 3 modified vehicles with on-board hydrogen generating fuel-stack, an adapted internal combustion engine and emissions capture equipment that recirculates exhaust pollutants.

The advantage then to demonstrate the use of Hydrogen relative to the conventional ICE motor - as opposed to powering an EV – to gain greater corporate & public credibility, the 'emissions recapture' aspect a high profile regulatory issue in petrol/diesel engine use, thus able to presumably convince government of its applicability. The advantages of much reduced CO2 output is of course countered by economic & vehicle mass disadvantages caused by the cost and weight of the hi-tech ancillary equipment. [NB the vehicle requires a draw-water-tank (water:1000kg/m3 whilst petrol: 737kg/m3), the weight of the fuel stack and the weight of the gas cylinder used to store the hydrogen. Thus aswell as adding cost, the functional downside is reduced GVW available for passengers / load given the additional weight the vehicle innately bears.

Such efforts then appear follow in the footsteps of advances made by Honda's FCX Clarity , which has come in prototype & continually evolved limited-series forms [200 units leased across US, Japan & Europe]. Yet critically the FCX functions as a clean-sheet designed hydrogen hybrid, unlike HICE which is an amalgam of technologies and party capabilities. Furthermore general estimates believe that the individual FCX vehicle build cost has been reduced from $1m in 2006 to $130,000 in 2010 having amortised the vehicle and critical component part costs over 200 production units, and more in-house development vehicles.

Thus whilst ITM and its collaborators are expected to make apparent strides in this area, the reality is that the UK & US are far beyond the Japanese who took this on as a dedicated, board-backed internal project since the mid 1990s, using substantial (supposedly nation-backed) resources to come this far.

In contrast the CREO project is a multi-interest format, so ITM's own reputational success depending upon the efforts / vagaries of others, these being: Ford UK and the laboratory resources of 3 universities. Whilst CREO then accords to the UK policy need to inter-connect big-business, entrepreneurship and academia, it leaves ITM as a hostage to the fortunes of the universities and the strategic intent of Ford. So, CREO's basic organisation and funding-well stands in direct contrast to the long-term efforts made by Honda, which even itself admits the very niche part hydrogen has to play. (Itself believed to be a Japanese equivalent to the German fuel-provison backstop, yet with greater potential for eventual independent use on Japan's peripheral islands).

Created in 2004, ITM was no doubt inspired by the likes of the publicly quoted Ballard Power Systems (on Toronto & NASDAQ exchanges). Yet Ballard took 12 years to list, then took another 14 years to decide that automotive fuel-cell technology had little chance of success, divesting of its dedicated division to Daimler & Ford, then concentrating upon fork-lifts and stationary gen-sets.

ITM Power's originators have structured company activities so as to appeal as being “multi-dimensional hydrogen”. In turn allowing them present a flow of periodic 'good news' stories from differing market sectors (generation, storage, auto & fabrication) so as to inch up its share-price as the achievements are relayed, even if expenditure and income levels between 2011 – 2013 depart from forecast. It is also assumed that the varying arms of the business will be ultimately hived-off to various other buyer types who wish to add to their own conventional R&D efforts, or wish to be seen as leading-edge within their own sphere, typically commercial interests in EM countries.

However, the major headwind facing the company is the populist understanding that it takes more electrical energy to split the H2O molecules in order to produce hydrogen, than the energy actually harnessed within combustible hydrogen. This contrasts to petroleum's large combustible energy index.

Similarly, eco-pioneering consumers reviewing fuel-cell devices for even low-end uses such as laptop and mobile phone recharging have come up against the cost wall, with the company HorizonFuelCell offering devices that give 20 hours of charge for the cost of $20 replacement canisters which themselves have a 30 day lifespan before required replacement used or not.
That $1 per hour cost is high by domestic standards against which it is measured even if arguably unfairly so given its standalone capability.

The obvious 'elephant in the room' for the automobile is the lack of current or indeed planned hydrogen fueling infrastructure in the UK or indeed across the world. There has been a miniscule effort thus far in Southern California and in Japan, the 'chicken and egg' commercialisation concerns prevail. With this ever-present headwind, the usual 'ramp-up' of scale idea has been followed by ITM, which is to have a specific user type adopt the trialling of hydrogen vehicles. That user-type operates a self-contained 'mobility sphere' with a close-proximity 'return-to-base' range. In this case ITM has attracted Stansted Airport and DHL for limited trials.

However, even if successful in attracting other small stepping-stone clients, the reality is that here in the UK (as within much of the West) the potential to properly commercialise the offering by attracting large state-owned vehicle fleets of is diminishing.

Those large and expansive 'public good' services that use such van & truck fleets such as Postal Services, National Health Services etc continue to be 'unbundled' into ever smaller, more efficient, business divisions resulting from of full/part privatisation. Reduced operational scale necessitates restricted procurement choice focused on the P&L as opposed to a broader social good, which then demands lower cost, well-supported, transport solutions. Even the already private large scale firms were forced to drop their eco-van initiatives in favour of the conventional, as seen with Modec's experience of UPS and FedEx; and when they return to zero-emissions vehicles, they will pick-up from where they left-off with EV's which can be charged from base with minimal infrastructure adaption.

Hence we witness ongoing structural changes that reduce ability to amortise the technology adoption costs over large scale vehicle fleets. Furthermore, exacerbating the structural problem from a regulatory standpoint, the ambition by governments to surcharge fossil fuel use via carbon credits and/or emissions caps has stumbled for fear of destabalising economic recovery, so maintaining the large price-gap between clean fuels and dirty fuels.

So whilst the 'small power/high cost' argument is incrementally being overcome by fuel-cell promoters, we still appear far from the day when better aligned market and regulatory contexts encourage consumers and commerce to pay either a small premium or a direct no-cost choice for being eco-saintly.

As cynics have stated over the years, “the hydrogen investment story is a good one”...”but the energy therein is inevitably 'potential' not 'kinetic' “.

Thus even with the assistance of syndicate partner Revolve Ltd (derived from Rousche Tech and with previous good Ford links) – any idea of playing the 'technology disruption' game using HICE looks presently far fetched. In the meantime the comparative shrinkage of UK & European vehicles relative to global TIV will mean that the voice of Ford UK and Ford Europe will grow ever weaker in Detroit. And even if EU CO2 regulations are some dramatically brought back onto the table it would appear that any serious attempt by FMC to develop hydrogen in Europe would be masterminded from its HQ in Cologne with German industrial backing (ie say via Linde Gases) and the other German automotive giants.

Thus investors will need to decide whether ITM truly represents a 'commercial arbitrage' entry & exit opportunity, yet to make that happen the company may have to look farther afield than originally planned.

Until recently within the green-tech community, there was a 'chalk & cheese' comparison between Modec and ITM.

From their similar 2004 births, although prescribed clean-tech, each represented 2 very different beasts, their capabilities & assets divergently different , and unsurprisingly attained 2 very different levels of achievement.

Modec, spun from Manganese Bronze's eMercury EV project was effectively a self-contained, ready to run enterprise, with inherited market appreciation for a more focused client-product offering. Apparently able to examine its closer market connections to take a more confident growth stance pertaining to cashflow and re-investment projections. As such it stood as a more 'crystillised' entity reflecting a conventional niche vehicle business. Even so, the consequences of the financial crisis had a devastating effect upon the business, leading to its demise.

The administrators no doubt working closely to the Borwick Group (holding 40%) and Navistar (holding 25%). No doubt conjoining forces to provide a new platform from which to grow a reborn EV company that can span Europe and NAFTA. Though it will find itself in a competitive field with the crop of current EV manufacturers joined by start-ups expected in the EU's 'PIIGS' periphery countries. Possibly seeing FIAT-Chrysler bring GEM into greater play, perhaps seeing SEAT add EVs as an income stream, or perhaps Piaggio's expansion; such efforts government assisted to reduce dire unemployment figures, such assistive fiscal policy measures then used to leverage e-vehicle pricing. Jamie Borwick guesses that there will be an EU TIV of 25k unit pa by 2020, yet even if the case early-phase profitability could be scarce if manufacturers are forced to once again seek volume to try and secure themselves, as was the story with Modec. Hence, the automotive industry's earliest days are still being re-lived in EVs and operational balance with deep funding resources will be necessary to maintain brand presence and momentum.

ITM Power plc by contrast is a very different animal to Modec, far more ethereal and seems to have felt its way forward, accumulating skills and capabilities over time. Yet done so at what seems a relatively slow rate, thus prompting questions about its formation and originators expectations. Its AIM listing (ticker ITM) appears to have given enough credence for latter-day government support. [NB. Ideally, given its exposure to capital markets and its substantial cash cushion, there is an innate paradox, which would ideally see the R&D grants repaid once the business has reached a certain level of income]. Thus even at 7 years old it still mimics the character of a very well funded 2nd stage start-up given its lack of income and EBIT & PBT losses expected into 2013 and possibly beyond, organic growth expectations denying EPS until seemingly well after. 2012 income of £0.6m, then trebling in 2013 seem to look to be optimistic expectations, whilst the volatility of its share price in the preceding 18 moths or so rise from 15p to peak at 78p in mid February 2011, now sitting at 55p, thus only 5p above its launch price in 2004, and well under the 320p price given at the additional share subscription in 2006.

ITM then has set about representing itself to market, an impressive website for the company size and slick financial reporting graphics, plus a good web-based operational reporting to the City – though to be frank, the CEO's 'persona of professionalism' in the all important video presentation could be much improved. All in all, beyond rhetoric of “moving from IPR to technology to products” and even trial partners appearing to “prove the commercialisation” of its auto-fuel offering, the company must be far more convincing in its ability to successfully operate within its niche given the macro and micro headwinds previously mentioned.

Recent years and ongoing conditions has made the art of valuing clean tech companies immensely fuzzy, the roller-coaster rides many have experienced resulting from over-blown tail-winds running up to 2008, and latter-day concerns about the loss of macro-economic support systems that were due to well be in place by now.

However, with an absence of priced-in 'expectation' and 'sentiment' it means that eco-tech companies can be better valued by their respective achievements to date and their place in the somewhat dour scheme of things relative to their place in the very broad clean-tech sector. Thus valuations can and should be better aligned to the usual metrics of market share, top-line revenues, cost-base rationalisation, margins, profitability ratios, cash-cushions and the very basic aspects of their prime assets versus liabilities.

This then should be the common-sense ideal, yet as described the US's ability to exploit its 'liquidity & linkages' means a possible distortion of purist valuation methods..

Admittedly this is set to re-invigorate the clean tech sector – which is no bad thing - but it is the level of distortion that is concerning. Investments should be made on sound business principles, when in fact the danger is that a new round of investment could simply replay the eco-tech expectations game. In which case little regard is given to the proven ability of clean tech to make itself felt in the real world, instead valuations built upon the schisms of the Wall Street shuffle between vying corporations to buy into clean tech to tell interesting strategy stories and buoy their own valuation levels.

If hefty enterprise valuations are achieved, only be met with trickle-stream incomes and ambitious scale-ups not achieved, then and such failed expectations would greater strain on the overall clean tech sector, thus highlighting the difference between inflated valuations and earnings reality and pulling the rug from under the sector once again.

Importantly, there is a danger that intrinsically good enterprises become unjustly similarly treated to the innately bad, and the broad-brush clean tech label sees 'the baby are thrown out with the bathwater'.

investment-auto-motives dearly hopes this will not be the case, and that greater focus is dirceted to those 'paradigm-aligned' innovators making small incremental but all-important evolutionary steps of conventional technologies. Supposed 'paradigm-shifters' often appear enticing and glamourous especially with high visibility on AIM, NASDAQ and dedicated GreenTech indices. Yet more attention should be drawn to those under the obvious investment radar.

Saturday, 5 March 2011

PESTEL Trends - The Global Village - Profiting from Prophetic 'Fusion', Whilst Avoiding Cultural Heresy.

The number of times that the 1960s social prophet Marshall McLuhan has been re-quoted in cultural and academic circles is countless. His (in)famous phrases: "the global village" and "the medium is the message" became the staple interpretations for generations of humanities-educated westerners, conveying the essence of an evolving world in which socio-technological breakthroughs - such as the telephone, TV, affordable air-travel, and latterly, the PC, mobile phone and internet - created a faster and more culturally pluralised and (critically) hybridised world.

18th, 19th & 20th century history has shown that such cross-fertilisation is initially a one-way trend: 'paternal' in as much as it conveys the progress of more 'advanced' western culture to become absorbed into the 'lesser' cultures. Usually as a result of imperial power over colonies and influence on neighbours.

This truism far better articulated by Niall Ferguson's basic edict: that the west's dominance for the last 500 years was born from a well intertwined amalgam of factors - primarily legal, financial, socio-logical and technological; thus creating an ever evolving 'advancement incubator'. Whilst Persia & China of course had similar 'social pillars', they were not as synergistic, interactive or productive.

The adoption of the railway, bicycle, truck, car, became the literal 'vehicles of economic growth', benefiting both coloniser and the local populace; though undoubtedly to different degrees. These benefits periodically lambasted by the indigenous intelligentsia - as with Ghandi's 'anti-imperialist' words regards the tentacless of the railway'. But for most they brought about new freedoms and opportunities to explore beyond the regional realms that had been the typically tribal &/or geographic based boundaries for so long.

Horizons were broadened even more so for the populations who migrated to the adopted 'mother-land', such immigrants introduced to a myriad of marketing and fashion led product variations that at the time seemed in comparison dream-like.

However, unlike the US, UK, Europe and post-WW2 Japan, the transplanted technologies in what were called 'developing countries' became frozen in time for decades. Little local know-how or indeed incentive to evolve the engendered technological solution.

Thus, a developing country 'homeland' appeared at best 'analogue', whilst the newly adopted 'mother-country' appeared 'digital', a divided condition between east and west that existed for generations. Furthermore, 'new mother-lands' offered the addition of social intrigue, given that such colonial centres reflected social melting pots. Even if for the most part the ingredients of that pot be realistically connected only by periodic observation; the more marginalised Indian, Pakistani & Caribbean peoples - more heavily marginalised due to racial differences - understandably staying largely within their ethnic group (to this day) to maintain social support networks and maintain ethnic identity.

Thus the migrants' prime identity was seen as 'cosmopolitan' whilst their homeland 'counterparts' viewed as comparative 'peasantry'; that peer generation difference unfortunately often flaunted through dress-code and disposable wealth on return trips home.

Thus the West vs East divide for Europe & Asia, and the North vs South chasm for the US and South America set in stone the cultural identities for millions, whilst 1st , 2nd & even 3rd generation children found themselves with bi-faceted identities imbued by their parents old cultural links and their own personal birth links within their own countries.

Migration, trading routes and the creation of dual-influenced generations is nothing new of course, it has been the core story of the world's anthropological and commercial development, affecting our behavioral habits and the multi-faceted aesthetic of luxury & utilitarian goods – best perhaps seen in the trickle-down of foreign influence in household items, pottery and furniture.

Such family and personal items were, and still are, the 'social identifier' of a person, a collective/community or indeed a nation. Clothing serves as perhaps the most prominent and useful illustration: the origins of basic (typically rural derived) national-dress subsumed to sociologically (work derived) status-dress to zeitgeist prescribed fashions. This evolution prominent for other items including household goods and of course highly evident in the development of the motorcycle and car. Beyond the symbolism of the purchase itself, these items latterly personalised by users to add additional 'individuality' within the social framework. Today perhaps the most obvious example being BMW's Mini - the nadir of 'mass customisation'.

Though personalisation of a BMW Mini may be out of reach for most consumers in EM nations, the ability to construct their own modern personal identities - via a 'pick & mix' of both their own ethno-cultural references and western-derived iconography - plays an increasing role in the purchase of goods and services. So as to create a 'patchwork quilt' of goods and experiences that have personal resonance.

It is thus a 'quilt' that becomes ever more complex as the society fragments as a consequence of demographic patterns and the expansion of lifestyle choices, whilst the media tries to weave both elements together to both reflect social trends and to support commercial enterprise.

This interplay between west and east, especially for western companies seeking greater EM business, becomes ever more complicated since population and consumer perceptions are build-up as layers of conscious and sub-conscious interpretation.

So the exporting of everything from ideologies to products (and all in between)from the west becomes an ever more tentative ambition, requiring highly sensitive exploration and delivery.

In this regard, two TV items, with very different aims and formats, highlight the rights and wrongs of the west communicating with the east: in this case India.

The 'wrong' in the form of a soon to air programme on UK TV, the 'right' a near decade old TV advert screened in both the UK and India which even 10 years on still has far more 'social connectivity', sensitivity and essential respect.

Here in the UK the latest attempt of cross-fertilization of European & Indian cultures – to assist European reach into the sub-continent - is a TV series which centres on a group of Indian school-children who are chosen to sing the musical 'The Sound of Music'. As many will know, the plot is set near & in Saltzburg, Austria, just preceding the breakout of WW2. Its songs are of course a British middle-class tradition, also adopted through the 1960s, 70s and 80s by a once overtly aspirant British-centric, Indian population which 'refracted' the old Victorian-Raj ideals through Anglo-affectation. Today, in DVD format the musical is still enjoyed but primarily works as an English language teaching aid for a small sliver of upper middle class families, the disc often bought or sent from the UK. Though the DVD is naturally outsold by locally produced Bollywood family movies of similar ilk.

However, from the trailer of the upcoming TV programme, it's actions appear to heavily patronize modern India. Especially when the darker-skinned, brown-eyed, black-haired boys and girls dress in Germanic lederhosen in order to sartorially mimic the mostly blond-haired, blue-eyed von Trapp children - the presumably unintended 'Aryan contrast' could hardly be greater. Furthermore, it could be argued as recreating the worst of previous era colonial cultural 'impregnation', embedded into the psych of young children. The massive irony being that the innate sentiment of the musical is about the retaining of a regional cultural heritage in the face of heavy opposing cultural influence. This then is the very antithesis of what a modern, globally astute Britain must be seen to reflect.

Quite what the school-children make of a storyline so distant to them both historically and geographically is impossible to deduce, since the cultural dissimilitude could not be greater. It also unfortunately subverts perception of the local origins, importance and historical regional uses of the Proto-Indian derived swastika, as seen in Hinduism, Buddhism & Jainism. The icon's peaceful, goodwill intent was already previously subverted by the Nazi's, so why continue its tainting in its very heartland, and critically in which it has a very different meaning?

Perhaps beyond the enjoyable songs the general idea was to have Indians sympathise with those oppressed by the Nazi's (ie tyrannical regimes). But given India's still prevalent caste system, its own internal political frictions of 'capitalism vs socialism', its on-going troubles with bordering Pakistan, and wish to see continued peace in Sri Lanka, one must wonder what the programme makers' intentions were? India is still a country in major flux, and must sort its own fractious differences, before absorbing 'historical baggage' which though important to Europe is not India's to also psychologically carry.

Instead the TV programme's content should have sought to reflect an 'enlightened', 'perceptive' and 'outward-looking' mindset for Indian children , perhaps more akin to the likes of Rudyard Kipling's 'Kim', who was the embodiment of a young, aware pragmatist. He artfully bridged 2 and more cultures, an ability so critical to India's future prosperity. A contemporary case study ripe for exploration could have been to extend the multi-cultural strides made by Danny Boyle's film 'Slumdog Millionaire'; some 108 years later than 'Kim' but just as involving. Or to have used the Anglo-Indian film 'Bride & Prejudice' as a morality-based tale about social-divides, yet would have offered both both child-centric entertainment, multi-cultural learning and offer hope for the future.

Regretfully, it would not be surprising if ultimately the ill-contrived TV programme 'as is' leaves the UK open to Indian accusation of intent toward a continued pro-western cultural hegemony. Given the contribution of the UK's own much admired Indian citizens, and its desire to play a contributive role on the world stage, that would be a great misapprehension.

Compare in direct contrast, a truly perceptive TV advertisement which Peugeot ran about 10 years ago. Popularly titled 'Made in India' by viewers, it was officially titled 'Sculptor' by the ad agency who devised it, winning a BBC run competition for the best UK televised advert that year; though it was also run in Australia and New Zealand.

It became a TV 'must-see', depicting a young man living in a 3rd tier Indian town who desires a modern (organically styled) Peugeot 206. Unable to afford one, he comically modifies a (geometrically square) Hindustan Ambassador into the 206 shape: using the few 'tools' at his disposal: a wall, an elephant, a sledge-hammer, welder and a lot of toil, day & night hard. The car is re-born as far from perfect but something self-made, with social impact of being 'cool' and able to be enjoyed by himself and friends.

The advert was warmly received in Europe and India as something truly in-tune with the Indian national pysche for ambition achieved through hard-work.

Furthermore, those 45 seconds spanned more than 45 years of pent-up national desire for self-improvement

Hence, the comparitive outcome, is that the TV programme appears to have all the hallmarks of cross-cultural insensitivity, whilst the TV advert contained cross-cultural brilliance.

The core message then, shown by example, is to avoid anything seen to approach 'western indoctrination', instead adopting an attitude of 'eastern co-creation'

Today we live in an ever smaller 'global village' which itself sees greater homogeneity of assimilated products, customs and outlooks. So the decreasing number of innate differences between nationalities and groups – by virtue of their disappearance - means they become ever more precious. They effectually sustain core identities, and should be both respected and explored for the potential of sensitive commercial leverage.

This of course may appear to run counter to the demands of corporate profitability which would ideally offer a singular product worldwide to minimise manufacturing & logistics costs and so maximise margins. And of course – especially so in the automotive sector – a level of pan-regional mechanical and aesthetic commonality is necessary to simplify output and ensure reasonable profits that in turn attract new shareholders to the company. But regional differences also provide for product orientation.

Ford, VW & BMW are perhaps the best exponents of this given their maximisation of platform / modular-set leverage across vehicle models and variants. But they and other VMs well recognises regional differences, hence the production of Ford of India's Icon small sedan (based on Fiesta) and VW's development of Lavida solely for China (based on Golf IV) and BMW's increasing use of Euro-Asiatic styling formulae.

So we see that even the core of western creativity is leaning toward eastern influence in the search for eastern consumer acceptance.

But what of the idiosyncrasies that make up a specific locale and add to the creative milieu?

Naturally, there will of course be partial disappearance of regional-specific features when neighbouring countries form regulation for common practice. The formation of EEC and EU technical standards demanded that French cars loose their idiosyncratic yellow-tinted headlights - which during the 1960s & 70s added undeniable visual flavour to any tourist's trip to Paris; as French as the 'Tour Eiffel'itself.

But typically a sense of regional 'vive la difference' rebounds when locals feel that regional character has been lost. In London and across the UK it was this sensitivity that led to the character of the London Black Taxi being re-instated on the then new TX series cab after run-out of the classic FX4 and failure of the androgynous Metro-Cab. And it is why the next generation London bus will recapture the near lost classic Routemaster aesthetic, to re-inject the London spirit back into the city that the modern but uncharacterful 'bendy-bus' lost.

It is then ironic, but expectant, that whilst the west seeks 'cultural refuge' in the best of its past, that fast developing EM nations want to unshackle themselves from the monolithic products that others effectively installed. Items like India's Hindustan Ambassador car - a rebadged and latterly re-engined Morris Oxford, or the Premier Padmini - a renamed FIAT 1100D. But such places may ironically become all the culturally poorer for not retaining aspects of their past that maintain their distinct differentiation.

Of course, that is not to say do not modernise, but do so in a way in which aspects of the symbols of national character are re-vitalised. Otherwise cities and nations become increasingly culturally bereft and thus increasingly nondescript.

[NB this begs the question as to whether Manganese Bronze's LTI cabs - manufacturers of the London Taxi, with Chinese JV production facilities - could not 're-produce' a modern Oxford / Ambassador based on TXI for use as India's 21st century? No doubt the idea has been aired by MB/LTI given its ambition for international expansion, and as such it is something that the Indian authorities should take seriously as replacement 'economic vehicle' for the out-moded Morris, and a foundered Hindustan Motor Co].

This then in turn begs a question about the involvement of the individual relative to
cultural creativity, whether on a national level - as a replacement taxi design competition might evoke - or on a personal level, simply to ascertain greater individuality.

The essential difference between previous centuries and our 21st century age, is the fact that the technological advancement has become increasingly socially orientated, putting the individual into the creative chair and opening up the level of input into both media & products. Increasingly affordable pre-programmed music synthesizers have transformed music-making and by-passed the studio-system, whilst the web allows for self-promoting artists. Equally, photo-realistic graphics packages allow people to create their own visual output. And whilst not as advanced, their is a growing tide toward self-generated '3-D printing' which allows for new product creations.

This means that cultural creativity has been for want of a better phrase 'democratised', hence both manufactured and absorbed by the individual, the group and the mass – or any combine of the 3.

It also means that cultures can be theoretically 'deepened' by overlaying old cultural reference-points upon new items or media, aswell as opening up the white-space for cross-cultural amalgamation, something perhaps especially of interest to the the many people who themselves span two or more cultures.

Given the role of music and dance in global and national histories, popular music has over the last century provided perhaps the most fertile ground for such 'culture-meshing'. From the 1920s re-appropriation of working-people's music in upscale Jazz joints, to Rock & Roll's foundations in Deep South 'Blues' and its recapture through 1960s R&B, to the mainstream of C&W in the US, and the adoption of 1970s Hip-Hop by the global youth, it in turn fragmented to form Garage, modern R&B, Parisienne Arab-Rap, UK Grime, UK Urban Bhangra and much else besides.

However, the notion of cross-fertilized influence from the 'Global Village' is today well demonstrated by music artists such M.I.A - British (London) born of Sri-Lankan Tamil parentage. Since 2000 she has become the archetype of the seemingly marginalised yet anti-oppressive 'empowered' individual. She imbues her Tamil (Tiger) lineage and her femaleness with a savvy appreciation and conglomeration of the 'every -day soundtrack' from global and historical sources. Juxtapositions that range from F1 engines to old Bollywood musicals.

As such she has become a type of 'anti-hero' by developing a broadly cross-cultural artistic output (visually and audibly) to the 2nd and 3rd generation immigrant youth in the US, Canadian & Britain. Adding to her plausibility and standing in the eyes of her fans is that she is a well-publicised philanthropist, giving portions of income to the apparently marginalised or oppressed: primarily African Liberian schooling and Sri Lankan (Tamil related)causes.

As is also typical of any 'street to star' story, an alternative viewpoint is to regard her as simply a similarly fabricated product for target-market consumption. Extracted from obscurity by an independent record label, attracting a following, then sold-onto a big record company and essentially 'commercialised' for major sales success. And finally possibly considered to have 'sold-out' her own heritage by marrying into a wealthy non-Tamil family.

Either way, M.I.A. replicates age-old case stories of fringe communities providing the seeds of musical invention, the typical cross-fertilized output of which is brought into the mainstream and thence re-played back to the migrant heartland and a afar broader 'in-touch' audience. The record companies executives identifying and developing an artist who ticks all the boxes of prevailing sociological trends.

Hollywood film-making has used it ever since the London born Charlie Chaplin for Trans-Atlantic audiences of silent movies, with 'Mid-Atlantic' (European-esque) Cary Grant and Audrey Hepburn for US and European audiences, with the 'bit-part' Carmen Miranda to reach South American audiences, the NY & LA Afro-Americans for US, Euro & African audiences, Jackie Chan for reach into HK and Asia and more recently the prominence of Mexican & Latin film-stars to reach once again Southward. The opposite of this American effort were films like 'Soy Cuba' ( I am Cuba) produced by the Soviet Union in 1964 to further its political reach. The film timely 're-discovered' recently in the US as part of its own reach into Cuba with the stepping down of Fidel Castro, his incoming brother Raul, and the warming of Cuban-US relations.

Unsurprising then that cultural-creativity in the world of entertainment acts in tandem with that of global economic development, and is used to further global reach by competing super-powers and emerging powers.

Simply then a continuation of the historical norm.

But as also shown, the advancement of more individually directed culture creating technologies (eg video/audio sampling software to the emergence of 3D printers) means that the experiences being had by people are increasingly self-generated, and taken 'bit by bit' in an 'eclectic quilt' manner, or 'en mass', from far broader cultural influences than ever seen before.

Appreciation which now can relate down through the ages and across cultures given the power of the internet to delve deep and wide; say from the Ancient Egyptian or Mayan right up to the creative impulses of a specific youth group in another part of the world.

Moreover, the west's more recent necessary return to a “make-do-and-mend” mentality plus the move away from sweat-shop purchased cheap goods re-orientates the very ideology of value. Toward something mush more self-generated as opposed to simply shop-bought.

Ultimately, the dynamic of cultural cross-fertilization is as old as the migratory patterns of human history. This happen-stance either as part of a 'lassez-faire' attitude by dominant powers seeking 'soft-expansionism' or in reaction to a more tyrannical attitude of 'hard-expansionism' seeking to try and 'indiginise' a foreign populace.

Yet just as US, UK and European corporations are becoming increasingly owned by non-western investment groups' shareholder interests - typically EM SWFs and similar – so similarly a breakdown of a singular cultural influence or pattern has, and continues to be, the prevailing force.

Critics of 'globalisation' per se may well argue that what is seen at the apparent cultural surface may not reflect the reality of financial and political muscle being leveraged. As ever, they may well ask who in reality gains the largest slice of the cultural economic advantage?.

Yet, this new 2nd decade of the 21st century also demonstrates just how reliant the west's future fortunes are entwined with those of east and south, from the Ningxia province in China to the Ngamiland district in Botswana to the Nickerie district in Suriname. Such critics should instead see the value of a 'rising tide lifting all boats'. This proportionately far more important to any struggling population or peoples seeking an escape from poverty, than the case for the already wealthy.

However, although 'enablers' of a new age for many people in EM countries and those less fortunate, the west will need to avoid any accusations of hegemonic cultural intent and manipulation - as seemingly displayed by the 'Sound of Music' TV series.

Instead to focus its efforts to both develop its own creative identity (historic, modern and futurist) aswell as developing respectful and credible cross-cultural creativity.

With the result that both such activity streams 'domestic' & 'international' attract the professional attention of EM politicians and business-people, aswell as able to draw the mass interests of other nation's peoples.

We in the west must in turn realise that whilst the world's less fortunate peoples may not have similar per capita wealth, they too have an abundance of alternative heritage, engrained self-respect and shared community spirit. Elements that many 'advanced' countries could well benefit by.

Thus, it seems the sooner western nations (and indeed the Chinese powerhouse)seeks to gain anthropological insights into other countries and populations, the better.

Insights far beyond surface differences. In phraseology of the British Raj the west must be willing "to go native". And as an outcome the study of 'Anthropological Economics' may well come into its own; many bankers, diplomats & executives looking for cultural-relations lessons from Cambridge, Oxford, SOAS & even the unsettled LSE* - those that can offer a bridge across the cultural divide.

* Post Script

Whilst investment-auto-motives has had no formal or personal links to the LSE – beyond attendance of public lectures - the recent resignation of Sir Howard Davies was sad news. He was the embodiment of the University, far more than just a figurehead, his best intent obvious to all. A great shame that the Qaddafi regime's awful actions should create such a turn of events and have such ripple-impact. Sir Howard will no doubt be greatly missed by many similar members of the visiting public.