What can services business learn from private schools pricing strategies?

What an incredible statistic: independent school tuition fees have been rising at over 3% faster rates than inflation and even over 1.25% above property price growth over the long run, i.e. for at least 20 years.

Let’s look at the cost of private school in the last 20 years since 1995.

Let us take 1995 as a benchmark and say that this year is our benchmark for the value of money, for cost of school fees and property prices. I.e. We set them all to 100.

In 2015, CPI inflation has grown that notional 100 to 217 (at an annual average growth rate (“CAGR”) of 3.9%). This is a little above what I had assumed, but we must run with the data from the ONS.

Property prices (Cambridgeshire as a proxy, approximately at or slightly above national average) have risen to 310 (CAGR of 5.85%). Quite a clip.

Staff wages have risen above inflation, but more slowly over the same period of time. Food prices have risen at slightly below inflation levels with competitive pressure high.

But school fees have beaten not just inflation, but even property prices and stand in 2015 at 400 (CAGR 7.15%), a factor of 4 times our 1995 level, and nearly double the result of CPI inflation.

Your 2 children’s schooling now cost you that of almost 4 children from 1995! That’s grim!

Said another way still, each and every year for the last 20 years, school fees have risen at a rate 3.2% higher than inflation.

Yet the statement from school governors when they increase them again in 2015 by say 3.8%, with inflation at just 0.3% or lower, is that they cannot increase them by anything less because of increasing costs. How can that be the case for such a long time? And why are local schools all increasing at exactly the same rate to exactly the same prices?

UK Independent Schools offer a highly valuable service to parents. Was it Aristotle who said that “the educated differ from the uneducated as the living from the dead”.  An exaggeration by the philosopher, no doubt, but we get the point.

Of course there should be a good fall-back, the best possible state system should exist. So should many different types of independent school and also homeschooling. These schools or “homes” should offer all forms of education ideally at a wide range of prices to suit all budgets and children’s needs and interests.

But the current situation appears to be that the schools do not “compete”. Anecdotal research showed that the cost of three local independent prep schools was to all intents and purposes identical. Literally a few pounds difference in totals of over £4,500 a term. They will argue that they all have the same requirements. But businesses often cannot do this. (They must genuinely compete with each other. The smartest way, though, is not by competing on price, and in the long run, killing margins.) Given the massive 3.2% average long run increase in fees, why is there still little variation in fees across schools in a given locale?

Surely it would be a better hypothesis that schools are knowingly raising their fees annually on the long run at the same rate as their customer’s (the richest 5-10% of households) wealth is increasing. They are spending some of the extra money in an “assets arms race”, such as new halls, swimming pools, etc, and further monies may be passed to increase the annual return to their overarching Foundations (e.g. another educational institution). That top few percent, if they have a balance of wealth between property, shares and increasing work income, might well track the “inflation plus 3.2%” rate that the schools have stuck to. If schools didn’t track this wealth, then they might find over time that there would be more applicants and they would have to be more selective. Perhaps they do have a degree of such selection even at this long run rate of fee increase.

The private schools look at the value delivered, its cost, and the ability & willingness of parents to pay. That is the real 3-dimensional equation. The schools have understood this. Services businesses which haven’t understood this may be able to improve outcomes by adapting their pricing strategy in this way.

Such schools are powerful and some stakeholders may not want to put their heads over the parapet. Parents, for example, could at best try to argue for all stakeholder needs to be considered and basically those struggling to keep up with the blistering pace of increase might plead for clemency (with data) at PTA meetings going into the future. The schools are excellent, however, and it is unlikely that for the next 20 years we will observe fees rising at below inflation to compensate for the previous 20-year trend.

But it is nevertheless a tad inaccurate for governors to write letters saying one thing when the other is apparently the truth. This is no place for euphemism: anxiety levels among parents are at an all-time high.

School governors increase their fees so to track the wealth of their customers not just to cover their basic costs.

Of course the actual fee paid is mitigated somewhat by a certain number of reduced-cost possibilities, which the ISC states covers around a third of all places in 2014, under the general banner of “bursaries”.

Parents placing their children in independent school must make an allowance for this rapid growth in costs. If the children attend from age 5 through to 18, then assuming the previous trends carry on in this way, they must factor in that the costs will be a massive 55% higher in real terms when their children reach 18 compared to 5.

Top 4 Frogs Being Boiled in Gradually-Heated Water

1. Growth of government taxation

You know the old stories. Napoleon levied an income tax to support his wars 200 years ago. This was supposed at the time to be temporary. But it stuck.

When the patriots decided to fight the British, it was over tax on goods at just 2%! 125 years later income tax in the USA was 7% rising to 39% for people earning today’s equivalent of $11 million. That 39% was their “supertax”. It was unthinkable to charge normal people more than 7% tax. Today, that same supertax kicks in in the UK at just £30,000 or so, and millions pay it.

Corporation tax was brought in much later, again during a war, and again, it was meant to be temporary. Message: new interventions are not temporary, and they tend to start on the fringes and by stealth they hit more and more people.

 

2. Growth of government spending

It is clear that government spending is on a very long run upward trend. Let us restrict ourselves to the last 100 years or so to the beginning of the first world war, when spending was less than 15% of GDP. Public pensions were tiny, in their infancy. There was no national health project. People knew their doctors. Doctors were pillars of society who made their wealthier clients pay at the full rate, and helped, sometimes with the assistance of those wealthier clients, the poorer ones. Generally people were concerned with the balance of trade. They believed in cutting the cloth, living within your means and so on.

But more than that: poorer people did not expect to be helped by the richer. There was dignity: they wanted to be self-reliant. They did not feel that they had a claim on the money of the richer people. Many of them would feel uncomfortable in accepting any offered help. Giving was a choice for the richer. And in turn, it was harder to give to people to help them in need. There was dignity among both “categories” wealthy and needy. Perhaps there was less envy. There was certainly less coercion and control from governments, while people and communities supported each other and adapted according to their situations. That is the rose-tinted picture of the UK before the first world war. How untrue is it?

3. Growth of the number of government areas of intervention

We have also invented a maze of other taxes, special reliefs and the effect has been to swell the bureaucracy and support an entire industry of accountants in the public and private sector. This is reflected in many tens and hundreds of thousands of pages of “tax code and law”.

To my mind, if we all had the physicist’s mindset, one of approximation and simplification, we would never have gone in the direction we have. Instead, the bean-counter mindset has prevailed, and complications have mushroomed.

Just as an exercise, I call for a competition to write down, from scratch, a “One Page Tax Code”, let’s call it the One Page Tax Code Project, in which there is a prize for the best and simplest such document, which could plausibly give a greatly simplified alternative to the hopeless and unintuitive spaghetti of taxation that we currently entertain, to our great cost and lack of competitiveness. Ideally, such a one-pager should enable, for example, individuals to calculate their income tax (if any is included) in their heads, and likewise (if any included) corporation tax. The one-pager should indicate what level of funding might be expected or is supposed to be obtained from the new system (and again for some, the exact amount might be tweaked by changing just one, or two, variables in the very simple system).

I believe one could slash the code right down, without upsetting many people. We’d be unimaginably more efficient and effective. We’d be releasing so many bureaucrats to pull with not against us economically. We’d also be making life easier and less tedious for so many people in businesses and jobs around the country.

This is fun! Let’s do it…

4. Growth of government

This follows directly from the above trends. It’s been growing for centuries in the UK. Is this inexorable? When does it become “too much”? Did we reach that many years ago, and should we now push back?

In the 20th century, apart from falls from extremely high levels of GDP spend just after both world wars, only Margaret Thatcher succeeded in reducing government and spending as a fraction of total GDP. She, seemingly very modestly, reduced it by about 5 percentage points from 43.5% to 39% between the 11 years of 1979 and 1990, i.e. an average rate of decrease of less than half a point a year. But within 6 months of her overthrow and other conservatives taking on power, it had all been erased and we back at the highest level again! That modest reduction over such a long period of time caused such ructions (or were those ructions just inherent to that era, that situation?) It is hard to see how any current politicians would be able to achieve such a thing. Most of them don’t want to. Incredibly, they want to continue to intervene more, not less! Extraordinary!

The alternative is further growth over time of government…brings me back to the title of this blog. That is what we face.

—-

Like the frogs, we don’t jump out soon enough. We simply get cooked.

Political Discussion Focus in UK 2015 and beyond…

1. Choice, absence of coercion
a. Fair tax* = flat tax + donational, gamified “tax-me accounts”;
b. Less tax means less poverty and more for workers and business investment
c. …Reduces the loss of dignity for (benefit) recipients (what do they really need?) and the burden on forced givers

2. Absence of jealousy (at least in driving policy)
a. “I’ve no claim on you”
b. Focus on independently-defined real (sometimes called “absolute”) poverty

3. Government:
a. Focusses & is efficient, knows how to reduce itself through service design and digital technology;
b. Allows for self-reliance, family, all forms of community, philanthropy and that way is about real compassion & goodness (“nice?”); not the forced kind of giving via unwieldy state government (“nasty?”).

——

*Simplify the tax code greatly and release hundreds of thousands or more of civil servants back into the private sector wilds, paying taxes and pulling with other taxpayers, making it easier for everyone. Collect the tax by a uniform, simple  flat rate and supplement with monies paid by those who feel that government is good way to redistribute funds. (Many of course will not, because it generally may not be the best way…but significant amounts could be raised digitally and by making this public and competitive (but by choice) among those who can.)

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The Value of Value Networks…

Value Network Analysis resembles but is more valuable than balanced scorecard.

In Value Networks we begin by writing down the list of stakeholders: companies, customers, suppliers, influencers. This may be as many as 50 different players, actors. These are represented as nodes or elements in the system.

We then add connections or links between the stakeholders which have interactions or “flows”, which are directional, between the two nodes or elements. The flow can be money, goods, services, information, or some other intangible. There may be as many as 200 links, and if we focus only on tangibles, this may reduce to 100.

One can work out a current value network – that which is going on now. And one can then take a given change or disruption in the marketplace that is expected or beginning to happen, and consider what the value network might be expected to look like in the future.

How for example are the money flows changed? What new players are there?

The flows can be rated numerically, or by levels, such as “Very High” “Medium” and “Low”. Doing this enables analysis measures of various kinds based on the quantities, such as number of connections (in, out or aggregated) and size of flow in the connections. These are “influence” metrics that can enable us to validate which are the hubs (most important (future) nodes or players), which are the players who have highest visibility into what is happening across the network and at a subtler level, measures such as “Eigenvector Centrality” which looks at how well connected a hub is to other hubs rather than all other nodes. Such hubs are leaders in the network, but not necessarily the most localised influence.

Having analysed the value flows in the future in this way, we are now able to look into a suitable sub-network, centred around a key player such as a typical, key customer type of the player working on the network, and the appropriate subset of the network related to this player.

This step resembles but is more rigorous than the reduction to a case made in Balanced Scorecard. A key point is that the appropriate sub-network comes out of the analysis of the value flow in the wider network, rather than being intuitive, or at least this modifies and informs the decision. The extent of focus on tangibles versus tangibles plus intangibles depends on the appetite of those doing the analysis; whilst insights are gained from the purely tangible, cleaner system, further insights can be gained from the combined, more complex system.

Examples of insights from both money and money + intangible analyses are potential impact on cash flow at focus players, assessing barriers to change and services needed, assessing changes to processes and tasks, the impact on the business model of given stakeholders considered.

Cambridge Investment Research team contains experts who can lead blue chip and innovator business teams in this method for seeing where the value is and how then to propose it to key customers.

 

Top 10 Reasons to Attend Graphene+ MasterClass, Press & Business Conference 2015 – 5 November in Cambridge

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For pricing see further down the page.

1. There is a top level master class on 5 November for corporate executives led by a world-class coach & assisted by subject-matter industry experts.

2. Followed by a media event with the Vice Chancellor of Cambridge University and then an exclusive private roundtable dinner at

3. the beautiful, ancient King’s College, Cambridge University. Please email corporate@cir-strategy.com for a detailed brochure or booking.

4. Topics for the entire masterclass and business conference are market-led,

5. which means that past delegates have requested them and

6. CIR is asking all speakers to choose one of the topics rather than taking the shotgun “call for papers” approach with them,

7. So that uniquely to date, buyers (corporates & brand owners) will be there with tech suppliers

8. At the showcase throughout day, the business conference on 6 November all day at the New Cambridge Graphene Centre Building

9. 12-16 talks throughout the day updating you on topics you wanted

10. CIR has run high quality events since 2002, always listening and learning, increasingly market-demand led.

There will be a focus on strategic use-case value-proposition development, innovation & strategic products such as sensors & devices, electronics, consumer goods, industrial products.

Pricing

(5 Nov) Exclusive invite-only master class day with fine private dinner at King’s: £895 pv (Max attendees 24) (Corporate or C-level Execs are invited)

(First Conference ever at New Cambridge Graphene Building) Early bird business conference day with showcase:  £297 pv. After early bird: £349 pv. Concessions: 15% (under 4 staff tech suppliers, f-t academics, f-t investors,  not consultants or public sector).  (Max attendees 80)

Price for both days is the the sum of the above prices.

We (CIR Team Justin, Maya & Nick and supporters Cambridge Graphene Centre and Media Partners Nanopro and Graphene SIG very much look forward to greeting you at this unique market developing & accelerating event.

http://www.hvm-uk.com

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The Value of the Smart Systems Summit 2014 1-2 October London IoD

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This is a special summit culminating 7 years of smart systems conferences within various segments

We form media partnerships with those who can extend our reach further

We are a strategy consultancy rather than an event organiser following instructions

We specialise in market research, using contact referrals and social media to obtain top speakers year after year

The value is in the bringing together of industry leaders beyond your own lists, with government and other academic groups

Our databases are large, from 12 years of conferences with 3,200 delegates

Network with industry innovators to create and develop critical new business collaborations and to exchange knowledge

Minimize risk by keeping up with technology developments – where is the industry going

Bring in cross-over engineering situations that might lend valuable ideas to work already being done

The spice of high level events in the capital, a greater chance of serendipity in networking

We’re bringing together top people from no fewer than 21 conferences in Cambridge and Oxford on these topics – so it’ll be a unique group, not the same people

If communications are important to you, this will be a well-covered conference in social media and in print

It will quickly generate a legacy website and slides for the site Slideshare, which are looked at by delegates and referred to others over time, something which builds over a long period

Gain industry recognition for yourself and your company through speaking, roundtable participation

For buyers – what new systems, products and services are there to buy?

It’s a prestigious venue – one of the best in the UK

It’s in a central location easy to reach from all directions –  In the capital, in exciting West London, near parliament.

Book now via this link

This is how hard it is to get it right…

Ramanujan, the self-taught Indian mathematician, is being celebrated this year. Jeremy Irons and Dev Patel (Slumdog millionaire) star in a film being made in Cambridge as I write, summer 2014.  Another film about his life has just been completed.

Ramanujan wrote down, worked on, and arrived at thousands of results, the vast majority of which were correct. He came to Cambridge for five years towards the end of his short life and became a Fellow of the Royal Society. Born in Madras in 1887, he died there of TB in 1920, aged 32.

This little anecdote below, however, from the 1940 book “Ramanujan” by Professor G Hardy (Chapters I and II), who helped bring Ramanujan to Cambridge, shows how hard it is to get it right in mathematics.

In the theory of prime numbers, there was a ‘prime number theorem’ for the number of primes up to a given number, call it x, which, brilliantly, Ramanujan independently rediscovered. Gauss, Legendre and Dirichlet had “endorsed” it prior. The theorem however “errs by defect” – which means if you stress test it enough, i.e. go to high enough examples, you’ll see it deviate from the truth, and increasingly so.

Up to x = 1 billion, the expression is good!

But another mathematician, Littlewood, went on in 1912 to show that there are an infinite number of (very high) values of x where the formula is shown to be incorrect. He did so by looking at its difference from a better, proven formula for the number of primes up to a given value, and an example found by a man called Skewes was 10 to the power of ten to the power of ten to the power 34. A large number! Hardy thought this was the “largest number ever to have served a definite purpose in mathematics”.

When Einstein wrote down Special and General Relativity and these were later tested, this showed that under certain conditions (strong gravitational fields or velocities close to the speed of light) the Newtonian theory was very wrong. Quantum mechanics does the same thing at the small scale to Newton’s theories.

A conjecture, a model, a hypothesis remains just that until you prove it, as in mathematics, e.g. prime numbers,  or do experiments to check it, as in gravitation, or in small-scale physics.

Proof is extremely difficult.

Top 4 Reasons Why the Public Sector Shouldn’t Build Tech Networks

If a service is renderable by people working in a particular industry, then why and when should government compete with those providing this service?

Take the case of industry conferences. The current situation in technology industries in the UK is that government events are very common, often very cheap or free, and nearly always in competition with or to the detriment of those in the private sector providing this service. It is quite possible now to go almost exclusively to government run conferences. This has the effect of devaluing the them along with the other, private sector events. In finance, this used to be called in the jargon: “trashing the market”.

Yes, these are sometimes outsourced back to the private sector. But the message is there to business people, academics, venture capitalists, entrepreneurs and so on, that a conference or event costs nothing and is to be funded by taxpayers. So the cost of hiring the venue, the catering for lunches, dinners, breaks etc, the staff to organise the conference and the “je ne sais quoi” that goes into doing the research, having the idea, structuring and finding participants – all of that – costs nothing to those who go for the “cheap seats” of subsidised government events. Often, those events actually involve further attempts to stay away from the reality of the marketplace and actually obtain grants for research be it product or market.

Is all this healthy?

If for some unknown reason an industry cannot muster someone to step forward and set up an “industry association” and the same person or another to offer conferences and networking events etc for the industry…well… it would be a very unusual and unsociable industry.

But what if it costs too much?

What does that mean “costs too much”? Marketing is a value-creator or realiser, essential alongside innovation. Again, the providers of events find this out reasonably quickly and will make efforts to use cheaper venues, reduce on costs etc until a format is found. Different events providers will come up with different pricing matrices which in theory will enable all categories to choose which events to attend – and that will be a a useful subset of possible experiences that fits with the pocket and risk-taking & rewards obtained of the particular individual or company.

Is this really lacking across all tech sectors so that we need online social network and physical leadership from government for such, across the board?

I leave this for discussion. But a few points can be made:

1. Governments are not good at strategy, leading industries*

2. Governments are not there to run events (there are other things to do with those resources)**

3. It is more efficient and cheaper to sponsor a private sector event to encourage it

4. It is more effective to let the private sector lead its business and marketing activities***

*Why should government be any better or safer with experience services related to those industries?

So (from 3.) a key question for this blog entry is: why do government agencies run events rather than just sponsor, exhibit at and attend and learn from private sector events rather than running and outsourcing their own?

**They may need to regulate industries, but that is a different function.

***This has the benefit of allowing the private sector to lead, and has much less distortive effects on the whole service economy, and also frees up funds and resources for government to work with.

Top 12 Reasons to attend Smart Grids & Cleanpower 2014 Cambridge

Links:  Conference Home | Brochure | Book now | Info |Speakers & Synopses

Top 12 Reasons to Attend SGCP14

1. See and mingle with 40 top speakers
2. Influence the debate – audience reverses & open panels
3. Build your network – new and old partners & clients
4. Pleasant dinner roundtable in Cambridge with decision makers and influencers
5. Help innovators at smaller and large companies
6. Debate fracking rationally
7. Debate energy pricing & market structure
8. Debate the energy vs internet cultural challenges
9. Help increase grid resilience
10. Learn all about smart grids and energy
11. Get latest updates in markets
12. Challenge your assumptions
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AGENDA – DAY 1 – EXECUTIVE BRIEFING MASTERCLASS DAY JUNE 3
10:15 – 11:00 Session 1: Introduction Smart Grids & Energy – led by Gavin Jones, Business Development Director, ElectraLink
10:15 Introduction to Day 1
10:20 Definitions
10:30 Basics
10:40 Trends and Drivers
10:50 Review & discussion

Coffee break

11:15 – 13:00 Session 2: Technology led by Dr Andy Stanford Clark, CTO Smart Energy, IBM
11:15 Demand Side Management (DSM) – the key to the smart grid
11:30 Case studies
11:40 Smart Meters & AMI | Interoperability
12:00 Distributed generation – Alan South, Commercial Director, Solar Century
12:30 Renewables and storage, markets and intermittency – Graham Ford, Mansion Partners
Review

13:00 – 14:00 Lunch networking & meetings

14:00 – 16:00 Session 3 Markets – led by Mike Wilks, Director Smart Energy, Poyry
14:00 Social & Innovation Cartography in grids and energy
Key players – visions, strategies and what they are doing
Porter’s Market Characteristics & Forecasts
14:45 Demand Response Economics – Anneesha Patten, Poyry
15:00 Big Data, Data sharing & privacy – Gavin Jones, Business Development Director ElectraLink
15:20 Monetisation of energy management systems – Pilgrim Beart, Founder AlertMe & 1248.io
15:40 The Industrial Internet – Dr Amyas Philips
Review

16:05 Tea break

16:30 – 17:30 Session 4 Innovation – led by Rob McNamara, Founder, Smart Grids GB
The status quo & change challenges
The value & funding of innovation – Steve Dawson, VP Consulting, Sentec
17:10 Discussion
Summary of Day

19:00 – 21:15 Roundtable dinner at King’s College, Cambridge

AGENDA – DAY 2 – SMART GRIDS 4 JUNE
Session 1 Smart Grids & Collected Intelligence
10:00 Dr Justin Hayward, Director, Cambridge Investment Research, Introduction
10:05 Gavin Jones, Business Development Director, ElectraLink, Chairman’s Opener
10:10 Rob McNamara, Founder, Smart Grids GB, The Value of a Smart Grid to Great Britain
10:20 Audience Collected intelligence, Comments & questions for day speakers and panellists from audience – one minute each
10:50 Stephen Cunningham, CEO, UK, Ireland & Nordic, Landis & Gyr, Keynote: Managing Energy Better – The landscape for smart grid
11:10 Panel with speakers and chair

Morning coffee & showcase of products and services

Session 2 Connected Intelligence: servers, networks, meters, fast data analytics & grids
Dr Sean Cochrane, Director Cyan Technology A connected energy network through metering and lighting
Dr Paul Wright, CCM National Physical Laboratory Smart grid measurement
John Di Stasio, CEO Sacramento Municipal Utility Department (SMUD) Jt Keynote: Smart grid intelligence and risk, Smart grid intelligence and risk
Martin Dunlea, Global Industries Lead, Utilities, Oracle, Jt Keynote: Fast Data, Actionable Data
Panel with Peter Drake, Managing Director, Intelligent Networks

Lunch networking & exhibition of products & services

Session 3 Smart Cities & Infrastructure: real systems solutions at scale | the industrial internet
Michael Clark, Programme Director – Low Carbon London UK Power Networks, A Smart Grid for London
Rich Hampshire, Principal Consultant CGI, End-to-end smart grid & consumer engagement
Philip Burr, Director of Product Marketing Arkessa, Case study: an M2M platforms for IoT Solutions
Chris Wright, CTO, Moixa Technology, Smart Direct Current
Dr Andy Stanford Clark, CTO Smart Energy, IBM, Keynote: Smarter planet works
Panel with Tony Rooke, Sustainable Strategy Director; Smart Cities & Innovation, Infosys

Coffee networking & expo of products & services

Session 4 Plenary Policy debate grids and energy: innovators | funding | regulation & reforms
Dora Guzeleva, Head of Network Policy Ofgem, How regulation can be a win-win for stakeholders
Ian Ellerington, Head of Innovation, DECC, The key role of innovators in changing the energy industry
Steve Dawson, VP / Dr Mark England, EVP Smart Grid, Sentec, Routes to market for energy innovators
Pilgrim Beart, Founder, AlertMe, Keynote: UK energy management innovation in global markets
Panel with Chairman – followed by Chairmen’s summaries

Drinks networking

AGENDA – DAY 2 – CLEANPOWER CONFERENCE 4 JUNESession 1 The Energy Trilemma: Resilience | Affordability | Targets & transition technologies
10:00 Mike McCreary, Director, Cambridge Investment Research, Introduction
10:05 Jeremy Nicholson, Senior Advisor, EEF, Energy Intensive Users Group, Chairman’s Opener
10:10 Peter Sharratt, Director – Sustainability Services, SBP (spin out Deloitte), Guiding future investments for property, infrastructure & sustainability needs
10:20 Audience Collected intelligence, Comments & questions for day speakers and panellists from audience – one minute each
10:50 Dr Bernard J Bulkin, NED, Ludgate Investments (former Chief Scientist BP) & Cambridge Univ., Keynote: The Energy Trilemma
11:10 Panel with speakers and chair

Morning coffee & showcase of products and services

Session 2 Fracking in Focus
Professor Andy Woods, Lead Scientist, CU BPI, Science & the Risks and rewards of fracturing for shale gas
Marieke Beckmann, Research Lead National Physical Laboratory, CCM, Emissions measurement in fracking
Dr Tony Smith, Technical Director SLR Consulting Separating Myth from reality – Fracking and the social licence
Joel Price, COO San Leon Energy, Experiences of shale development in the EU
Michael Bradshaw – Professor of Global Energy Warwick University Keynote: The impact of the US shale gas revolution on UK gas security
Panel with moderator Professor Woods CU BP Institute

Lunch networking & exhibition of products & services

Session 3 Energy markets: competition & pricing
Mike Wilks, Director Smart Energy Poyry, Energy market structure: could do better?
Hen Cooke & Emilia Melville Buro Happold, TSB-funded case study: domestic demand response & smart grids
Doug Stewart, CEO Green Energy UK, The role of alternative suppliers of energy
Ashleye Gunn, Programme Director Which? , Consumer policy and market solutions
Neil Pennington, Programme Director: Smart, rwe nPower, Keynote: Vertical integration, other structures and the real effects on energy supply prices
Panel with chairman

Coffee networking & expo of products & services

Session 4 Plenary Policy debate grids and energy: innovators | funding | regulation & reforms
Dora Guzeleva, Head of Network Policy Ofgem, How regulation can be a win-win for stakeholders
Ian Ellerington, Head of Innovation, DECC, The key role of innovators in changing the energy industry
Steve Dawson, VP / Dr Mark England, EVP Smart Grid, Sentec, Routes to market for energy innovators
Pilgrim Beart, Founder, AlertMe, Keynote: UK energy management innovation in global markets
Panel with Chairman – followed by Chairmen’s summaries

Drinks networking

VENUES
Murray Edwards College, Buckingham House Conference Centre, Cambridge, England, CB3 0DR – state-of-art tiered auditorium, excellent, light networking & exhibition spaces, meeting areas, great food, plentiful coffee. CIR invites you to become one of the best business delegates in the world, nurturing your business development and personal and corporate success by leaning into the value network & having fun at the same time. And the Roundtable Dinner is at King’s College, Cambridge. It doesn’t get better than that!

My take on ARM Holdings plc

ARM is growing up and has considerable brand value to add on as it matures, on top of the value it adds as it grows by revenues and profit.

The April 2014 multiples were fairly high, then there was a correction of 12.5% below 5 year trend line.

But my target for ARM’s share price in 4 year’s time is £25-£30+, hitting these levels in at least one pre-emptive spurt before that time, given the typical volatility of the price.

Why, in summary?

I assume conditions remaining roughly the same in the longer run in terms of attitudes to financial ratios. The company will likely grow at least 20% a year given the market outlook for the current and new areas it sells into. On top of all that, it will add intangible value like better-known global electronics and ICT brands have done (see E&T Magazine April 2014 for brand value increases in electronics and IT). This intangible brand value will affect the share price directly, but may also help maintain or increase royalty and licensing fee rates that ARM can command.

Top 6 reasons:

ARM…
1. has a beautiful business model involving tech licensing and royalties in high barrier, deep tech.
2. is yet fully to exploit its brand and go confidently shoulder to shoulder with the big guys who have the big, rapidly growing brand values in electronics and ICT. But it is beginning to do this through market diversification, corporate marketing, supply chain management and internal cultural development: remember Apple was its first customer!
3. has a beautiful strategy to push further into the markets it currently dominates (smartphones, which Analysts at IDC say is growing at 28.9% p.a.) – because those markets are still growing and the number of chips per phone is increasing while the phones get priced cheaper for global emerging markets.
4. is consistently growing itself on average at 15-20% a year, and has been for at least 4 years.
5. new markets are amazing, pretty much exponential, such as IoT (MCUs, radio, sensors, embedded) and ARM is better placed than anyone to exploit them and benefit from their general take-up.
6. any competitors that threaten are more likely to drive up the ARM share price if they succeed, as they might for a time be in a position to buy ARM, but it more likely that ARM will grow and become a feisty global brand, an icon of the knowledge economy in the next decade.
7. ARM’s price rose an order of magnitude in the past 5 years; these targets represent a considerable slow down in those timescales.
8. is investing not only in great R&D staff, but is also expanding its global marketing campaigns: innovation AND marketing.

So I am not moved by this little bump has happened because of a regrade by an investment bank and by a general forum about tech share levels. They bear no resemblance to 1999 in absolute financial ratio terms; and ARM bears no resemblance to a revenueless, USP-less dotcom.

In the big picture, you have a superb business, and the medium-term is looking excellent.

About CIR

Cambridge Investment Research (CIR Strategy) is an independent consultancy trading since 2002. Its Company Director, Justin Hayward MMath MBA PhD is invested in ARM. Justin Hayward, 45, is a former Hawking PhD student (early 90s) and a former Deutsche Bank quant relative value analyst (late 90s).

This note is not a recommendation to buy or sell a security.