Three Generations of Buffetts

Piers Morgan interviewed Warren Buffett, Howard Buffett And Howard Jr in his show. The whole interview was extremely entertaining with Warren Buffett poking fun at his son. We learn a thing or two about the Buffett family as well.

Warren Buffett also shows what his wallet contains at the request of Piers Morgan, The videos can be seen from the link below:

http://www.gurufocus.com/news/232562/warren-buffett-howard-buffett-and-howard-jr-on-piers-morgan

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Why do Restaurants Cluster?

When you visit an established shopping centre, have you ever wondered how the variety of restaurants survive amid all the competition? Why do such restaurants choose to be located near each other? Wouldn’t sales dwindle due to the close proximity to competitors? It sure seems ironical to be located close to a competitor.

Such clustering is called “agglomeration” in economics. When restaurants cluster together, there may be advantages because that cluster attracts more customers than a single restaurant alone could. Restaurants agglomerate when the benefits of agglomeration are higher than the costs involved.

A great example of the above would be a group of adults going for lunch. Would it make more sense to go to a venue where there are many restaurants to choose from or go to a place where there is only one standalone outlet of McDonald’s? The former makes more sense since there is a variety of restaurants and food to choose from instead of sticking to burgers.

Therefore, the next time you visit the restaurant cluster at Basement 1 of Jurong Point, you can appear smart by explaining to your friends why those restaurants are clustered together.

Dividend from SGX Increases

Singapore Exchange Limited, or SGX for short, released its Financial Year 2013 (FY 2013) on yesterday after market close.

The company saw its revenue increase 10% at $715.1 million from $647.9 million the previous year. This was mainly due to a 23% increase in Derivatives revenue and a 9% increase in Securities revenue. The net profit was up 15% to $335.9 million from $291.8 million in FY2012. The fully diluted earnings per share came up to be 31.32 cents, up 15% from the previous year. The net profit margin increased 2 percentage points from FY2012 to 46.6%.

SGX has a clean balance sheet with zero debt and it sits on $763 million of cash. The total equity was $888.6 million, as of 30 June 2013. The return on equity was at 39%, up 3.8 percentage points from the previous year.

Cash flow generated from operations was $418.8 million and the capital expenditure was at $27.6 million. This translates to a free cash flow of $391.2 million.

The proposed final dividends increased to 16 cents per share in FY 2013 from 15 cents per share in FY 2012. The total dividends also increased to 28 cents per share this year from 27 cents per share the previous year. The dividend payout ratio is at 0.89.

Mr Magnus Böcker, SGX CEO, said, “We are pleased to report a net profit of $336 million and underlying profit of $351 million, both up 15% over the previous year. This is our best performance since FY2008. Our continuing investments in new products and wider distribution enabled us to benefit from increased market activities. Securities total traded value increased 10% to $363 billion. Our Derivatives market continued to deliver growth with a number of records including total traded volumes of 101 million contracts, up 32% year-on-year.”

The trailing PE for SGX is at 24.3 and the dividend yield is 3.68%, at the time of writing.

Latest changes in the STI reserve list

Effective 24 June 2013, Suntec Real Estate Investment Trust, will join the reserve list of the Straits Times Index. This is after a quarterly review done to the STI.

The five companies in the reserve list, as of 24th June 2013, are:

  • Ascendas Real Estate Investment Trust
  • Keppel Land Limited
  • UOL Group Limited
  • CapitaCommercial Trust
  • Suntec Real Estate Investment Trust

The companies above will replace any current STI constituent that becomes ineligible as a result of corporate actions prior to the next review.

The average full market capitalisation of the stocks/REITs in the reserve list is around S$4.8 billion. The average full market capitalisation of the stocks in the STI is currently around S$17.8 billion.

What Makes See’s Candies So Unique?

In the last post, we looked at a book entitled “See’s Famous Old Time Candies”. In this post, we will look at what Warren Buffett saw in See’s Candies that made him buy the company lock, stock, and barrel back in 1972.

In the preface of the book, Warren Buffett wrote that, “We discovered that we had purchased a company that held itself to a high standard of business ethics – product quality, service integrity, and the right sort of relationships with employees and suppliers. See’s Candies became our model for investment in other quality companies.”. The reasons behind See’s sustained success include its people and its products. He quipped that, “No one has matched our product, and our people are devoted to the proposition that no one will ever match our service, either”.

See’s is very stringent when it comes to quality. The Quality Assurance team runs lots of lab tests, checking for food safety and doing sensory analysis. The team checks for any microbiological growth and purity of its chocolates as well.

It doesn’t compromise on its quality even during crunch times. There was once in 1941 when butter, sugar and cream were in short supply in US. Instead of cutting down on the amount of ingredients used in each chocolate, See’s continued using the best ingredients, but made lesser candies. Each shop had a quota to sell and when they ran out of candies, they closed the shops for the day. This was a win-win situation. There was a scarcity effect created around the candies and long lines formed outside its shops. It lived by its motto: Quality Without Compromise. It’s continuing to do so too.

See’s Candies is also innovative. It sells over 150 different varieties of chocolates that one will be spoilt for choice. For Father’s Day, it creates unique gifts for dads. There was once a chocolate hammer and chocolate tie made for Father’s Day. And the tradition is continuing…

Management wise, Charles Huggins, President and CEO of See’s Candies has been touted by Buffett as someone who “combines discipline of a fine analytical mind with intuitive marketing savvy and a moral sensibility that is rare in the 21st century. In short, I wish we could clone him”.

Branding wise, See’s Candies still uses Mary See’s photos in its stores and on its chocolate boxes. Mary See was the mother of Charles See, the man who founded See’s Candies. Furthermore, there was a special edition Barbie Doll created for 2001 Berkshire Hathaway Annual General Meeting and its stores still use the iconic black-and-white floor tiles.

Even with competition from other chocolate manufacturers like Cadbury, Mars, Ferrero, etc, See’s Candies is still flying its flag high!

Book Review – “See’s Famous Old Time Candies”

I was lucky to have chanced upon this book when I was searching for another book in the National Library. This is a book written by Margaret Moos Pick. This book touches on the history of the famous See’s Candies, the quality culture in the company and many other fun facts.

The book was so interesting that I read it in one sitting. The whole book is in colour and it is filled up pages and pages of photos of chocolates. It was so enticing. I took some photos of the book as shown below:

2013-06-14_18-11-37_676 2013-06-14_18-11-53_386 2013-06-14_18-12-55_337 2013-06-14_18-13-16_907 2013-06-14_18-13-29_697 2013-06-14_18-13-48_901 2013-06-14_18-15-12_992 2013-06-14_18-15-30_71 2013-06-14_18-15-45_190 2013-06-14_18-17-16_874

After reading the book, I was craving for some See’s Candies. I went to their official website and saw that they post to Singapore with a shipping fee of US$25. I’m so going to order them!