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The headline new has to be the three takeovers that occured. In China, RHO Inc are the new owners of Wheelie Cool Bikes. In the EU, Jack It Up has taken over Pedal. Both of these firms were at the bottom of the scoreboard, and if they can be turned around, they'll generate a handy boost to their parents' shareholder value. But, perhaps the biggest surprise was PsiclePath taking over PeakPerformanceBros—that's one way to eliminate the competition.  Of course, the immediate results are rather indeterminate; RHO Inc, Jack It Up, and PsiclePath have had to sacrifice a lot of profit (and even taken on debt) to make their moves. It will be in subsequent years that we see the real benefit of these takeovers (and whether the parent firms can add value to their subsidiaries).  As always, the question is one of quality of execution.

Seeing the takeovers, I was left wondering how many were friendly takeovers, and how many were hostile. Either way, I expect their will be a lot of talk taking place within and between boardrooms over the next couple of days.

So let's have a look at what's going on in a little more detail. The revenue both regions continues to increase, with firms in the EU extracting a lot more sales than their Chinese counterparts.

However, the situation is reversed when we look at the profit for each of the regions.  But we shouldn't be fooled by the performance of the EU in this regard; they've incurred bigger costs from their two takeovers (versus China's sole takeover).

One consequence of this is that the margins that each firm has generated (and particularly for RHO Inc, Jack It Up, and PsiclePath) are rather skewed.

L

IndustryFirmProfitRevenueMargin
ChinaSugma$6,252,586$67,867,3839%
European UnionPeakPerformanceBros$5,270,460$74,978,3577%
ChinaSigma$4,169,397$34,720,66312%
European UnionRackk City Bikes$2,317,151$70,210,9743%
European UnionMunchy Bikes$1,668,911$26,597,6286%
ChinaWheelin N Dealin$1,335,836$34,218,9004%
European UnionJack It Up$888,753$42,177,0302%
ChinaWheelie Cool Bikes-$888,722$19,993,533-4%
ChinaE.N.T.E.R.T.A.I.N-$930,060$33,714,721-3%
European UnionPedal-$4,921,957$26,906,164-18%
ChinaRHO Inc.-$5,300,229$52,391,267-10%
European UnionPsiclePath-$12,675,487$54,260,941-23%

Looking at the performance of PeakPerformanceBros, PsiclePath are probably concerned that subsidiary isn't returning enough (yet) to cover the interest on any loans they took out; but time is on their side.

Sigma and Sugma are likely to be smiling with the margins they are generating. That rivalry is like to run and run.

Whilst we might expect Pedal and Wheelie Cool Bikes to still be in turnaround mode, it's a surprise to see  E.N.T.E.R.T.A.I.N. drifting into a loss.

In the middle of the pack, Rack City Bikes, Munchy Bikes, and Wheelin N Dealin may be relieved not to be part of the flurry of takeover activity.

Out of interest I took the revenue of each of the firms that are owned and added it to their parents to see what their combined revenue looks like. And here it is:

IndustryFirmRevenue
European UnionPsiclePath$129,239,298
ChinaRHO Inc.$72,384,800
European UnionRackk City Bikes$70,210,974
European UnionJack It Up$69,083,194
ChinaSugma$67,867,383
ChinaSigma$34,720,663
ChinaWheelin N Dealin$34,218,900
ChinaE.N.T.E.R.T.A.I.N$33,714,721
European UnionMunchy Bikes$26,597,628

It's be interesting to see how, in the coming years, that translates into SHV. 

Firms should really be focusing on the quality of their execution. One area where we can clearly see this is when the consider the Cost of Goods (or COGs as I call them). Here we see that the EU is a much more cost effective producer, and that probably goes a long way to support the rather tidy gross margins that firms in the EU enjoy.


BTW, Wheelie Cool Bikes needs to get is manufacturing costs under control. they could learn a lot from PsiclePath (if they were owned by them).

Firms, in general, have continued to increase production; and give the level of sales, it makes sense that the EU would have the largest capacity.

But is all that capacity needed? Maybe not. 

In both regions there is too much capacity. Well actually the capacity needs to be redistributed; firms like Wheelin N Dealin need the extra capacity that someone like Sigma has.

Another area of inefficiency is the average cycle time; the larger the cycle time, the larger the costs incurred in manufacturing bikes.

So whilst China is incurring lower costs re cycle time, when one looks at the average quality of bikes being produced, China is spending too much on driving quality up. With the exception of RHO Inc, all the firms in China are producing HIGH or VERY HIGH quality bikes. Is that too high, I wonder.

In the EU, the story is reversed; only Racck City Bikes and Jack It up are doing high quality bikes; all the other firms are either LOW or MEDIUM when it comes to quality. Some are definitely too low.

At least the advertising to sales ratio seems sensible (and pretty even between regions). No advertising wars here. Yay!

One way firms in the EU get a bit of extra profit is by not passing on so much margin to their retailers. This is a double-edged sword. Cutting the margin can drive down ones distribution channels. I wonder what's the difference in that regard for China and the EU.

How good are firms at extracting money from the market .... hmmm. The markets have grown, and both regions have left over $700m on the table. There is still a lot of room to make money in both regions.

And so to the big board.

First, it's good to see that the firms at the bottom of the board seem to have stabilized their situation. They aren't quite out of the woods yet, but they are doing a lot of the right things.

At the top of the board we have Sugma who are getting close to $40 SHV. Then there is Jack It Up, PsiclePath, and Rackk City Cycles, all with SHVs over $20. If Jack It Up can actually jack up the price of Pedal, then they will be a forced to be reckoned with; that's also true for Psicle Path. 

PeakPerformanceBros could be a bit miffed at being permanently stuck (well for now anyway)  behind PsiclePath.

IndustryFirmSHVProfitRevenueCapacitySharesEPSCapitalizationTotalSHVEVACashOwner
ChinaSugma$37.22$6,252,586$67,867,38353,2872,000,000$3.13$70,023,260$74,433,460$4,974,250$17,204,266
European UnionJack It Up$28.77$888,753$42,177,03047,7452,000,000$0.44$54,439,970$57,539,969-$5,822,560$7,949,155
European UnionPsiclePath$24.11-$12,675,487$54,260,94167,3002,000,000-$6.34$39,058,222$48,218,223-$12,613,920-$6,490,125
European UnionRackk City Bikes$20.94$2,317,151$70,210,97467,6272,251,579$1.03$47,140,305$47,140,306$1,120,267$7,175,790
European UnionPeakPerformanceBros$17.28$5,270,460$74,978,35776,7882,000,000$2.64$34,559,854$34,559,855$4,414,749$10,240,347Psicle Path
ChinaRHO Inc.$15.99-$5,300,229$52,391,26764,2252,000,000-$2.65$31,944,306$31,984,306-$7,659,890-$1,421,585
ChinaSigma$13.40$4,169,397$34,720,66335,9392,000,000$2.08$26,460,894$26,791,895$3,260,677$13,848,490
ChinaWheelin N Dealin$11.65$1,335,836$34,218,90037,2102,000,000$0.67$23,308,400$23,308,400$563,215$5,675,070
ChinaE.N.T.E.R.T.A.I.N$9.41-$930,060$33,714,72147,9392,000,000-$0.47$18,822,520$18,822,520-$1,865,313$6,258,694
European UnionMunchy Bikes$5.69$1,668,911$26,597,62832,5002,000,000$0.83$10,322,798$11,372,798$1,276,651$2,101,712
ChinaWheelie Cool Bikes$1.39-$888,722$19,993,53329,9432,500,000-$0.36$3,486,982$3,486,984-$888,722$6,388,661Rho Inc
European UnionPedal$1.05-$4,921,957$26,906,16435,0022,000,000-$2.46$2,098,436$2,098,436-$5,097,536$1,666,288Jack It Up
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