Censere Group

A global advisory services group - Valuation, Due Diligence, Risk Advisory, Strategic Advisory
JUN
16

Conservatism in Valuation

Conservatism in Valuation

Conservatism in valuation for financial reporting – a double-edged sword

Conservatism or prudence is a major building block in financial reporting. Earning and asset value should not be overstated whilst liabilities and expenses should be accounted for in full. This helps guard against potential financial statement manipulation and misrepresentation. Asset valuation, on the other land, is unavoidably judgmental, and conservatism always plays a role. However, the effects of conservatism in valuation are usually multifaceted, and may become unconservative or counter-intuitive, if not self-contradictory. Valuations relating to acquisitions and financial instruments are common areas where conservatism can bring potentially contradictory results. 

Purchase price allocation 

Upon acquisition, fair values of assets and liabilities, including identifiable intangible assets, are measured and reported in financial statements in accord with HKFRS 3 – Business Combinations. When purchase consideration exceeds the fair values of the assets, the residual amount will become goodwill. This process is known as purchase price allocation (PPA). 

According to HKAS 38 – Intangible Assets, goodwill will not be amortised, but subject to impairment testing at least once a year. Fair values of tangible assets and intangible assets with definite lives will be depreciated or amortised according to their remaining economic useful lives. 

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APR
01

Room for Rent: A Review of Global Hotel Industry Drivers & Trends

Room for Rent: A Review of Global Hotel Industry Drivers & Trends

As the middle class grows in emerging markets, with greater disposable income, travelling for leisure is becoming a natural aspiration for many. To meet this demand, expanding hotel chains in emerging markets are not only targeting western clients, but also aiming at enhanced brand awareness and loyalty among the local population who are expected to drive future growth.

At same time, Boomers and Millennials have become key segments for the hotel industry in the 21st Century. As a result, hoteliers have started offering customized experiences to their guests based on those guest's demographics. 

Another frontier in the hotel industry is technology. Rapid innovation in the technology sector is already influencing the hotel industry in a big way. The consolidation of online travel agencies (OTA), and massive growth in mobile usage, are driving hoteliers to formulate new strategies for distribution and inventory management. 

Branding and segmentation are not new factors, however, the hotel industry outside of the US market remains fragmented and often lacks effective branding. This points to consolidation opportunities in this industry. One of the new trends is the emergence of multi branded hotels which increases operating efficiencies through sharing of personnel and overhead costs. Moreover, hotel groups are moving from an ownership model to an asset-light model and growing rapidly. Consequently, room supply of each of the top three hotel groups in the world (IHG, Hilton and Marriott) has reached to more than 700,000 rooms.

Source: MKG Group

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DEC
06

The Museum of Thai Corruption – “Showcasing Thailand corruption cases”

In Thailand, the National Anti-Corruption Commission (the "NACC") has funded and organized, The Museum of Thai Corruption (the "Museum"), which is a roaming museum to raise the awareness of fraud and corruption in Thailand. The Museum showcases ten major alleged cases in Thailand over the last 15 years which includes: the rice subsidy scheme (in more detail below), corruption in the construction of 396 police stations, Raisom media corruption case, Bangkok film festival bribery case, Khlong Daan waste water management corruption case, the construction of low quality footsal stadium,unusual richness case against a former Transport Ministry permanent secretary, the case of imported luxury cars for Thailand's grey market, dried longan subsidy scheme and the advertising billboard above police boxes case.

The ten alleged corruption cases are represented through modern sculptures with easy-to-understand descriptions. The Museum is currently presented at Gateway Ekkamai, 3rd floor and will be there until 31 October 2015. After that, it will be permanently exhibited at NACC offices at 361 Nonthaburi Rd , Mueang District, Nonthaburi 11000.

The rice subsidy scheme in further details

The rice subsidy scheme' which was supposed to help Thai rice farmers to earn more revenue was launched by former Prime Minister Ms Yingluck Shinawatra in 2011. The purpose of this scheme was to buy rice from Thai farmers at a price around 50 percent above world market price and stockpile the rice in order to force up the global price. The government was unable to sell the rice at the promised high price which left thousands of farmers unpaid.

What is worse, is that this policy did not only support Thai farmers, but also the farmers from neighboring countries including Vietnam and Cambodia, as there were roomers that  they were illegally selling their rice to Thai government as well. This resulted from a lack of a farmer background checking system. Furthermore, this scheme also encouraged farmers to only focus on the quantity of rice rather than the quality, as the purpose of selling the rice to government was just to make more money! In summary, the government therefore purchased the low quality product with high price and lost the credibility as a result of this scheme.

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MAY
20

Forensic Integrity Due Diligence and the Protection of Personal Data in Hong Kong

Author: Richard Batten LL.B (Hons), Barrister and Solicitor of the Supreme Court of Victoria and Director of Censere Group Co., Ltd

Richard is a Director with the Censere Group and for the past 20 years has been assisting clients in the Asia Pacific Region with Due Diligence investigations in a variety of Mergers and Acquisitions across different industries.  His projects have included clients from China, Japan, India, Korea, Australia and the USA.  

One of the significant trends in the Asia Pacific region over the last few decades has been the emergence in a number of countries of new or tightened laws on privacy of personal data or “Data Privacy”.  This trend has created a particular challenge for forensic practitioners providing integrity due diligence services to clients seeking to mitigate their risk(s) before deciding on significant investments in the region.  Not only does a forensic practitioner need to understand where and how to obtain relevant background information on a target company, and key individuals associated with the target, but is also required to have a sound knowledge of all data privacy laws and guidance in the jurisdictions relevant to particular due diligence projects.

This article examines the current position regarding the Hong Kong Personal Data (Privacy) Ordinance and the Office of the Privacy Commissioner for Personal Data (HK) "Guidance on Use of Personal Data Obtained from the Public Domain" issued in accordance with the requirements of the Ordinance.  The HK Special Administrative Region (SAR) has enacted a strict Ordinance to protect personal data.  It specifically applies to data obtained from the public domain which practitioners previously assumed was able to be used without restriction as such information had already been disclosed to the public.

This assumption has now been legislatively overturned and the ordinance contains significant restrictions on Personal Data use, even where it is either disclosed publicly or available to the public to access relatively easily.  The Guidance specifically states the limitation on wide use of personal data in the public domain:

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MAY
13

The Consolidation of China’s Dairy Industry

The Consolidation of China’s Dairy Industry
Mengniu, Yili and Bright Dairy are Market Leaders

On basis of company sizes, market players in the Chinese dairy market can be categorized into 3 tiers. The 1st tier refers to the national players, namely, Mengniu, Yili, and Bright Dairy. The 2nd tier includes regional players, such as Beijing Sanyuan Dairy, Royal Dairy, and Yantang Dairy. The 3rd tier players focus almost solely on local markets and pose no immediate threat to players in the first two tiers. There are more than 1,500 dairy companies in China, while the number of companies with operational revenues above RMB5 million is more than 400. In 2012 the dairy industry reported sales revenue of RMB246.54 billion, the top 4 dairy companies were all domestic companies and merely accounted for around 39% of market share. Foreign dairy companies, such as Danone, Mead Johnson, and Nestle, made up more than half of the market.

The Government Drives Industry Consolidation

After the melamine incident in 2008, the Chinese government has been endeavouring to restructure the domestic dairy industry. The country is planning to create a few national dairy heavyweights that control the production of milk powder, infant formula, and raw milk, as well as a greater proportion of dairy-product processing. The “Proposal to accelerate the consolidation of milk formula industry”, jointly released by the MIIT, NDRC, MOF, and CFDA in June of 2014, proposed the establishment of 10 milk formula groups with respective annual revenue of over RMB2 billion and raising industry concentration of the top 10 domestic brands to 65% by end of 2015. Moreover, the proposal also aims to create 3 to 5 large infant milk formula groups that each have an annual revenue of more than RMB5 million, and to further increase market concentration of the top 10 domestic brands to 80% by 2018. The new policy is an extension of the “Double lifting” policy proposed in 2013.

In May of 2014, the China Food and Drug Administration released the results of a six-month review of the infant-formula industry, issuing production permits to just 82 of the 133 companies that submitted applications. The Ministry of Industry and Information Technology announced its intention to shrink the sector to 50 manufacturers by 2018. 

The raw-milk production sector is also undergoing continuous consolidation. The number of farms with a dairy herd of more than 1,000 cows increased from 5.5% in 2008 to 18% in 2013. In the meantime, the number of farms with one to four cows fell from 32.4% in 2008 to 20% in 2013.

As the dairy industry continues to consolidate, the number of deals in the industry is accelerating. In 2013, there were about 10 M&A deals, with a total value of USD3.2 billion. In first half of 2014, the industry had 15 deals, totalling more than USD2 billion. Some major recent transactions are listed in table 1.

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APR
23

An Overview of China’s Pharmaceutical Industry

An Overview of China’s Pharmaceutical Industry
China is the second largest pharmaceutical market in the world

With China’s expanding personal income and the growing medical needs of its aging population, its pharmaceutical market has become the second largest in the world. IMS Health predicts that global spending on medicines will reach around USD1,300 billion by 2018, a 30% increase over the 2013 level. During 2014-18, the compound annual growth rate (CAGR) on medicines spending will be 4% to 7%. China had a spending level of USD77.2 billion in 2012, which accounted for 8% of global medicines spending. It is forecasted that China’s spending level will reach USD155-185 billion in 2018, which would be the highest among emerging pharmaceutical markets. The key drivers for growth will be healthcare infrastructure improvements, increased access to medicines, and increases in the number of private hospitals.

Sales revenue of manufacturers recorded continuous growth

From 2004 to 2009, China’s pharmaceutical manufacturing industry expanded massively; the number of manufacturers increased by 44.6% to reach 6,807 in 2009. Between 2010 and 2013, the number of manufacturers decreased sharply from 7,038 in 2010 to 5,674 in 2011 and then increased in the two subsequent years to reach 6,525 in 2013. In the meantime, the value of total assets of the pharmaceutical industry increased by 71.6%. Sales revenue and profit received by manufacturers recorded continuous growth from 2011 to 2013 (figure 1), with average annual growth rates of 19.1% and 17.8% respectively. In the first three quarters of  2014, sales revenues amounted to USD264.4 billion and profits to USD25.3 billion.

The pharmaceutical industry is fragmented

The Chinese pharmaceutical industry is very fragmented. The top two pharmaceutical companies together only occupied a small portion of market share, a notable contrast to the US market. Moreover, aggregated revenues for the top 100 pharmaceutical companies only accounted for 27.1% of the industry’s total revenue. In 2013, SMEs experienced rapid growth and 6 more SMEs received USD0.81 - 1.61 billion (RMB50-100 billion) compared with 2012. Another notable observation is that some traditional Chinese medicine manufacturers, such as Guanxi Wuzhou Zhongheng (87%), Chase Sun (70.2%) and Shijiazhuang Yiling (50%), recorded significant year-on-year revenue growth.

 

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APR
15

Middle Market M&A Snapshot - 2014

Middle Market M&A Snapshot -  2014

Middle market companies with over 169 million employees and $16.6 trillion in sales contribute $11.5 trillion to the world GDP. This was indicated in a recent HSBC report, Hidden Impact: The Vital Role of Mid-Market Enterprises.

The report shows also U.S. with 55,700 middle market companies has the largest number of middle market firms among other countries. The core U.S. middle market companies with annual sales between $50 million to $500 million contribute $1.7 trillion to the U.S. economy and their 16.5 million employees are generating 13 percent of US output. That makes U.S. an economy with the most middle market companies on a global comparison.1 

According to Thomson Reuters, the number of mid-market M&A deals (transaction value below USD1 billion) decreased from 3,326 in 2005 to 2,041 in 2009. (Figure 1) The number of deals then bounced back slightly since 2010; however, the number is still much lower than the pre-2009 level. Total transaction value between 2005 and 2014 also shows the similar trend (Figure 2).  

In 2014, there were 2,303 mid-market transactions completed in the US market, amounted to USD315.3 billion. Several factors accounted for another good year for transactions including increasing confidence in the well-being of the economy, massive cash on corporate balance sheets, highly liquid securities in private equity funds, all-time low interest rates and well performing equities markets. (Figure 2).  Commercial real estate, oil and gas, software, banks and professional services were the five most active middle market sub-sectors in terms of transaction volume.2   

 

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FEB
18

Increased Financial Stress and Fraud

Why people commit fraud

Financial stress is widely recognized as one of the key reasons why people commit fraud. Some people commit fraud for other, pathological, reasons, but these are small in number and not typically the kind of fraudsters we deal with daily.

However employees and suppliers who have had a long and trusted relationship with you may feel added pressures when there are dark clouds on the horizon. Presently with the price of oil, coal and other minerals at recent record low, many Resources and Energy Sector employers are looking to reduce costs to help mitigate any potential losses. Orders are down, inventories are being reduced, payment cycles are increasing; there is generally a greater level of uncertainty right now.

Your staff and suppliers may feel their position with you is threatened and start to worry about their short to medium term future. At the same time your staff and suppliers are seeking their cost of living and business costs increasing, with little they can do about it.

It is at exactly these times of economic uncertainty that your staff and suppliers will start to feel increased stress about how they will meet their own financial obligations. For many it is a lifestyle issue, for others it really is a matter of survival. Committing fraud is often seen as the only way.

Stressors

Your staff will worry about how to pay their rent, mortgage, car lease, school fees, medical bills, a wedding perhaps and even how they will take that much longed for overseas holiday. Your suppliers will worry about how to pay their own staff, rent, creditors as well as their personal expenses which will not be reduced at all. These stresses can cause otherwise logical, and dishonest decisions.

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JAN
06

China Iron Market 1Q2015 Review

China Iron Market 1Q2015 Review
Australia holds the largest amount of iron ore reserves

According to the U.S.Geological Survey (USGS), world total reserves of iron amount to about 81,000 million tonnes contained within 170,000 million tonnes of crude ore. Australia and Brazil are among the world’s largest iron ore holders and hold a large portion of the world’s iron ore reserves. As of 2013, Australia had reserves of 17,000 million tonnes of iron content and 35,000 million tonnes of crude ore while the figures for Brazil were 16,000 million tonnes and 31,000 million tonnes respectively.

China is the largest iron ore importer

In 2013, world total production of iron ore was 2,950 million tonnes, and saw a very slight growth of 0.03% over the previous year. China is the leading iron ore producer in the world; it produced 1,320 million tonnes of iron ore in 2013, representing 44.7% of world total production for that year. Australia and Brazil were also large iron ore producers with production of 530 million tonnes and 398 million tonnes respectively. 

From Jan of 2005 to Nov of 2014, the price of imported iron ore in China increased from US$28.1 per tonne to US$73.1 per tonne as a result of a surge in iron ore demand caused by increasing steel production. China is currently the largest iron ore consumer in the world with its consumption representing almost half of global iron ore production. From 2004 to 2013, China recorded a 13.0% CAGR in steel production, far higher than the global growth rate. In 2014, it is estimated that China produced 810 million tonnes of steel and consumed 1,300 million tonnes of 62% Fe equivalent iron. 

China is the world’s largest importer of iron ore, buying two-thirds of the world’s seaborne supply, in spite of its leading producer position. Chinese iron ore contains, on average, less Fe content (around 17-20%) than other major producers (with a standard of 62%). China’s iron ore reserves in terms of iron content is 7,200 million tonnes, representing only 8.9% of world total reserves. In 2013, 1,320 million tonnes of iron ore were produced in China, equivalent to only 325 million tonnes of 62% Fe grade iron ore. Consequently China needs to import iron ore to meet its massive demand. 

Oversupply and declining demand lead to price drop in 2014

Rio Tinto (Rio), BHP Billiton (BHP), Fortescue Metal Group (FMG) and Brazil’s Vale S.A. (Vale) are major seaborne iron ore suppliers to China. Rio, BHP and FMG are all Australian based companies with iron ore mining operations in the country, making Australia the largest iron ore exporter in the world. In 2014, some of the biggest suppliers expanded their output and pushed the market into oversupply which led to a decrease of iron ore prices. The iron ore price at Tianjin port plunged to the lowest in five years at US$73.1 per tonne in November of 2014.

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NOV
24

Coal Consumption in Asia Pacific Power Sector

Coal Consumption in Asia Pacific Power Sector
Overview of coal power generation in Asia Pacific countries

Coal is a crucial fuel for the generation of electricity and it is reported that over 40% of electricity generated worldwide in 2013 was fueled by coal. Mongolia and South Africa used coal to generate more than 90% of each country’s total electricity in 2013. Coal is also a major source in some Asia Pacific countries; China, Australia, and India generated more than half of their electricity by coal. In Indonesia and Japan, coal is used to generate 48% and 21% of electricity respectively. 

  

Recent development of coal power plants in Asia Pacific region

A recent report, which analyzed more than 1,800 live projects in 15 Asia Pacific countries, released by Timetric’s Construction Intelligence Center (CIC) shows that coal power plants will maintain a leading role in the Asia Pacific region’s power sector over the coming 10 years. The value of these projects totals US$1,855 billion. Of this amount, US$792 billion (42.7%) will be invested into coal power projects, more than twice the value of nuclear power projects. It is forecasted that the cumulative installed capacity of coal power will be over 1,959 GW by 2025. The report also reveals that developed countries, such as Japan, Australia and New Zealand do not invest greatly in coal power projects for environmental reasons. 

State policy may affect the demand on coal for power generation

Although it is forecasted that coal power will continue to be the ruling power type in the coming decade, state policy in some countries, such as China and Japan, will slow down the growth of coal demand for power generation.

In accordance with the state policy of China on emissions reduction, the installation of new coal-fired power capacity should decrease while the installation of clean power capacity should increase. The National Energy Agency (NEA) predicted that the proportion of coal-fired power will decrease to 70% by 2020 and fall below 50% by 2050. This will inevitably suppress the growth of coal demand. The effects of this plan to decrease the installation rate of coal power has already been observed in the past several years. In 2011, the newly installed coal-fired power capacity was 58,370 megawatts, representing 61.9% of new installation for that year. However, the proportion diminished in the subsequent two years to 57.6% and 38.8% respectively.

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NOV
17

Fair Value Management

‘You can only manage what you can measure.’

Since the adoption of International Financial Reporting Standards (IFRS), the underlying principles of financial reporting have been moving towards the concept of fair value from historical cost.  Advocates believe fair value based reporting can provide more relevant, useful, and comparable information on the value of a company and its assets and liabilities.  Critics counter that earnings and other financial metrics are too vulnerable to short term changes in market expectation and sentiment, which have an impact on fair value.  Regardless whether you agree or disagree with the fair value concept, the best approach is to be proactive when dealing with it, so that there are no surprises.  Instead of passively waiting for, and being adversely affected by valuation results, it is wise to plan and prepare in advance.  In what follows we will examine several critical areas of valuation for financial reporting that should be considered.

Financial instruments and embedded derivatives

The valuation of financial instrument is one of the most complicated areas for financial reporting.  Whenever you invest in or issue new securities, fair value measurement is required.  Whilst transaction prices may be adopted as fair value at initial recognition, mark-to-model valuation will be needed for financial year-end reporting.  The change in fair value of financial instruments, especially derivatives, is a frequent eye-catching item that impacts the income statement.  When long-term debts are involved, effective interest rate also affects net profit over the tenure.

For most financial assets and liabilities, including embedded derivatives (except items being measured at amortized cost) year-end fair value measurement is required.  Values are derived using sophisticated spreadsheet models with inputs drawn primarily from market data.  The resulting values go into the balance sheet and the corresponding movement in value goes through to the income statement.  This may catch you by surprise and is unfortunately out of your control.  Depending on terms and conditions in the financial instrument contract, you may liquidate the asset, repay the debt, or negotiate for a revision of terms, but room for improvement is limited once a deal is made.

To be forewarned regarding any potential earnings shock on the re-valuation of a financial instrument, you should consider pre-transaction fair value management.  This typically involves the following steps before fixing the contract:

Review initial draft of the transaction terms and conditions to identify fair value measurement requirements;Pro forma valuation based on latest practicable date or expected market data and initial transaction terms (base scenario analysis);Sensitivity analysis of valuation and earnings impact with different market parameters and transaction terms; andDecision: go or not – revise or negotiate further the transaction terms when appropriate, or consider hedging or other remedies, then step 1 again.

Step 1: Transaction terms review

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NOV
04

Asia Pacific Nickel Market

Asia Pacific Nickel Market

With its high melting point and corrosion resistance, nickel is a diversely used metal. Nickel could be found from over 300,000 products, from daily used coins to aerospace application. In the present article, Censere examines the structure of global nickel market and market dynamic in the Asia Pacific Region. 

Asia Pacific Region Nickel Outputs Accounts for more than half of the World’s Production

It is estimated that the total nickel reserves in the world is 75 million tonnes with major reserves is located at Asia Pacific Region. The two largest holders of nickel reserves are Australia and New Caledonia; their reserves are 20 million tonnes and 12 million tonnes respectively. In 2012, the world total mine production of nickel was 2.1 million tonnes, and the Philippines was the largest nickel producer in the year. In the Asia Pacific Region, Australia, China, Indonesia, New Caledonia and the Philippines, produced 54.6% of mine production of nickel and held 51.4% of nickel reserves in the world. 

Most Nickel is Used to Produce Alloys

It is estimated that 81.5% of nickel is first used to produce alloys, and 65% is consumed in the production of stainless steel. Among other alloys, 3.9% nickel is used for producing super alloys. Apart from alloy sector, electroplating (8.3%) and chemical (4.3%) industries also consumed a significant amount of nickel. Projected by Roskill, the growth in consumption of nickel alloy will be increased by 3.3% from 2012 to 2020. Among a variety of industry, the growth of consumption rate for chemical/process industry (4.3%) and electronic/appliances (4.8%) will be above the average.  

According to International Nickel Study Group (INSG), total primary consumption of nickel increased from 1.70 million tonnes in 2007 to 1.99 million tonnes in 2012, with a 3.16% compound annual growth rate. In the same period, while all other regions recovered slowly from the global financial crisis, demand for nickel consumption grew fast in Asia. In 2012, Asia consumed 1.10 million tonnes of nickel, accounted for 55.2% of the world’s total consumption. In country level, China was the largest consumer and consumed more than 0.7 million tonnes of nickel. Its consumption was even larger than the sum total of European Union. This figure is not surprising because China is the largest stainless steel producer in the world and producing higher than 40% of the world’s crude steel output yearly since 2011. 

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OCT
03

Leveraging Intellectual Property for Financing

As some of us may know, Malaysia announced an Intellectual Property (IP) financing scheme in 2013. The main idea being that the IP could be used as collateral for loans by small and medium enterprises (SMEs) for business expansion. A number of government agencies, some sector/ industry focused, are encouraging innovation by providing support, training and funding ecosystem for sound business ventures. 

For an IP financing scheme to succeed, the government support and participation was always going to be important. After all the government has largely a social and nation building motive unlike other financiers including, banks or investment funds/ venture capitalists, etc. which are answerable to their shareholders with profit maximization being the main motive. As such there is a difference between how risk may be perceived by the government vs other lenders. Although social agenda does not equate to lending to any venture or losing money and still requires careful consideration of the risks involved in lending. The valuation of the IP thus becomes important to understand the future potential, risks involved, amongst other things. 

Although banks generally acknowledge IP as an asset, due to IP assets not being on the financial books in most cases, the perceived challenges (real in some cases) in liquidating or selling these assets in case of a default, the challenges in valuing IP assets coupled with their unfamiliarity with valuation techniques, has resulted in banks being more conservative by providing loans on traditional business assets only as collateral which are mostly tangible in nature. For a bank to provide lending, it must ensure that the credit risk is at an acceptable level. In order to fully appreciate the risk involved in providing lending based on IP, a robust valuation becomes important. 

Of all the funders, the angel investors/ venture capitalists seem to appreciate IP or the idea/ technology more than other funders. This is the reason behind the initial funding of many silicon valley startups which have gone on to become household names – Google, Facebook, WhatsApp to name a few. Unlike in the U.S, ventures in most Asian countries do not enjoy much of angel/ venture capital support. There is always a ‘gut feel’ factor behind angel/ venture capital investing which also comes down to their acceptable level of risk and is not always quantifiable by figures. Don’t expect the same ‘gut feel’ from your bankers or other financiers! 

Anyone involved with IP be it financing, valuing or legal will know that it is a complex area. Any business valuer will tell you that although all valuations are subjective, IP valuations are the most subjective of all. There are many reasons for this. You don’t sell your copyright or patent as you sell your property, vehicle or equipment and you can’t google (unlike most things these days) to find the answer to what your patent might be worth. There is limited public information if you’re trying to find details of IP assets including the sale and purchase data. Anything otherwise would defeat the purpose of developing, protecting and enhancing the IP assets which for most companies are the key business assets and you don’t divulge details of your key business assets. 

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SEP
29

Measuring the Benefits of the MICE Industry: Hong Kong Case

Measuring the Benefits of the MICE Industry: Hong Kong Case
The Global MICE Industry is Growing

The Meetings, Incentives, Conventions and Exhibitions (MICE) industry is an important segment of the tourism industry, and is a growing sector with great potential. The MICE industry comprises of the upper-stream (such as MICE activity organizers), midstream (such as accommodation, facilities and services suppliers) and downstream (such as adverting agencies, logistics services providers and travel agencies) industries. Therefore, the MICE industry involves a wide range of sectors such as tourism, hotels, transportation, catering, real estate and retail. A successful MICE industry is believed to have significant positive impact on a country’s economy. Apart from bringing significant economic benefits, such as national income and job opportunities, it also benefits a destination by providing opportunities for knowledge sharing, country brand development and network building. 

It has been observed that the global demand for the MICE industry has recorded fast growth since 2009 (World Travel Monitor, IPK International). This growth has been faster than for traditional business travel. Momentum was maintained during Jan-Aug of 2013 as the MICE sector grew by 6% while traditional business travel shrank by 10%. The MICE sector currently shares 54% of the total business travel market.For example, according to the statistics of the International Congress and Convention Association (ICCA), the number of association meetings has been increasing during the past 5 decades. Growth was more significant after 1997, during the periods of 1998-2002 and 2003-2007, growth rates over the previous period were 51.4% and 59.9% respectively.

Asia Pacific region is the Second Largest Market in Association Meetings

As a result of more convenient transportation and a higher degree of globalization, the Asia Pacific Region has become a more important destination for MICE activities. This observation could be illustrated by the changes in the association meetings segment. In the past 50 years, Europe was the leading region in holding association meetings. Even though its market share has been shrinking since the 1963-67 period, it still held more than half (54%) of the market share in the period of 2008-12. In contrast to Europe, Asia and the Middle East saw gradual increases in market share over the past 50 years, increasing from 8.2% in 1963-67 to 18.2% in 2008-12. Asia and the Middle East now share the second largest portion of the market. In 2012, there were 11,156 association meetings held globally. Of these meetings, 6,036 were held in Europe and 2,180 and 177 were held in the Asia Pacific region and the Middle East respectively. 

As with association meetings, the Asia Pacific region is also a major destination for the exhibition segment. According to the Global Association of the Exhibition Industry (UFI), there were 1,197 exhibition venues (with 5,000 sqm indoor exhibition space or more) with 32.7 million square meters indoor space by December of 2011. Of these 1,197 venues, 496 were located in Europe with a total space of 15.6 million sqm, accounted for nearly half (48%) of the world’s total space. 184 venues were located in the Asia Pacific region, and the total space was 6.6 million sqm. Of these 184 venues, 12 venues had a total space of 100,000 sqm or more, and 144 venues had a total space of less than 50,000 sqm. China is the country with the largest total exhibition space at 4.75 million sqm, accounting for 15% of the world’s total space.   

Economic Impact of MICE Industry: the Hong Kong Case

MICE Tourism imposes multiplier effects on the economy through various types of spending, namely direct spending, indirect spending and induced spending. Professor Larry Dwyer, President of the International Association for Tourism Economics, pointed out that direct spending effects can be measured in the industries which are regarded as “direct beneficiaries” of relevant activities such as the hotel industry. Direct spending is purchases of goods and services directly attributable to MCIE activities, such as MICE visitors’ spending on hotels. Indirect spending occurs with other industries that provide goods and services to the direct beneficiaries, such as industries supplying products and services to hotels. Induced spending refers to household spending of income earned either directly or indirectly related to MICE activities. Moreover, MICE tourism could absorb more income than other types of tourism because business travellers usually spend more for better hotel and dining services.

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SEP
29

Mongolia – a Rising Coal Market

Mongolia – a Rising Coal Market
Mongolia is one of the major coking coal producers

By the end of 2011 total global proved recoverable coal reserves stood at 982,744 million tons. Europe (30.8%) and North America (27.5%) held the major recoverable coal reserves. At the country level, USA, Russia, China, Australia and India held the largest coal reserves and,in aggregate, held around 72.4% of the world’s total recoverable reserves. Mongolia has also proven to possess vast resources of coal. According to the Mineral Resources Authority of Mongolia, coal deposits can be found throughout the country.

Steam coal is the major coal type produced globally with an output volume much higher than coking coal and brown coal. China is the largest producer of steam coal and coking coal with a production of 3,450 million tons and 562 million tons respectively. Indonesia was the fourth largest producer of steam coal with a production of 485 million tons in 2012. Mongolia is the seventh largest producer of coking coal.

Mongolia recorded rapid growth on coal production in recent years

Mongolia only began to tap its vast coal reserves in the past five years. Before 2008, the annual coal production of Mongolia was less than 10 million tons, although continuous growth was recorded. However, significant year-on-year changes were recorded for three consecutive years from 2009 and production reached a record high at 32 million tons in 2011.

In Mongolia, the consumption of coal has only recorded moderate growth during the past decade. The volume of consumption increased from 5.2 million tons in 2004 to 7.4 million tons in 2012, with a 4.51% compound annual growth rate. In 2012, around 24.7% of coal produced was consumed domestically. It is reported that the vast majority (79.0%) of domestic coal consumption in Mongolia is due to  “Thermal power stations”. The “Utility services, household consumption” and “Manufacturing &construction” sectors accounted for 9.4% and 3.0% of consumption respectively.  

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JAN
15

India Water Security and Wastewater Treatment Market 

India Water Security and Wastewater Treatment Market 
India Suffers from Water Security Problem

With the second largest population in the world and a growing economy, India is a big water consumer. However, as a result of limited water availability and poor infrastructure, India faces a number of challenges. The Water Security Index, created by the Asian Development Bank (ADB), gives India an overall score of 1.6 which is low compared to other Asian countries. Among the five components of the index India gets the lowest scores for household water security, urban water security, and environmental water security. This indicates that India suffers from serious water problems including: (1) poor ability to satisfy household water and sanitation needs, and poor ability to meet hygiene requirements for public health in all communities; (2) insufficient urban water-related services, such as water supply, wastewater treatment, and drainage; and (3) river basins that are in poor health. 

 

The Gap between Wastewater Generation and Treatment Capacity

In the past decade, wastewater generation in India increased from 26,254 MLD (million litres per day) in 2003-04 to 47,459 MLD in 2011-12, with a compound annual growth rate (CAGR) of 7.69%. Although the quantity of wastewater treated increased with a CAGR of 10.85%, the level of wastewater treatment is still much lower than the generation level. In 2011-12, as little as 33.8% of wastewater discharged was treated. A government report, Urban and Industrial Water Supply and Sanitation for the Twelfth Five-Year Plan (2012-2017), identified that flawed planning for sewage treatment was a major cause of wastewater problems. The report summarized the major issues as follows:

Cities worry about clean water supply but not the wastewater this will generateIndia lacks national accounts for the excreta it generates and the excreta it treatsThe challenge of sewage collection and treatment has not received adequate attentionNo Indian city is confident enough to claim to have a complete sewage system, which can keep up with sanitation and pollution challengesThe capital intensity of the current waste system results a situation where cities can only provide for a few and not for all. Smaller cities cannot even afford a sewage drainage system, let alone a sewage treatment systemSome sewage plants do not function because of high recurring costs (such as electricity and chemicals) or do not have sewage to treat as a result of poor pipeline systems that convey sewage to the plantsInvestment Opportunities in Indian Wastewater Sector

Industrial segment accounts for more than half of the wastewater market 

As a consequence of the huge gap between wastewater generation and treatment, wastewater treatment has become a lucrative market. Some large global and domestic players such as Degremont, Doshi Ion, Driplex, Ion Exchange India, Thermax, VA tech Wahag and Veolia Water, have already engaged in the India water and wastewater treatment market. According to Avalon Global Research, participants of the water treatment market (including input water and wastewater treatment) in India can be classified into three types, namely, large players (capital investment greater than USD1 million), medium players (capital investment between USD0.22 – 1 million), and small players (capital investment less than USD0.22). Fewer than 20 large players occupied 30% of the market share, while 600 small players shared only 20%. The remaining 50% of market share is occupied by 200-250 medium players. The value of the wastewater treatment segment of the market is around USD1.2 billion and accounts for 60% of the total value of the water treatment market in India. The wastewater treatment market can be further divided into residential, commercial, industrial, and municipal usage, which account for 3%, 9%, 55% and 33% of the market respectively. 

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NOV
25

Cleantech Market Review – Recent Developments in Fuel Cells

Cleantech Market Review – Recent Developments in Fuel Cells
Major Applications of Fuel Cells

The evolution of the concept of the fuel cell can be traced back as far as 1801. However, the practical usage of fuel cells only began in the mid 20th century and significant commercialization of fuel cell has only occurred in the past decade.  Nevertheless, fuel cells are expected to play a more important role as power sources in the future due to its desirable characteristics. First of all, unlike conventional power sources, hydrogen fuel cells are emission free as they produce electricity by electrochemical reaction instead of combustion. Secondly, compared to other renewable sources, such as solar energy and wind energy, fuel cells are more reliable as they are not dependent on energy sources which might be periodically short of supply. Theoretically, a fuel cell can run indefinitely as long as it is supplied with source of hydrogen and oxygen.

The applications of fuel cell technology can be broadly categorized into three areas including power for transportation, power generation for portable devices, and stationary power generation. Development of the technology in these three areas is described as below:

Portable Fuel Cell Unit:

Portable fuel cells are those that are designed to be moved. Portable fuel cells could be used in consumer electronic products (such as MP3 players, laptops, mobile phones, radios or other handheld devices and auxiliary power units (APU) for leisure products etc.). Applications in the industrial sector include power for remote locations in oil well sites, electronic highway signs and telecom equipment. Military applications include portable power for soldiers or power for unmanned and surveillance equipment.

Stationary Fuel Cell Unit:

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OCT
09

Intellectual Property Rights in China – An Introduction of Enterprise Name Right

Composition of Enterprise Name

Following the development of the market economy in China, enterprise name rights have become an important type of intangible asset for companies, and play an important role in the long-term development of companies. Moreover, companies now attach more importance to the publicity and promotion of their names. As a consequence, enterprise name disputes have become more frequent. This article aims to introduce enterprise name rights in China and some associated legal issues. An enterprise name right is the right, available to a lawfully established enterprise, to lawfully use its name. The administrative area, name, trade, and form of the organization are four composites of an enterprise name. 

Administrative area: refers to place where the enterprise is located, for example: Beijing or ShanghaiName: refers to the “name” an enterprise uses to distinguish itself from other individuals or entities, such as Jiaduobao or PanasonicTrade: refers to the enterprise’s business field, such as construction or pharmaceuticals Form of organization: refers to whether an enterprise is a limited company, joint stock limited company, or some other form of organizationEnterprise Name Registration

Enterprise registration is the responsibility of each local Administration for Industry and Commerce, under the Regulations of the People’s Republic of China on Administration of the Registration of Enterprises as Legal Persons, within their particular jurisdiction. Therefore, it is possible that there may be two or more otherwise identical trade names registered in different regions. The regulations are applicable to the following 6 kinds of enterprises:

Enterprises owned by the whole people:Enterprises under collective ownership;Jointly operated enterprises;Chinese-foreign equity joint ventures, Chinese-foreign contractual joint ventures and foreign-capital enterprises established within the territory of the People’s Republic of China;Privately operated enterprises;Other enterprises required by the law to register as legal persons

(Article 2 of Regulations of the People’s Republic of China on Administration of the Registration of Enterprises as Legal Persons)

China is a member country of the Paris Convention. Therefore, companies or individuals in Hong Kong and other member countries of the Paris Convention are able to have their trade name protected in China under the provisions of the Paris Convention. Article 8 of the Paris Convention states that “a trade name shall be protected in all the countries of the Union without the obligation of filing or registration, whether or not it forms part of a trademark”. Article 34 of the “Regulations on Administration of Enterprise Name Registration”, issued by the State Administration for Industry and Commerce of the People’s Republic of China in 2004, further affirmed this protection by stating that the names of foreign enterprises shall be protected as required by international conventions, agreements, or treaties ratified by the nation.

Enterprise Name Right Protection Laws and Regulations

In China legal protection of enterprise name rights can be found in four major laws and regulations including General Principles of Civil Law, Product Quality Law, Anti-Unfair Competition Law and Regulations on Administration of Enterprise Name Registration. Some important aspects of these laws and regulations are highlighted below:

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JUL
30

Food Security Problem in China

Food Security Problem in China
The “Food Security” Concept Evolved since 1970

The term “food security” evolved in the mid-1970s at the time of a global food crisis. Primarily, it focused on food supply problems such as the assurance of availability of food and maintenance of stability of price of basic foodstuffs. As time progressed, the definition of food security has also been reviewed and redefined to fit with the changing circumstances. In 1996, new elements, such as safety and nutrition have been incorporated into the definition emphasizing their importance for maintaining a healthy population. Therefore, according to the World Health Organization (WHO), food security consists of three main components:

Food availability: sufficient quantities of food available on a consistent basis.Food access: having sufficient resources to obtain appropriate foods for a nutritious diet.Food use: appropriate use based on knowledge of basic nutrition and care, as well as adequate water and sanitation.Domestic Food Supply of China has been Improving since 2000

As a country with a population greater than 1 billion, food security is always an important issue in China. In the past, China has had to deal with hunger problems due to rural areas of the country suffering from a food supply shortage. Nowadays, China needs to assure the self-sufficiency of its major food supply as well as meeting increasing demand for food as a result of economic growth.

China has made significant improvements in preventing the country suffering from a food security problem in the past decade. One of the factors in this improvement is its enhancement in agricultural capacity since 2000. Comparing China’s agricultural capacity in terms of machinery and tools between 2000 and 2011, there is an obvious increase in large- and medium-sized agricultural tractors. In 2000, there were 974,547 units of large- and medium-sized agricultural tractors and this increased to 4,406,471 units in 2011; an increase of around 352%. Another significant increase was in the number of large- and medium-sized tractor-towing farm machineries, an increase from 1,400,000 units in 2000 to 6,990,000 by 2011.

Another reason that China’s domestic supply of food can accommodate the demand to a greater extent is the enhanced production capacity of cereal sowing areas. In the first place, the total area of cereal plantation (including rice, wheat and corn) has increased by 10.3% between 2000 (79.7 million hectares) to 2011 (87.9 million hectares) despite a decrease in total area during the period 2001-2003. Since 2006, the total sown area for cereal production was over 80 million hectares and this has continued to increase up to 2011.  Additionally, the production capacity of cereal-sown land has also improved. In 2000, the average production of cereal in a single hectare of sown land was 4,753kg. This increased to 5,707kg per hectare by 2011. The compound annual growth rate for the improvement in cereal land production capacity is 2.03%.

From 2006 to 2011, major cereal (include rice, wheat and corn) production in China saw a small but consistent growth rate. In 2006, the aggregate output of these three cereal products was 441.8 million tons and this increased to 511.2 million tons by 2011. The compound annual growth rate (CAGR) of these three cereal products during the mentioned period was 2.96%. Among these three cereal categories, rice and corn had, more or less, similar output of around 200 million tons in 2011. Wheat output was considerably less at about 117.4 million tons in 2011.

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JUL
30

China Coal Industry 3Q2013 Update

China Coal Industry 3Q2013 Update
Current Status of the Chinese Coal Industry

The Chinese coal industry is facing a challenge arising from the long term control of the electricity price. This is due to coal being the major resource used in power generation in China. In order to provide a stable electricity price to consumers, the PRC government has closely monitored the volatility of the coal market price. In Dec 2012, China's state council announced it would reduce the stringent monitoring of the coal and electricity dual-pricing system. The major coal producers and government have agreed to take the Bohai-rim Steam-Coal Price Index as the reference for the coal price for power generators. This places a limitation on the development of coal enterprises in China. Maintaining a healthy environment for the coal enterprises to survive has become a controversial and important issue for the industry participants and Government to explore. The coal industry is a traditional industry in China and has played an essential role in economic development and a key role in the supply chain of China. However, this industry has already entered its mature stage and it is difficult to make a great change in the current stage. The Government plays an important role in the development of the coal industry because the industry needs strategic support and guidance from the Government.

Coal Import and Export Trends since 2011

From Jan 2011 onwards, the monthly quantity of coal imported to China has fluctuated but maintained a generally increasing trend. In 2011, the quantity of coal imported decreased from 16.56 million tons in January to the yearly bottom of 9.05 million tons in March. After March, the import quantity gradually increased and monthly import quantities in the second half of 2011 were all over 15 million tons. The average monthly coal import in 2011 was 15.59 million tons. In 2012, although the monthly coal import quantity has undergone more fluctuation, an increase in total yearly coal import was recorded. The total quantity of coal imported in 2011 was 187.09 million tons and this increased to 288.84 million tons in 2012. In a year-on-year comparison, August and September of 2012 recorded decreases in coal and lignite import quantities compared with the same months in 2011. This increasing trend was maintained entering 2013; year-on-year monthly changes on the first three months of 2013 were 56%, 13% and 22%, respectively.

In contrast to import changes, China's coal export has been decreasing over the past 2 years. In 2012, only April, May and December recorded year-on-year increase of monthly coal export. On a yearly basis, the total export quantity was 14.65 million tons in 2011. In 2012, the total export quantity was 9.12 billion tons and the decrease rate was 37.7%. In the first three months of 2013, the year-on-year monthly change rates were -27%, -55% and -20%, respectively.

Difficulties Encountered by China Coal Industry

The Controversy on the Importation of Poor Quality Coal

The importation of coal from other countries into China has been growing rapidly in recent years. However, there is also a large amount of poor quality coal, with low heat value, high sulfur and high ash content, imported into China too. China is the biggest coal consumer in the world and it has been a net coal importer for four consecutive years. Its coal import quantity accounts for 95% of the world's total coal trade. According to statistics from Chinese Customs, the imported quantity of coal increased from 40.4 million tons in 2008, to 289 million tons in 2012. In the first four months of 2013, the import quantity was 110 million tons - 25.6% more than the same period in 2012. However, a large amount of poor quality coal has been included in these imports following the growing demand.

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