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Blog from October, 2019

Drum roll ...

I'm only going to comment on what's different (or what stands out for me), and with that let's begin with the end in mind. At the end of the day, it really is about the capitalization of the firms. For a long while it was neck-and-neck between the regions, but in the last two rollovers things changed.

Now I need to preface that by saying that the revenue of the two regions was still pretty close; around $370m and $350m. Not a lot in it.

But the capitalization has really diverged. What's driving that!

The consumer surplus is about $200m different between the regions. But that's not the explanation.

Oh, here's snapshot of the EU (Look a the lost sales).

And of China

Those figures do show the margin, but other ways to see it. Without TLC from the management teams, both regions start to drift down. I wonder how the results would have been different if firms could have set things up so their profit continued to climb.

European UnionPsiclePath$13,549,679$40,080,57834%
European UnionJack It Up$15,581,220$74,646,02921%
European UnionRackk City Bikes$17,382,613$95,077,64418%
European UnionPedal$4,499,341$27,121,30817%
ChinaWheelin N Dealin$6,316,363$63,214,73510%
European UnionPeakPerformanceBros$7,855,817$90,000,6459%
ChinaRHO Inc.$1,240,726$43,447,3543%
European UnionMunchy Bikes$1,222,451$43,377,4393%
ChinaWheelie Cool Bikes-$1,424,252$8,434,637-17%

Anyway, back to the differences. Manufacturing is a bit different between the worlds.

And there were some pretty differences in how firms set their retailer margin.

But I know everyone is probably waiting to see how that played out.

Well the answer is like this. I've recalculated the SHVs to normalise out the changes that occurred from folk buying and selling shares.

Sugma, well done. You broke the $200 barrier ... and as a result of having the highest SHV you will all be getting a 5% bonus.

European UnionRackk City Bikes$107.47$17,382,613$95,077,64465,9112,145,781$8.10$222,929,870$245,151,653$14,017,258$70,145,332
European UnionPsiclePath$101.01$13,549,679$40,080,57833,6432,000,000$6.77$164,181,358$202,013,856-$9,403,154$27,385,246
European UnionJack It Up$91.73$15,581,220$74,646,02949,2692,000,000$7.79$141,295,820$183,464,980$12,081,347$51,327,456
European UnionPeakPerformanceBros$88.85$7,855,817$90,000,64574,7732,000,000$3.93$117,221,342$177,690,415$4,808,090$25,583,496
ChinaWheelin N Dealin$63.39$6,316,363$63,214,73567,1161,535,300$4.11$61,406,303$74,779,312$4,926,446$13,668,998
ChinaRHO Inc.$13.81$1,240,726$43,447,35446,8982,000,000$0.62$17,692,456$27,619,288$70,378$8,258,320
European UnionPedal$8.22$4,499,341$27,121,30830,8762,000,000$2.25$16,445,360$16,445,360$3,520,096$16,174,574
European UnionMunchy Bikes$2.80$1,222,451$43,377,43950,7102,400,000$0.51$5,836,726$7,696,864$146,532$15,577,616
ChinaWheelie Cool Bikes$0.26-$1,424,252$8,434,63715,8022,800,000-$0.51$1,043,286$1,043,285-$1,882,906$3,921,096

Rackk City Bikes and Jack It up (and probably PeakPerformanceBros) are wondering how many more rollovers they would have needed to catch the leaders.

At the bottom, Wheelie Cool Bikes and Munchy Bikes have worked hard to stay in profit. That's so hard to do at the bottom of the pack.

I can imagine that PsiclePath are really happy with the timing of their purchase of PeakPerformanceBros. Without them, PsiclePath might be in the bottom third of firms. That said, Sugma are also really happy with the contribution that E.N.T.E.R.T.A.I.N made to their success. Indeed, all the owned firms made material differences to their parent firms.

In the middle, Wheelin N Dealin, Sigma, and E.N.T.E.R.TA.I.N have done solid performances.

RHO Inc, seemed to have lost their way somewhere ... they started so strong.

Pedal, managed to pull themselves out of insolvency. I they should be feeling proud of their achievement.

But let's look at the regions and what went on their.

This is EU. Rackk City Bikes really managed to turn things around after a rather shaky start. One has to wonder how many more rollovers it would have taken for the to catch up with Sugma. 

That said, clearly the four firms at the top were battling it out with one another.

And then there is China

The graph makes it clear how consistently Sugma improved every rollover. In my mind the key to their success wasn't not putting a foot wrong on the way. Most other firms made material 'mistakes' from which they then had to recover.

In this region, Wheelin N Dealin were making a late rush and were tracking well.

Once again, well done to all the teams. I suspect some of you will be still working on your summative learning journals, but I hope you find a little time to celebrate your success. Indeed, I hope the class rep has organised some kind of celebration for you all.

I'll do an announcement tomorrow on the timing of grades etc. It will take me a sometime to do the analysis. I'll ask SmartSims to turn on your access again, after the long weekend (I hope you get a break).

Anyway, I'm really interested to hear your comments on the results, so please leave a comment below.

European UnionRackk City Bikes$98.47$17,635,701$95,463,85965,1962,145,781$8.22$194,894,623$209,244,114$14,883,533$58,921,368
European UnionPsiclePath$97.06$25,687,108$43,013,79432,4042,000,000$12.84$168,820,686$194,122,958-$3,245,747$26,862,037
European UnionPeakPerformanceBros$82.09$7,183,506$87,655,05073,7562,000,000$3.59$124,112,124$164,189,424$2,538,944$33,399,754PsiclePath
European UnionJack It Up$73.64$14,177,240$71,729,15846,7642,000,000$7.09$117,136,204$147,289,986$11,130,830$43,856,411
ChinaWheelin N Dealin$38.67$6,485,177$63,426,70766,4991,535,300$4.22$52,861,306$59,435,679$4,809,757$12,951,921
ChinaRHO Inc.$12.77$3,470,477$45,645,18446,8562,000,000$1.74$20,161,648$25,549,676$2,253,712$12,582,332Sigma
European UnionPedal$4.93$3,800,672$26,306,02130,8392,000,000$1.90$9,865,436$9,865,436$3,156,902$11,533,516Rackk City Bikes
European UnionMunchy Bikes$2.99-$2,161,447$38,694,46945,4722,400,000-$0.90$5,149,291$6,840,327-$3,524,117$13,690,073Rackk City Bikes
ChinaWheelie Cool Bikes$0.01-$1,601,276$8,781,06515,5792,800,000-$0.57$28,000$28,000-$1,601,276$45,376

One more to go .... rolling now.

Taking stock

I'm starting to audit all the learning journals and the feedback that was given on them.

The class generated 2295 learning journals and comments. Actually, there were more, but a few folk dropped the class, so I haven't counted those.

Of those 2295, 170 we modified after a couple of hours had passed (there were nearly 1,000 that were modified within an hour of their creation — plain old editing I guess).

On average, each learning journal was 461 words; the maximum was 1327 words, and the minimum was 99 words (Hmmm, 10 learning journals were materially less than the required word count)

Comments were smaller; the average was 103 words, with the maximum and minimum being 684 and 3 words respectively. There were 23 sets of comments that were less than 23 words. Some of them, I'm sure, will turn out to be comments on comments rather than full blown feedback (which is fine).

Penultimate perturbations

Looking at the comments from the industry analysts, so much has changed since the new management teams took over their firms. Most notably, with two exceptions, every firm is rated as BUY or HOLD; one firm is rated as SELL (and it's not who you might think), and one firm is bankrupt. That's a huge change from those early days when most of the firms were rated as SELL or even DUMP.

There have been other levelling effects too. First, the sales revenue for both regions is converging, with total sales of around $350m

As a result the actual worth of each of the regions (the total capitalization of firms in each region) is pretty much the same. Unlike sales revenue, that has steadily tracked upwards, the capitalization journey (the thing that really underpins everyone's SHV) has had a more erratic path.

The consequences of this (well more like the cause) has been the wild swings in the profitability of each of the regions (and that of the firms in each region). It's interesting to me how the 'micro-level' effects have propagated upwards into industry capitalizations that are so close.

In detail the profit looks like this:

Jack It Up$12,794,859$64,476,05120%
Rackk City Bikes$14,539,566$91,547,17916%
Wheelin N Dealin$7,705,237$62,690,47312%
RHO Inc.$1,866,719$45,381,0764%
Munchy Bikes$604,316$35,620,8242%
Wheelie Cool Bikes-$2,652,228$9,026,915-29%

That said, there is a material difference in the consumer surplus of China and the EU. This strongly suggests that China has a more opportunities for growth that the EU. But can they take advantage of that ... the trends would suggest not, but a lot can happen in a MikesBikes year.

This is particularly evidence when I look at the change in SHV of each of the firms. When I look at how much change is possible–especially vis-a-vis Rackk CIty Bikes–the top position is not a forgone conclusion.


FirmChange In SHV
Wheelin N Dealin97%
Rackk City Bikes71%
Jack It Up27%
RHO Inc.19%
Munchy Bikes-13%
Wheelie Cool Bikes-98%

We'll see more about the SHVs when we get to the leaderboard.

Another area where there is convergence is around advertising. With an average of about 22%,, the regions have not succumbed to advertising wars (which are often ruinous). 

Likewise, overall, quality seems to be much more regulated.

But there are differences between the regions. Retailer margins and COGs per SCU remain quite different between the regions, as does Idle Capacity (but not as much).

Another area of difference is Lost Sales. In China only E.N.T.E.R.A.I.N had lost sales. In the EU, the story is quite different with Munchy Bikes, PeakPerformanceBros and Jack It Up all having material lost sales (over $1m).

Most firms have their production under control, with typically 2-4 weeks of stock on the shelves.

And so to the big board.

Rackk City Bikes$82.34$14,539,566$91,547,17963,8691,648,508$8.82$128,773,631$135,966,492$13,817,870$20,975,744
Jack It Up$53.72$12,794,859$64,476,05143,1932,000,000$6.40$88,207,208$107,437,919$10,523,296$38,916,944
Wheelin N Dealin$21.48$7,705,237$62,690,47365,6641,696,614$4.54$36,069,444$36,463,236$6,512,873$15,992,690
RHO Inc.$7.32$1,866,719$45,381,07646,4992,000,000$0.93$13,368,378$14,630,222$725,930$11,931,505Sigma
Munchy Bikes$3.40$604,316$35,620,82439,1842,400,000$0.25$6,312,065$7,849,369-$213,252$9,589,013Rackk City Bikes
Pedal$1.90$2,341,528$23,407,27230,4532,000,000$1.17$3,790,648$3,790,648$1,902,284$7,626,520Rackk City Bikes
Wheelie Cool Bikes$0.01-$2,652,228$9,026,91515,3092,800,000-$0.95$28,000$28,000-$13,762,074$1,531,674

Oh, in case you didn't know, after the next rollover, the results won't be available until after my report.

On efficiency

As the markets slow (see how the revenue graph is flattening), its ever more important for firms to be efficient. That said, whilst sales revenue (across both regions) is about $660m, there is still a consumer surplus of about $1bn in each of the regions. There is still plenty of room to grow ... it's just harder to grow.

But as I say, efficiency is ever more important, and firms are definitely responding to that challenge.  Firstly, firms are getting their capacity under much better control. They are figuring out how to get more out of what they have, and how to better predict the capacity they need.

As  result idle time across the regions is down. However, too many firms still have a lot of slack ... being unsure/uncertain of the sales they might achieve, they are keeping idle capacity around in case their sales are (up to 20%) higher. That's a lot of excess capacity; just think, to use that extra capacity (of say, 20%) the estimates for every model bike a company makes would need to be out by 20%. Whilst one or two models might be that wrong, is the firm's forecasting so out on all the models. No, firms are better than that now.

Evenso, we see the cost of manufacturing come down. With a number of firms having costs of production below that of their starting costs; good on you Munchy Bikes, PeakPerformanceBros, Pedal, and Wheelie Cool Bikes who (in no particular order) have COGM per SCU of under $500. A big 'shout out' (do people do that), to Wheelie Cool Bikes who are the cheapest producers by a long way. All these firms have struggled with serious problems and so have put in a lot of effort to learn how to make bikes really efficiently. 

In other expenses, firms are getting a more of handle on advertising.  Well, the EU is starting to rein things in; China is still increasing its advertising in absolute dollars. But looking at the Advertising to Sales ratio, the picture is clearer; but there is still work to be done here. Everyone in the EU except PeakPerformanceBros are still spending too much, and in China only SUGMA and Wheelin N Dealing are really on top of their advertising.

There is a similar story to be told about quality. But in this regard, it is China who are still the big spenders. Analysts think that some firms—Rackk City Bikes, Jack It Up, Wheelie Cool Bikes, Wheelin N Dealin, and E.N.T.E.R.T.A.I.N—are over doing quality.

One of the ways firms are trying to boost their profit is by slashing the margin they give to retailers. This downward trend (that everyone seems to be pursuing), must be having negative consequences.  I wonder if their distribution reach has been sacrificed. 

The net effect of all of this is that the two regions are pretty much worth the same. But that shouldn't be taken as a good thing. As noted, there is a substantial consumer surplus, and even setting that aside some firms had lost wholesale sales (they could have sold more bikes).

FirmLost Wholesale Sales (millions)
Munchy Bikes3.2

That would translate into some good profit ... just look at the margins of those firms.

Rackk City Bikes$16,689,151$88,504,24719%
Jack It Up$7,669,583$60,117,00513%
Wheelie Cool Bikes$938,125$10,108,1539%
RHO Inc.$3,941,611$47,189,8068%
Munchy Bikes$2,161,888$34,859,0886%
Wheelin N Dealin$1,668,437$52,755,3713%

And so that takes the conversation to one of profit. Not only are the regions profitable, but every firm is now making a profit. Well done all. The challenge now is to keep doing that. 

But to return to the issue of efficiency, at the end of the day, in terms of SCU and Profit, the regions are getting better.

This is even more evident when we look at it on a firm-by-firm basis.

Rackk City Bikes$16,689,15164,784$257.61
Jack It Up$7,669,58341,493$184.84
RHO Inc.$3,941,61145,671$86.30
Munchy Bikes$2,161,88836,336$59.50
Wheelie Cool Bikes$938,12517,086$54.91
Wheelin N Dealin$1,668,43760,729$27.47

To refresh you memory, when you took the firms over they were doing $106 in profit per SCU. (But some firms have been 'in the wars' since then).

And so to the leaderboard.

European UnionPsiclePath$51.16$4,816,352$50,281,64472,6672,000,000$2.41$90,130,326$102,322,285$8,014,337$5,754,275
European UnionRackk City Bikes$48.03$16,689,151$88,504,24764,7841,821,637$9.16$85,463,699$87,506,733$16,554,398$32,641,916
European UnionJack It Up$42.39$7,669,583$60,117,00541,4932,000,000$3.83$70,925,290$84,771,391$5,716,178$26,769,636
European UnionPeakPerformanceBros$41.88$12,849,655$85,828,60073,6032,000,000$6.42$71,634,664$83,764,665$10,484,221$37,445,629PsiclePath
ChinaSigma$34.77$6,216,014$61,981,05361,9041,972,425$3.15$67,399,875$68,585,804$6,840,045$28,092,986RHO Inc
ChinaWheelin N Dealin$10.91$1,668,437$52,755,37160,7291,875,125$0.89$20,257,448$20,461,204$482,949$7,498,599
ChinaRHO Inc.$6.17$3,941,611$47,189,80645,6712,000,000$1.97$12,109,228$12,347,268$3,188,681$9,542,282
European UnionMunchy Bikes$3.89$2,161,888$34,859,08836,3362,000,000$1.08$6,372,834$7,770,384$1,488,456$10,960,388Rackk City Bikes
European UnionPedal$1.28$1,548,396$22,474,33931,1362,000,000$0.77$2,555,076$2,555,077$1,244,754$5,115,227
ChinaWheelie Cool Bikes$0.44$938,125$10,108,15317,0862,800,000$0.34$1,220,789$1,220,788$764,133$3,788,532** Sold **

What do you see happening here? Leave your comments below.

More take over activity

In a move that will probably surprise many observers, Sugma has done a friendly takeover of E.N.T.E.R.T.A.I.N. With the very solid increase in E.N.T.E.R.T.A.I.N.'s SHV (from $13.24 to $18.30), Sugma has recouped much of the premium it had to pay in order to do the takeover. Clearly this is a move that they hope will cement their position on the leaderboard (having topped the board last year).  So what do we see overall. Well there has been some movement on the board.

Now Sigma (not Sugma) may be concerned about dropping down two places, but let's look at the change in SHV of each firm.

IndustryFirmIncrease in SHV
European UnionPedal8500%
European UnionRackk City Bikes48%
European UnionPeakPerformanceBros30%
European UnionJack It Up28%
European UnionPsiclePath25%
ChinaWheelin N Dealin-4%
European UnionMunchy Bikes-23%
ChinaRHO Inc.-36%
ChinaWheelie Cool Bikes-73%

In this regard, PedalSigma, and Rackk City Bikes should be feeling good about the difference they've made to their SHV. Anyway, more about SHV when we get to the leaderboard later on in this report.

European UnionRackk City BikesUp 1 place
ChinaE.N.T.E.R.T.A.I.NUp 1 place
ChinaWheelie Cool BikesUp 1 place
ChinaSugmaNo movement
European UnionPsiclePathNo movement
European UnionPeakPerformanceBrosNo movement
European UnionJack It UpNo movement
ChinaWheelin N DealinNo movement
European UnionMunchy BikesNo movement
ChinaRHO Inc.No movement
ChinaSigmaDown 2 places
European UnionPedalDown 1 place

Revenue is always good place to start. In the EU it certainly looks like the growth in revenue is tapering off. That probably means that the markets aren't growing as much as they where, so competition for customers is probably going to get fierce. It won't be the case that firms can grow market share by 'winning' uncommitted customers. Instead, they are going to have to take customers away from their competitors.

No doubt China will also begin to top out in a similar way.

Nevertheless, both China and the EU are producing a similar level of profit overall (with China being more profitable in absolute terms and looking even better if one considers profit as percentage of sales).

At the level of individual firms, there is still quite a spread of profitability.

European UnionPeakPerformanceBros$9,902,611$84,263,23712%
European UnionRackk City Bikes$8,346,108$81,769,42410%
European UnionJack It Up$6,434,443$57,978,84811%
European UnionPsiclePath$2,634,866$52,739,2835%
ChinaRHO Inc.$2,315,730$45,356,5205%
ChinaWheelin N Dealin$2,046,567$45,584,4814%
European UnionMunchy Bikes$992,044$32,076,3843%
European UnionPedal-$1,671,352$20,819,838-8%
ChinaWheelie Cool Bikes-$3,985,044$12,114,653-33%

It's nice to see one firm (Sigma) over the 20% mark, with Sugma, PeakPerformanceBros, Rackk CIty Bikes, and Jack It Up all doing 10% or more. All the other firms will be generating less in profit than the interest rate at the bank.

Increasingly operational excellence is going to matter as customers (and revenue) become harder to acquire. So, it good to see that China isn't overspending (so much) on quality. Chine does have a rather short cycle time. I wonder if it is too short.

Overall, making bikes in China remains an expensive exercise compared to the EU.

That said, a big shout out to Pedal and RHO Inc; they are the lowest cost producers by far (and just a dollar or two different from one another).

At nearly three times the COGM per SCU of Pedal or RHO Inc, it costs Wheelie Cool Bikes over $1,300 to produce one SCU. The quality of the bikes they produce is 96%. Wow.

The other area that contributes to costs is, of course, ones capacity. Whilst the EU has been selling capacity it still has over 20% idle time. I wonder if anyone is brave enough to calculate the cost of all that idle time and post here.

Not only is the EU a big spender on capacity, it is also a big spender on advertising. Considering the revenue that the two regions generate, is the $15m extra spending (by the EU) worth it?

Both regions are spending 20% (or more) of their revenue on advertising. Hmmm.

But the good news (is it really good news) is that the consumer continues to grow. What will the regions do about that.

And so to the leaderboard. 

PeakPerformanceBros$37.74$9,902,611$84,263,23777,4862,000,000$4.95$67,174,436$75,474,436$7,966,934$24,945,126Psicle Path
Jack It Up$35.18$6,434,443$57,978,84838,8072,000,000$3.22$61,407,144$70,358,144$4,934,142$22,692,214
Rackk City Bikes$19.89$8,346,108$81,769,42475,9082,012,695$4.15$39,830,691$40,031,960$7,063,594$18,515,508
Wheelin N Dealin$11.46$2,046,567$45,584,48149,1802,000,000$1.02$22,822,792$22,922,791$1,021,600$11,859,184
Munchy Bikes$4.20$992,044$32,076,38440,4032,000,000$0.50$7,138,170$8,408,670$400,060$6,606,833Rackk City Bikes
RHO Inc.$2.68$2,315,730$45,356,52044,0342,000,000$1.16$5,139,330$5,355,731-$3,322,844$7,278,606
Wheelie Cool Bikes$0.26-$3,985,044$12,114,65329,2412,800,000-$1.42$737,744$737,743-$4,842,469$2,287,387Rho Inc

GIven everything that's been said so far, it will be no surprise that Sugma is at the top of the board. Look at their sales ... $94m. Tidy. BUT, that didn't produce the top profit. That honour goes to Sigma. One of my rules of thumb is "Where profit goes, so goes SHV", so I'm really curious to see how much Sigma can increase its SHV, and how high up the leaderboard it can go. Clearly, they can overtake  Jack It up, but could they also catch PeakPerformanceBros? Sigma will need to really grow their sales to do that.

Returning to Sugma, when I look at their key figures (or at least what I think of key figures), it's interest to see that that most of them are in the medium zone; they're running a very balanced bike.

On the other hand, the number two firm,  PsiclePath is less balanced, and like all the firms in the EU they are spending big on advertising. That's also true for their subsidary PeakPerformanceBros who are the biggest spenders on advertising of any firm in any region. I wonder where on the 'curve' they think they are. Without the contribution of PeakPerformanceBros to PsiclePath's SHV (about 37 of their $46 dollars), it's hard to know where they would lie on the table. That said, both will need to sprint hard to catch Sugma.

Jack It Up, having sold Pedal have kept their place on the leaderboard. Given the tidy turn around by Pedal, do they regret that sale? Pedal seem to have things under control and are turning their bike around. Good on them, I say. As an aside, to Pedal, nice quality rating ... but I wonder if you are spending too much on quality.

Jack It Up are being tailed by Sigma. I'm still smiling over the $12m profit they made. Yes, they've gone a little crazy in their marketing, but in many ways they a doing the same as Sugma in as much as all their other key figures are in the medium zone.

Rack City Bikes remains in the middle of the pack. Maybe that's because their quality is high, their advertising is high, their promotion is high, and their cost of production is high. Maybe they need some of the cost discipline that Pedal have learnt. Again, this firm is benefiting from the effects of owning Munch Bikes, without whom they would probably have slid down the table.

Wheelin N Dealin seems stuck. There's been no real movement in their share price for 4 or 5 years. What will it take for them to turn in a more respectable profit than the 4% they are currently achieving. 

Have RHO Inc lost their way? Once the darlings of the leaderboard, they've seen a collapse in their share price. They're be some angst over that. 

At the bottom of the leaderboard is Wheelie Cool Bikes. They too seem a bit stuck, and slowly drifting towards insolvency ... owned by RHO Inc, once could buy both companies for about $11m. That doesn't seem too much, but could they then be turned around.