Monthly Archives: March 2014

The Commodities of BHP Billiton

The world’s largest mining company is the Anglo-Australian company BHP Billiton.


Created from the merger of the South African miner Billiton, and the Australian company Broken Hill Proprietary. Listed on the London and Sydney stock exchange it is the 4th largest natural resources company after Exxon Mobile, Chevron and Royal Dutch Shell.


In London, £38 Billion worth of shares are listed.

Globally, it has a market capitalisation was approximately £89 billion. Total global annual revenue of £40 Billion. Dividends to shareholders of £3.75 billion.  Total Debt of £21.34 Billion

The largest shareholders are Blackrock and Norges Bank

The company mission is “Resourcing The Future“, specialising in Petroleum & Potash, Copper, Iron Ore, Coal, Aluminium, Manganese and Nickel. With 49,496 employees and 79,330 contractors working at 141 locations in 26 countries.

It is a company with deep pockets, long term debt maturities are well managed with a very strong capital management programme.

Lloyds Banking Group: HM Government sale of 7.78% in the group

On Wed 26th March 2014, HM Government sold shares worth £4.2bn of Lloyds Banking Group plc which equates to 7.78% of the Company.

UK Financial Investments which oversees the shareholdings in RBS and Lloyds Banking Group sold the shares to raise cash for HM Government


It managed to achieve a sale price of £0.755 per share. HM Government has now reduced its holding from 23,326,529,533 ordinary shares to 17,771,118,604 ordinary shares.

HM Government shareholding will be reduced to 24.9%. Thus still nearly owning a quarter of the company.

With the shareprice of £0.75 today on Friday 28th March 2014:

17,771,118,604 x £0.75 = £13,328,338,953.
HM Government’s stake of 24.9% is worth about £13 Billion, approximately what the government borrow each month to fund the budget deficit.


The UK Budget Deficit

HM Government last week announced to Parliament on Wed 19th March, the annual budget.


In all the facts the figures, some key numbers about the UK public finances are still very concerning.

HM Government will spend more than it earns in just the year year 2013-14, to a tune of £120 billion. Thus borrowings for 2013-14 of £120 billion.

For 2014-15, again another budget deficit year, and could be as high as £96  billion.

It is forecast that in 2018-19, HM Government will have a surplus of £2 billion in that single year. But between now and 2018, each year the government will spend more than it earns, and the only way to bridge that gap is via borrowing.

So just in the past 12 months, and the next 12 months, the structural debt will increase by 120 Billion + 96 Billion = £216 Billion.

The numbers are vast. The public finances are in a terrible state. To quantify simply £1 Billion, that is 1,000,000 (1 million people) in a line, each with £1000. That is ONE BILLION

The Financing of BP PLC

BP plc, is one of the world’s largest energy companies and makes up about 5% of the FTSE-100. To finance the day to day operations, apart from oil sales, it has a debt programme across various currencies and markets to raise cash.

From reading the annual report one can get some very useful information. []

It’s total debt is US$48,192 million = $48 Billion = £29.2 Billion.

This is split across bond issues that are fixed rate and floating rate.

Fixed Rate = US$17, 016 Million = £10.31 Billion

Billion Floating Rate = US$ 31,176 Million = £18.90 Billion

Total Debt: £29.21 Billion.

This debt is spread over multiple bonds, with varying maturities.

But let’s keep things in context, the total revenue for BP in 2012 was £240,238 million = £240 Billion. Thus the debt of BP is less than 13% of annual revenue, thus the bond holders of BP, are holding a very safe investment.

BP: Beyond Petroleum.


UK Oil Production

Reading the BP Statistical Review of World Energy:


One can read some incredible facts about UK Oil production.

In 2002, the UK produced 2,495,000 barrels of oil per day. Ten years on, in 2012, the UK produced 967,000 barrels of oil per day.

A steady decline over 10 years for the UK. The picture is the same for many other counties

Norway in 2002 was 3,333,000 barrels of oil per day. Ten years on, in 2012 in 2002, Norway was 1,916,000 barrels of oil per day

However other countries have grown production, such as the USA, Iran, Kuwait, Russia and Kazakhstan to name just five. It could be considered that we have past peak oil production by looking at production trends over the past decade.

With oil at about US$ 108, UK oil production per day is worth about 967,000 x $108 = $104,436,000 = £62,708,900 a day = £62 million a day.

Global oil production is 86,152,000 barrels of oil per day, thus the UK makes up 1.12% of global production, and yet the UK companies of BG Group, BP and Shell are global energy giants, that the UK is clearly punching above its UK production rate.

The Significance of Legal and General Investment Management

LGIM is the fund management arm of Legal and General, the FTSE-100 insurance giant, led by the careful stewardship Dr. Nigel Wilson. []


£452 billion is the number of funds under management.


To put that into context, UK annual GDP is £1,462 Billion. Thus funds under investment management at Legal and General equate to 31% of UK annual GDP.

Legal & General is one of the largest investors in the UK stock market with over 4% of the FTSE All-share Index. That means they own 4% of nearly every UK listed company. It is an incredible statistic.

It is easy to understand why when one read the corporate mission statement of “Every Day Matters”, when one is looking after £452 billion, or 4% of every UK company, it is a responsibility that is taken exceptionally seriously, and thus it’s true, Every Day Matters.

Assetz Capital: Peer to Peer Lending

Peer to Peer lending is creating new investment opportunities for individuals, but is also plugging a gap in the market for funding small and medium enterprises with a new source of debt funding.

Lead by Stuart Law and chaired by Paul Moore, they today (Mon 17th March 2014) have managed to raise funding for enterprises to a tune of over £20 million since its inception in early 2013.

The principle is very simple, they raise funds for an enterprise by creating a loan from a pool of external investors (a peer group) who bid in an auction to be the contributors for the loan.

To give security to the external investors who join to create the loan, Assetz Capital gets security on the loan from physical assets such as deeds on a property that the borrower may own or personal guarantees from the company directors asking for the loans, and other collateral that secures the loan.

As the loans to businesses are commercial opportunities, it is quite common to get a return of over 10%. When main stream banks are shrinking their balance sheets, SME’s are struggling to get access to capital, it is absolutely fantastic, that Assetz Capital is helping businesses to finance their operations, grow and create employment, and at the same time in these low interest rate times, able offer investment opportunities to individuals looking for a safe and stable place to invest their money.

This is the future of small and medium enterprise lending, and long may it continue.

Fund Focus: Property

The M&G Property Portfolio is a special fund known as a PAIF, a Property Authorised Investment Fund.

It gives investors exposure to hard assets, property. The fund today has many assets, the top ten investments are:

The Gracechurch Centre in Sutton Coldfield a retail investment
Castle Vale Retail Park Birmingham a retail investment
Riverside Retail Park Northampton a retail investment
Alder Castle 10 Noble Street London, EC2 an office investment
Ravenside Retail Park London, N18 a retail investment
Wycome Retail Park High Wycombe a retail investment
Chiswick Green, 610-624 Chiswick High Road London, W4 an office investment
Tesco Supermarket Kilverstone Thetford a retail investment
Waverley Gate, 2-4 Waterloo Place Edinburgh an office investment
Tesco Supermarket, London Road, Loudwater High Wycome a retail investment.

As you see it has diversified its holdings to own property for retail businesses and also office blocks for commercial office usage.

Unlike financial investments, that are effectively instruments, property is an asset class that is backed by a physical asset. So unlike currency that can be devalued by market activities or shares that could become worthless, property is a hard asset. In these times of ultra low interest rates, the effective return on renting out an office can exceed 6% or 7%.

With assets of £2,444 million = £2.44 Billion it is a large fund with 46% of its investment in the South East of England.



The Global Government Debt Mountain

The Bank of International Settlements (BIS), is sometimes known as the “Central Bank of Central Banks”, what this means in reality, is what for example when the US Federal Reserve needs to move US Dollars to the Eurozone, the money goes via the BIS who then forward onto the European Central Bank.

The BIS website has a wealth of financial data []

The level of research and statistical data is vast. []

From the BIS figures, globally the total level of government debt is $100 trillion = £59.7 trillion = £59,700 Billion = £59,700,000 Million.

Not entirely surprising, as the 2007 financial crisis began (UK Northern Rock was a sign of dislocations in financial markets), governments borrowed to stand behind the crippled banking sector to stave of financial collapse and out-right depression, the debt mountain surged.

And remember this debt is accruing interest day by day….

The scandal of low wages

Since the recapitalisation of The Royal Bank of Scotland and LloydsTSB in Autumn 2008, the UK has suffered from a problem of low wages. As the economy contracted, banks began shrinking their balance sheets and HM Government increased its borrowings to support the banking sector, public sector spending has been drastically reduced.

A real consequence of this, is falling living standards. The UK is sometimes known as the “Taiwan of Europe“, referring to the UK’s position as a low wage economy to undertake commerce. However the numbers are not good when it comes to living standards.

One sees the poor are really poor. At least one in five workers in the UK economy earns low pay – too little to live on at £7.47 per hour or less. That is not a living wage. These low wages that mean people are struggling to make ends meet.

Work done by The Resolution Foundation shows how the poor are living.

Then when doing some further investigates from the Office of National Statistics,[]

we then see wages are down in real terms by 8.5%. So when price of bread (a loaf is about £1.35) and wages increases are virtually nil, then purchasing power is falling, means living standards are falling.

Reading the paper on the IFS website (Institute of Fiscal studies) the highly regarded think tank [] we now see that poor people are really suffering from the financial crisis that has infected the global economy.

Reading from the Joseph Rowntree Foundation [] we see further evidence of poverty.

In the media we hear about zero hour contracts, where people working for large private companies, have no certainty of a wage unless they are called into work. The low-paid workers within the public sector are hard working people such as school crossing patrol staff or dinner staff or care workers and home carers. In the public sector a carer will typically earn between £9 and 11 per hour, but in the private sector the prevailing rate is much lower, at between £6.50 and £7.50, and therefore below living wage.

What is more serious, is that no one seems to talk about the real consequences of this. The reality is high levels of stress for people on low wages, unable to meet daily expenses of living, such as eating or clothing, or feeding families. Poor diet, buying cheap junk food, meaning poor nutrition, and thus greater susceptibility to illness. This will have an effect on the NHS, and thus an increased burden to the tax payer. Also with a gap between rich and poor, perhaps there is a higher risk of crime and mental well-being. It seems that the most vulnerable suffer when the economy is in poor shape.


Berkshire Hathaway Annual Report

In the press in the past few days as been a lot of comment on the annual report from Berkshire Hathaway and the comments from the CEO of Berkshire Hathaway, the revered investor, Warren Buffett.

It makes fantastic reading.


Some salient facts. It has  “Big Four” investments:

American Express, Coca-Cola, IBM and Wells Fargo. In the past year Berkshire Hathaway has increased its stake.

Amex 13.7%. [151,610,700 shares worth  $8,715 Million = $8.7 Billion]
Coca-Cola 8.9% [400,000,000 shares worth $14,500 Million = $14.5 Billion]
IBM 6.0% [68,115,484  shares worth $13,048 Million =$13 Billion]
Wells Fargo 8.7% [456,170,061 worth $15,592 Million = $15.5 Billion]

A great quote from the annual report:-

The four companies possess marvellous businesses and are run by managers who are both talented and shareholder-oriented. At Berkshire we much prefer owning a non-controlling but substantial portion of a wonderful business to owning 100% of a so-so business

Funding Berkshire Hathaway comes from its insurance businesses, giving Berkshire $73 billion of free money to invest. This is explained by another brilliant quote:

“Property-casualty (“P/C”) insurers receive premiums upfront and pay claims later. In extreme cases, such as those arising from certain workers’ compensation accidents, payments can stretch over decades. This collect now, pay-later model leaves us holding large sums – money we call “float” – that will eventually go to others. Meanwhile, we get to invest this float for Berkshire’s benefit…..This is truly having your cake and eating it too.”

What makes great reading is the dividend policy on page 18, they don’t like them, wanting to invest the money organically.

It is a great read, and a long term investor with insight and common sense.

UK HM Government Feb 2014 borrowings…..

Another month, guess what, take a lucky guess, it is the same old story, HM Government, spends more money than it receives via taxes and duties. Another deficit month, thus to bridge the gap, needs to borrow on the bond market.

In Feb 2014, the HM Government had to borrow money to meet the difference between tax revenues and public sector expenditure. The term for this is The PSNCR: The Public Sector Net Cash Requirement.

There were “only” 4 auctions of Gilts (UK Government Bonds) by the UK Debt Management Office ( to raise cash for HM Treasury :-

20-Feb-2014 2¼% Treasury Gilt 2023 £3,000 Million
13-Feb-2014 3¾% Treasury Gilt 2052 £1,912.9150 Million
11-Feb-2014 1/8% Index-linked Treasury Gilt 2024 £1,300 Million
04-Feb-2014 1¾% Treasury Gilt 2019 £4,177.4500 Million

When you add the cash raised:-

∑(£3,000 Million million + £1,912.9150 Million + £1,300 Million + £4,177.4500 Million ) = £10,390 Million

£10,390 Million = £10.39 Billion

On another way of looking at it, is in the 28 days in Feb, HM Government borrowed:-

£371 million each day  for 28 days. We are fortunate, while the global banking and financial markets still has the confidence in HM Government to buy the Gilts (Lend money to the UK), the budget deficit keeps rising. What is also alarming, is the dates these bond mature, 2019, 2023, 2024 and 2052. All long term borrowings, we are mortgaging our futures, but at least we are “in it together….”

The RCM Technology Investment Trust plc

Technology companies change our world in many ways.

Look at the UK privately held comany, Skygazerlabs (, the product is called “mySymptoms” and is helping users to provide insights into the possible triggers of potential symptoms such as food intolerances, irritable bowel syndrome (IBS), diarrhea, vomiting, nausea, headaches, eczema to name but a few. The solutions that these very innovative technology companies provide (like Skygazerlabs) is improving the quality of life for many people.

An easier way to get exposure to the dynamic technology sector is to invest in a technology fund.

The RCM Technology Investment Trust, [] is a £143 million investment company, managed by Allianz Global Investors.

[] by invests in technology companies.

Managed out of San Francisco by Walter Price, a highly regarded fund manager, the top ten holdings are:

Facebook 5.7%
Amazon 3.5%
Google 5.1%
Ehealth 3.1%
SunPower 4.2%
Salesforce 2.9%
Microsoft 4.2%
Soufun 2.9%
ServiceNow 4.1%
Alcatel-Lucent 2.8%


A fund listed on the London Stock Exchange that gives exposure to the most dynamic sector in the global economy