Off the Wires

The Solar Company Making a Profit on Poor Africans

December 2nd, 2015  |  Source: Bloomberg

M-Kopa plans to be a $1 billion company by selling solar panels to rural residents—and providing them with credit.

Tom Opiyo is the best-performing salesperson at M-Kopa Solar, a Kenyan company selling solar power systems to the very poor. Watching him work, it’s not hard to see why. Opiyo is a pastor who used to be a musician and concert promoter, and when he’s closing a sale he never stops talking. “The electric company can sometimes leave you in the dark. With M-Kopa, the light cannot go out,” he tells a group of 15 potential customers gathered under a tree in a rural area in western Kenya on a sunny October afternoon. “If you get power from the power company, you will always be paying. But when you buy M-Kopa, it’s yours forever.”

Opiyo is tall and thin, with a closely shaved head he keeps shaded under an M-Kopa baseball cap. He infuses his pitch with quotes from the Bible and brings in an actor to break the ice with impersonations of famous Kenyan politicians. But his underlying argument is financial. Before demonstrating his product, Opiyo walks the group through a calculation, asking how much each person spends a week on kerosene. He works out what that adds up to over the course of a year and then totals a sum for the entire group. “I show them the cost of what they are using compared to what I’m going to give them,” Opiyo says. “If you bring this to their minds, they can see how they are foolish, and then you know they are going to buy.”

Read the full article here: http://www.bloomberg.com/features/2015-mkopa-solar-in-africa/


As stock buybacks reach historic levels, signs that corporate America is undermining itself

November 16th, 2015  |  Source: Reuters

When Carly Fiorina started at Hewlett-Packard Co in July 1999, one of her first acts as chief executive officer was to start buying back the company’s shares. By the time she was ousted in 2005, HP had snapped up $14 billion of its stock, more than its $12 billion in profits during that time.

Her successor, Mark Hurd, spent even more on buybacks during his five years in charge – $43 billion, compared to profits of $36 billion.

Following him, Leo Apotheker bought back $10 billion in shares before his 11-month tenure ended in 2011.

The three CEOs, over the span of a dozen years, followed a strategy that has become the norm for many big companies during the past two decades: large stock buybacks to make use of cash, coupled with acquisitions to lift revenue.

All those buybacks put lots of money in the hands of shareholders. How well they served HP in the long term isn’t clear. HP hasn’t had a blockbuster product in years. It has been slow to make a mark in more profitable software and services businesses. In its core businesses, revenue and margins have been contracting.

HP’s troubles reflect rapid shifts in the global marketplace that pressure most large companies. But six years into the current expansion, a growing chorus of critics argues that the ability of HP and companies like it to respond to those shifts is being hindered by billions of dollars in buybacks. These financial maneuvers, they argue, cannibalize innovation, slow growth, worsen income inequality and harm U.S. competitiveness.

Read on here: http://www.reuters.com/investigates/special-report/usa-buybacks-cannibal...


Demand Better Schools, Not Fewer Tests

October 28th, 2015  |  Source: Bloomberg

By Michael R. Bloomberg
President Barack Obama is in danger of squandering one of his most important legacies -- better public education policies -- and doing real harm to our poorest students and America’s future.
Over the weekend, the president and Secretary of Education Arne Duncan called for limiting the amount of time that students spend taking tests. It’s an unfortunate and tragically oversimplified response to the challenges facing our schools -- challenges made plain by U.S. test results released Wednesday, which show that students have lost ground in math for the first time since 1990.

Read on here http://www.bloombergview.com/articles/2015-10-28/demand-better-schools-n...


Taylor Swift Wins Streaming Battle as Apple Backs Down on Royalty Payments

June 22nd, 2015  |  Source: Bloomberg

It took Taylor Swift less than 24 hours to make technology giant Apple Inc. back down.

In the wake of a stinging rebuke from the pop singer, Apple made a rare public about-face on an earlier decision not to pay royalties for songs played on its new streaming-music service during a three-month free trial. Swift penned an open letter on Tumblr, calling the policy “shocking, disappointing, and completely unlike this historically progressive and generous company.”


Marijuana incorporated: cannabis eases into a billion-dollar business high

May 23rd, 2015  |  Source: The Guardian

Legalisation has created a ‘green rush’ as companies find success in edibles, a growing consumer base and a three-day expo at the Chicago Hilton

Four years ago Cassandra Farrington couldn’t find any venue in the country that would host her idea for a conference on the business of marijuana. This week, she hired out the Hilton Chicago, one of the city’s most famous hotels and one that has accommodated every US president since it opened in 1927.

“When we first started looking for venues, people ran screaming in the other direction when we said ‘Hey, we want to have this marijuana business conference’. They were like ‘no way, get out of here’,” Farrington said as 2,103 attendees ate lunch from white tableclothed tables at the 2015 Marijuana Business Conference & Expo. “Our first conference was at this masonic lodge in downtown Denver because it was the only place that would rent a venue to us.

“Being here [in the Hilton Chicago] is mind-boggling. It just shows how far the industry has come,” said Farrington, the co-founder and chief executive of Marijuana Business Media, which organised the three-day conference. “I don’t think you can come to this event and then think this isn’t a real industry.”

Now legalised in 23 states and the District of Columbia for medical use and four states – Colorado, Washington, Oregon and Alaska – and DC for recreational use, weed is big business. Farrington said independent analysts have valued the legal industry at $3bn, rising to $10bn when including ancillary trades and services. She puts the industry’s workforce at 60,000.

“You have to keep in mind that this not a new market or a new product, there is an existing consumer base who have been purchasing this in the shadows and in shame for decades,” George Jage, president of Marijuana Business Media, said. “It’s really difficult to pin down an estimate of the black market, but calling it $50bn would be a reasonable estimate.

“Now that black market is slowly becoming the white market creating taxes for the state, and jobs that people can actually tell their mothers about.”

He said the estimate of the economic benefit of legalising weed would be even higher if it accounted for the savings created by reducing the number of people jailed for possession, which is much more likely to affect black people than whites.


Debt hangover ruins the American dream

May 8th, 2015  |  Source: FT.com

There are ‘eerie parallels’ between the loan tale and subprime mortgages

A decade ago, American consumers seemed the most debt-addicted people on the planet. Since 2008, however, something rather remarkable has occurred: the level of consumer card and mortgage debt in the US has shrunk.

But there is one glaring exception to this trend: student debt. Over the past decade, the level of outstanding student debt has almost tripled to $1.3tn.

And although the law makes it relatively hard to walk away from student debt, defaults are also strikingly high. There are many ways to measure this figure but the Department of Education reports that Americans who were due to start repaying their student debts in 2011 had a 13.7 per cent default rate last year. This is a touch lower than the previous year (14.7 per cent) but dramatically higher than it had been since the mid-1990s; and it is higher than the credit card default rate.

This figure may understate the problem, however. The Treasury Borrowing Advisory Committee released a report late last year which suggests that actual defaults (using its data) were just 9 per cent but the “shadow” default rate — the debt “delinquencies” that are not fully reported — could be 23 per cent. Other economists have similar estimates.

Does this matter? Yes, according to Sarah Bloom Raskin, deputy treasury secretary. This week she told a finance conference in Washington that she now sees “eerie parallels” between the student loan tale and subprime mortgages.

Read on here; ($):  http://www.ft.com/intl/cms/s/0/a194e654-f3e1-11e4-a9f3-00144feab7de.html#axzz3ZSZfcC2i


$10,000 Derby Seats Net Churchill Downs $83 Million in 2 Minutes

May 1st, 2015  |  Source: Bloomberg

Saturday’s Kentucky Derby already has one guaranteed winner: The company that hosts the storied race will earn about $83 million for a spectacle that lasts a little more than two minutes.

Churchill Downs Inc. has seven casinos and tracks in the U.S., as well as its namesake property in Louisville. Yet the Run for the Roses will produce 30 percent of annual earnings, according to Cameron McKnight, a Wells Fargo Securities analyst. He estimates the race will generate record earnings this year, rising by $5 million, or 6 percent.

To keep profit climbing and entertain the 165,000 or so on hand for racing’s biggest day, Churchill Downs has poured $180 million into the track since 2001. Three years ago, the company opened the Mansion, an area with its own entrance, chefs and 322 seats that average $10,000 each on Derby day. Other additions include a jumbo screen for grandstand fans and 20 finish-line boxes for horse owners.

“The Derby’s importance extends far beyond the economic contribution,” William Carstanjen, Churchill Downs’ chief executive officer, said in an interview. “It remains the heartbeat of the company.”

Of the 20 horses scheduled for the May 2 race, American Pharoah is the favorite at 5-2, according to odds posted Thursday at KentuckyDerby.com, followed by Dortmund at 3-1. Both are trained by Bob Baffert. Secretariat holds the all-time speed record of 1:59:40 set in 1973.

The absence of an overwhelming favorite bodes well for betting since there will be “less certainty and more theories,” Carstanjen said. “Generally that’s good for us.”

Racing Slowdown

The Derby is a bright spot for an industry that’s been declining for years. Betting nationwide has shrunk by a third since 2003, to $10.6 billion last year from a peak of $15.2 billion, according to the Jockey Club, an industry group.

Tracks like Suffolk Downs, near Boston, and Hollywood Park, in Southern California, have dropped live racing or been razed, and the industry’s biggest players, such as Churchill Downs and Penn National Gaming Inc., have expanded with casinos as the industry has declined.

Slightly more than half of the Derby’s profit comes from premium ticket sales, according to McKnight. TV rights and sponsorships account for 23 percent, while betting is 16 percent. Food and beverages, including 120,000 mint juleps, the race’s signature drink, amount to just 4 percent.

Attendance of 164,906 at the Derby last year was just shy of the 2012 record of 165,307. The race never sells out, Carstanjen said, as there’s always room in the infield. The Derby dates back to the founding of the track in 1875.

Churchill Shares

Shares of Churchill Downs have tripled over the past five years as the company expanded into casinos and online games, and acquired additional tracks. That compares with about a 75 percent return for the Standard & Poor’s 500 index.

Churchill Downs also owns TwinSpires, an online horse-betting business that produced $190 million in revenue last year. In December, the company paid $485 million for Big Fish Games Inc., a Seattle-based maker of mobile games such as Gummy Drop! and Big Fish Casino. That tab could reach $835 million if the business hits certain targets.

Employees of Big Fish Games will be in attendance at the Derby, Carstanjen said

“We hope that gets their creative juices flowing and they see some way to leverage our social and casual gaming business,” he said.


Catastrophe deals threaten reinsurance sector ‘collapse’

April 28th, 2015  |  Source: FT.com

The $575bn industry that protects insurers from earthquakes, hurricanes and other disasters risks a banking-style meltdown if it continues making “dangerous” changes to how it is structured, new research has found.

After a three-year study of the reinsurance sector, a team of business school academics has found that some companies are now packaging together catastrophe risks in a similar way to the carving up of subprime mortgages by big banks before the financial crisis.

As a result, the victims of a costly catastrophe — such as an earthquake or storm that destroys large areas — could run into problems having their insurance claims paid.

Professor Paula Jarzabkowski of Cass Business School, one of the researchers, said mainstream insurers were potentially spreading risks to parties that did not fully understand them.

Many have been increasingly turning to pension funds and other capital markets investors — by issuing securities such as catastrophe bonds — as an alterative to traditional reinsurance.

But Prof Jarzabkowski warned that these insurance companies were in danger of not being covered as well as they believed if an especially costly disaster, such as an earthquake hitting California, were to strike.

“If these instruments work as insurers hope, they can alleviate a lot of hardship and suffering,” she said. “If they don’t, societies are exposed to having less capacity to rebuild in the wake of a disaster.”

In a book to be launched this week, Prof Jarzabkowski and two fellow business school academics suggest that the market has become over-reliant on catastrophe models to assess the risks — and could freeze following a catastrophe.

In Making a Market for Acts of God, the authors warn: “As other financial industries have collapsed, in part through their reliance on inaccurate models, so, too, reinsurance places itself at risk of collapse.”

 

 


SolarCity bets $1B on commercial, rides storage wave to market approval

April 23rd, 2015  |  Source: GreenBiz

Sure, the numbers bear out a huge drop in solar energy costs in recent years. But if there was any question that people other than environmentalists are beginning to view renewables as the likely energy standard of the future, action in the stock market this week should answer that.

After announcing a new $1 billion fund to finance solar installations by commercial customers, SolarCity saw its stock price jump 4 percent in trading Wednesday to $60.50 a share before closing at $59.09 a share, up 2.43 percent.  

Buoying the market bump, no doubt, was that Credit Suisse Group AG invested $500 million in the fund.

SolarCity won't be peddling solar energy systems alone. It wants to use the $1 billion to install and lease solar power systems along with battery storage to commercial businesses. Better solar energy storage long has been pegged as an area of growth for the company, given founder Elon Musk's battery Gigafactory project tied to his other clean tech company, Tesla Motors.

When it comes to financials, SolarCity's executive team wagers that the combination of existing panels and new storage technologies will produce lower electricity prices — at least during peak demand hours — than power from conventional utilities.

“We’re seeing continued adoption of solar in the commercial sector," said Erik Fogelberg, SolarCity’s senior vice president of commercial sales and storage solutions, in an interview with GreenBiz. "That is why we are putting out our largest fund yet.”

He said the $1 billion fund “will be able to put up 300 megawatts in new commercial deals in the next two years.”

Scaling solar sales

The commercial deals SolarCity intends to finance with the fund, Fogelberg said, combine solar photovoltaic systems with its DemandLogic intelligent battery storage system. Tesla provides the battery storage product being packaged with SolarCity’s installed solar energy systems.

The company touts the offering as a way for businesses or commercial customers to cut energy costs by using stored electricity when the sun is not shining. That lets them avoid peak demand and associated utility demand charges.

“Solar is becoming part of their overall strategy in energy procurement," Fogelberg said of commercial customers. "It wraps into goals of using clean power, but first and foremost it’s about how do I save money.”

Commercial customers could include Fortune 500 companies — who may be interested in rounding out their energy procurement not to be as dependent on fossil fuels or regional electric grids — but also school districts, cities, counties, water districts, colleges and government agencies.

Investor Place quoted Deutsche Bank analyst Rod Lache estimating that dual solar and storage systems in fact could produce cost savings in electricity purchases. 

Lache estimated that solar-plus-storage systems of the type SolarCity and Tesla are packaging could bring the price of electricity to 39 cents per kilowatt hour, which compares favorably against peak demand electricity prices of 49 cents per kilowatt hour in some U.S. markets today.

It just so happens that shares of Tesla, as a pioneer in scaling battery storage for commercial use, also soared Wednesday — up $10, or 4.79 percent, to close at $219.44 a share.


China’s G.D.P. Slows to 7 Percent, the Weakest Rate Since 2009

April 15th, 2015  |  Source: NYT.com

China’s economy grew in the first three months of 2015 at its slowest quarterly pace in six years, dragged down by an industrial slowdown and a weak housing market, the government announced Wednesday.

Gross domestic product rose 7 percent from a year earlier, in line with economists’ forecasts. While the growth rate means China still ranks as one of the world’s fastest growing major economies, it marked the country’s slowest quarterly expansion since early 2009, when it was still feeling the effects of the global financial crisis.

China’s Communist Party leadership has lowered its official growth target for this year to around 7 percent. This would be the nation’s slowest annual expansion in 25 years, but leaders have said this is a price that needs to be paid in order to reduce the economy’s reliance on credit-fueled growth and get everyday shoppers to spend more of their savings.
Recent indicators suggest that the economy could be slowing more rapidly than many observers expected. In March, industrial production rose 5.6 percent from a year ago, its slowest increase since late 2008. Land purchases by real estate developers plunged 32 percent by area in the first three months of the year.




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