A Curious Mind: The Secret to a Bigger Life | H.E.R.O. Issue 4, 2 October 2020

Be Stronger, Wiser & Kinder By Participating in the Quiet Innovators' Quest to Purpose

A Curious Mind: The Secret to a Bigger Life | H.E.R.O. Issue 4, 2 October 2020

October 4, 2020 Uncategorized 0
Summary
  • Nordic and Swiss H.E.R.O. innovators were resilient winners in the Fund which rose for the fourth consecutive week during the week ended 2 October 2020, vs MSCI ACWI All World index +1.7%, Australia All Ord -2.6% in its worst weekly performance since late April 2020 and Japan Topix -1.5%, demonstrating her resilience in turbulent market conditions and extending her overall absolute positive and relative outperformance against major world indexes since her recent birth on 28 August 2020, during which MSCI ACWI All World index tumbled -3.6%, S&P 500 -4.5%, NASDAQ -5.3%, and Greater China stocks slumped with Hang Seng index -7.7%, CSI 300 index -5.3% and HSCEI -8.8%, and gold physical spot (USD) -3.3%.
  • Top weekly contributors: (1) Nordic Global #1 Technology Leader in Weather, Environmental, and Industrial Measurement (+15.4%); (2) Finland’s #1 Market Leader and Pioneer in Specialized Cloud-Based ERP and Accounting Software Solutions for Construction, Building Services Engineering and Manufacturing Companies (+14.3%); (3) Nordic Global #1 Leader in Sauna & Spa Tech (+10.2%); (4) Swiss Global #1 Technology-Based Leader in Peptide-Based Active Pharmaceutical Ingredients (APIs) for the Pharma, Biotech, Diagnostics and Cosmetics Industries (+7.6%); (5) Canadian Global Cloud SaaS Leader in Endpoint Cybersecurity and Data Risk Management Solutions (+7.4%).
  • The K-shaped recovery divergence, coupled with the worsening U.S.-China relationship, points towards the new world order in the post-pandemic future that marks the ascent of the quiet Nordic powerhouse region – comprising of Sweden, Denmark, Norway, Finland and Iceland with a combined GDP of over US$1.6 trillion, combined population of around 27.3 million people, and the highest regional GDP per capita in the world at over US$62,000 – where they are a Winter War kind of country: innovation happens when things are tough, not when they’re easy and comfortable.

A CURIOUS MIND: THE SECRET TO A BIGGER LIFE
"I have no special talents. I am only passionately curious." - Albert Einstein

Curiosity is a quiet kind of superpower that is key to a life of meaning and purpose. This illuminating insight by Oscar-winning producer Brian Grazer in his book A Curious Mind: The Secret to a Bigger Life is distilled from his "curiosity conversations" with some of the world's most interesting people from polio vaccine hero Jonas Salk to Wal-Mart's indomitable founder Sam Walton as he seeks to understand their "emotional curiosity" and mindset that led to the discovery of vaccine to the building of multi-billion business dynasties, conversations that inspired him to create some of the world’s most iconic movies and television shows.

Curiosity comes in different shades and different intensities for different purposes. The technique is the same -asking questions - but the mission and the motivation vary, which make all the difference. It was curiosity and a desire to help people that led Jonas Salk to medicine. It was curiosity that led Salk to investigate the link between the influenza and polio viruses. “The Salk Institute is a curious place, not easily understood, and the reason for it is that this is a place in the process of creation," said Jonas Salk. "We cannot be certain what will happen here, but we can be certain it will contribute to the welfare and understanding of man.”

Grazer's A Curious Mind offers a blueprint for how we can awaken our own curiosity and use it as a superpower in our lives and embraced our curiosity to become better leaders, better creators, better managers, even better romantic partners. The power of a Curious Mind has also forged the enduring and exponential growth trajectory of our quiet H.E.R.O. innovators.

Case Story: Nordic Global #1 Technology Leader in Weather, Environmental, and Industrial Measurement
[Week 28 Sep-2 Oct: +15.4%]
Consider the story of one of our portfolio companies in the Fund, the Nordic global #1 technology leader in weather, environmental, and industrial measurement, which is up 12.7% since the inception of the Fund on 28 August 2020, versus MSCI ACWI World index/NASDAQ -3.6%/-5.3% over the same period. The rising dividend-yielding company has also compounded 231% in capital gains in the recent 5 years vs MSCI ACWI World index +39.7%.

As our world faces pressing societal and environmental challenges, it’s more important than ever to base decisions on accurate, reliable data. Climate change and severe weather events drive the need for continued replacement and enhancement of weather observation and forecasting capabilities. In industrial measurements, increasing focus on energy and operations efficiency as well as increasing regulations and requirements for high quality and security drive need for high end industrial instruments and systems.

The company has the largest product portfolio based on proprietary leading technologies in environmental and industrial sensing with most accurate and reliable instruments, algorithms, and software in measurement sensors and instruments, systems, software, digital solutions and services for measuring weather, environment and industrial conditions and processes. Building on over 80 years of experience, the company’s comprehensive range of innovative observation and measurement products and services provide its customers with the means to influence and better understand their environment, and to enhance safety, efficiency, and decision making – enabling its customers to find answers, remove doubt and make smarter decisions, and making an impact on the lives of millions of people all around the world. Customers all over the world and in a multitude of industries use the company’s measurement solutions. Everywhere from forecasting weather, to staying ahead of power outages or monitoring incubators for premature children in hospitals, to helping industrial customers from semiconductor factories, life science to high-rise buildings, HVAC to reliably measure and monitor ambient conditions and minimize energy consumption for successful operations, you can find the company’s premium measurement solutions in action.

On 18 Aug 2020, the company announced that its Digital business is delivering real-time, comprehensive weather data and driving conditions from in-vehicle infotainment systems to new Hyundai Motor vehicles. The company commented: “With approximately one in every four traffic accidents stemming from inclement weather conditions, our wide-ranging service helps drivers remain aware of weather conditions along their routes and in close proximity to the vehicle’s current location. Even in locations where weather measurements are not easily obtained, our technology is able to predict conditions according to a driver’s route.” Leveraging more than 20 years of road weather experience, the company delivers industry-leading sensors, a mobile data collection system, and world-class forecasting capabilities that provide drivers with actionable real-time calculated driving condition forecasts (including the state of the road’s surface, prediction of road friction, visibility, and atmospheric weather events affecting driving) to any coordinate point around the globe. The company's forecasts are trusted in the winter maintenance industry by road authorities in a number of countries.

On 22 Sep 2020, the company announced a groundbreaking method for detecting power transformer air leaks to help its customers detect and repair any air leaks early. This can extend the lifetime of a transformer and lead to significant cost savings. With the increased number of sealed transformers, ambient air leaks have become a significant issue as oxygen accelerates the aging of paper used in the insulation. The new measurement solution will be made available via a software update on its equipment, which is the world’s first maintenance-free dissolved gas analyzer for power transformers.

Renewable energy is one of the many areas the company contribute to the EU’s green economic recovery plan. The company’s measurement technologies help developers and owners to get more out of their wind power plants. With the help of reliable measurements, its customers can select the optimal site for their wind parks, for example, as well as monitor, predict, and plan operations. The company’s devices can also be utilized to optimize hydroelectric power plants. The company’s measurement solution for the biogas process optimization enables customers to generate more value from waste by decreasing production costs and increasing the efficiency of the biogas plant. The company’s products also support the hydrogen economy, helping optimize the performance of fuel cells.

The company's origins date back to 1930s when Professor V (1889-1969), the company's founder and long-time managing director, invented some of the operating principles of a radiosonde. In 1931, Professor V found a fallen Russian radiosonde. He admired its idea to use radio technology to retrieve observation results but, an innovator at heart, decided to build a better one himself. He worked long hours in his workplace and in the basement of his residential building in the center of Helsinki. Not flailing even in the face of failures and opposition, he finally succeeded in building the famous radiosonde  and started sales in 1936. The first radiosonde pieces were shipped to Massachusetts Institute of Technology (MIT). “When I developed the radiosonde, it wasn’t just an individual invention but a whole series of inventions. It was necessary to overcome an almost countless number of small and large difficulties, and an enormous amount of time was spent on conducting scientific measurements, experiments, and calculations,” Professor V described the process himself.

As the company's radiosonde became internationally renowned, the demand for them increased. In his care, a new global technology pioneer was born and became one of the first truly global Finnish companies. From a modest start, the company evolved to become a world leader in many measurement fields. Today, the company exports 98% of its production to over 150 countries. Right from the start, Professor V’s life was marked by curiosity – a legacy that is still visible in the company. His infinite curiosity and knack for problem-solving paved the way for the future of the company's measurement business and corporate culture.  “I’m more of a scientist than a businessman,” he used to describe himself. Curiosity, the desire to meet challenges and an extraordinary ability to innovate are at the company's core, both past and p​resent, and the company strives towards its mission of “Observations for a Better World.”.

CEO Mr. F shared: "Creating observations for a better world through science-based and sustainable innovations has always been at the core of our company. Climate change is undeniably a key global challenge today, making the company’s science-based innovations ever more relevant. Operating since 1936, we are committed to creating solutions that help tackle many of the most crucial challenges of our time. We do this by providing reliable, accurate, and high-quality means to observe and act on weather and environmental phenomena and their impacts as well as developing more sustainable industrial processes. Throughout our history, our company has been a key link in the chain for a well-functioning and safe society. With the increasing requirements for transparency and thorough understanding of the world’s pressing phenomena, it is becoming more important than ever to base decisions on verifiable, comparable, and accurate data. We aim to build upon our position as the global market leader providing the world’s most accurate and reliable measurements."

"Our second quarter performance was solid, and operating result improved even though customers and suppliers were affected by the COVID-19 pandemic and related economic slow-down. Our Digital business will now in line with its strategy fully focus on the forecasting and weather data services that our customers in the renewable energy sector depend on. The renewable energy segment remains a strategic growth area for our company, and it will also continue to offer remote sensing lidar products that enable optimized operations and development activities. Going forward, we will focus on developing digital solutions for transportation, renewable energy, lightning, and data-driven operations, supporting customers in making reliable decisions in weather-critical operations.”

Technological innovations and the persistent curiosity to explore the world around us have characterized the company's mission from the very beginning, reaching from land to space. the company’s innovative technology will soon land on the surface of the Red Planet once again as part of NASA's Mars Exploration Program. On July 30, 2020 NASA’s Perseverance rover headed for Mars, carrying the company’s space-proof technology. The estimated landing on Mars is in February 2021. Along the over 30-year cooperation, the company and the Finnish Meteorological Institute (FMI) have worked together in NASA’s space exploration programs – such as with the previous Curiosity rover in 2012.

The star of the new Mars mission is the Perseverance rover, equipped with different measurement devices. One of these is the MEDA (Mars Environmental Dynamic Analyzer) device package that includes a measurement instrument designed by FMI. The instrument is based on the company's pressure and humidity sensors, used to gather accurate readings for the study of the Martian atmosphere. Since the 1990s, the company’s sensors have been used in missions to Mars that have already yielded a number of important discoveries, such as water on the dry planet. Mars provides an especially interesting area for investigation for the planet’s many similarities to Earth and can thus help us better understand the challenges we face on our blue planet – such as climate change. The unforgiving conditions in space pose strict demands on technology, requiring the most reliable sensors that can be trusted to endure without repair. You simply cannot venture out into these conditions with just any instrumentation. The MEDA device package is equipped with the company's humidity sensors and pressure sensors known for their long-term stability and accuracy. The devices are similar to the ones already delivered to Mars on the first Curiosity rover in 2012.

The H.E.R.O. Investment Framework
The H.E.R.O. framework, methodology and strategy are powering equity portfolio asset for our institutional client. The Fund is the only equities fund in the market that focuses on both dividend yield and innovation-driven capital gains to enhance total shareholders’ returns. It is also the only dividend-yielding equities fund in the market that is entirely not dependent on and with zero exposure to: (1) cyclicals (concentrated in economically-sensitive and rate-sensitive sectors such as financials, property & construction, energy & materials) that may not be resilient in economic downturns, and (2) cheap-gets-cheaper yield- and value traps. It also applies the proprietary forward-looking fact-based accounting fraud detection system that was pioneered and taught at the Singapore Management University, ranked top five in the world accounting rankings, and presented to the top management team of Singapore’s top financial regulator Monetary Authority of Singapore (MAS), to mitigate downside risks which escape detection by typical western-based forensic tools.

I. Strategic Focus on Quiet Innovators & The H.E.R.O. Investment Framework
Our investment strategies distinguish from those of all other tech- and innovation-themed funds with its singular focus on quiet innovators, which present structurally mispriced opportunities and avoid overcrowded misopportunities that stem from the human tendencies to equate flashy popularity with excellence, and have an active ratio of over 95% (vs the MSCI World Index). The portfolio companies are exceptional innovators and focused market leaders in their respective fields with unique, scalable, recurring-revenue and high-profitability business models delivering innovative products and services indispensable to our well-being in daily life and run by high-integrity, honorable and far-sighted entrepreneurs with a higher Purpose in solving high-value problems for their customers and society whom we call H.E.R.O. – Honorable. Exponential. Resilient. Organization.

H.E.R.O. is operationalized into a systematic 4-step investment process and investment framework powered by sustainability & ESG principles to identify the winners, to distinguish between the true innovators and the swarming imitators, between the devoted missionaries forging a greater Purpose and the mercenaries.

We use the framework and positive criteria of the United Nations Sustainable Development Goals (SDGs) to integrate environmental, social, and governance (ESG) considerations into the research and investment process in selecting companies that generate sales in products and services that contribute to the achievement of the UN SDGs. The central focus of our impact investing is on innovators who contribute to the UN SDG Goal 9: Industry, Innovation, and Infrastructure — “Build resilient infrastructure, promote inclusive and sustainable industrialization, and foster innovation”.

H.E.R.O. is unique in eliminating the downside risks from accounting tunneling fraud and misgovernance through unusual related-party transactions, consolidation accounting craftiness (opportunistic shifting of expenses and debt into unconsolidated entities), and hidden balance sheet liabilities at the wider pyramidal business group level etc., which escape detection by western-based forensic tools through a proprietary forward-looking fact-based accounting fraud detection system developed by KB, and taught at the Singapore Management University, ranked top five in the world accounting rankings, and presented to the top management team of Singapore’s top financial regulator Monetary Authority of Singapore (MAS). For instance, prevalent across Asian companies, previously Big-4 audited “cash” in the balance sheet are often misclassified “cash equivalents” disguised from improper short-term related party loans employed by the insiders to expropriate or tunnel out cash from the company after initially propping up financial numbers artificially to create false positive signals to lure in funds.

II. Be Stronger, Wiser & Kinder By Participating in the Quiet Innovators' Quest to Purpose
“Innovators” are companies that generate sales in technologically enabled new products and services that potentially transforms the way the world works. We seek to identify companies capitalizing on innovation in offering faster, cheaper, more productive, more cost effective, more compelling products and services, or that are enabling the further development of an innovation theme in the markets in which they operate.

Not only do the H.E.R.O. innovators generate high profitability at the inflection point of their exponential growth trajectory, more importantly, they are governed by a greater purpose in their pursuit to contribute to the welfare of people and guided by an inner compass in choosing and focusing on what they are willing to struggle for and what pains they are willing to endure, in continuing to do their quiet inner innovation work, persevering day in and day out.

II. Quiet Innovators Thrive in Stormy Times
Prepare and position a winning portfolio for a post-pandemic world with innovators who thrive in stormy times and transform crises and trauma into opportunities for the future. The coronavirus crisis has helped accelerate innovation and enhanced the leadership of innovators. Market positions are not redistributed during sunny and calm times, but during times of crisis. The pandemic crisis has changed the behavior of both consumers and businesses. Companies offering faster, cheaper, more productive, more cost effective, more compelling and innovative products and services are gaining significant share.

Market leadership and resilient winners in stormy market environment and in the post-pandemic future will be much less about the overcrowded popular trades in mega-cap tech and loss-making tech/biotech, as defined by FAANGT-STAMP (U.S.: Facebook, Apple, Amazon, Netflix, Google, Tesla; Asia/China: SEA, Tencent, Alibaba, Meituan-Dianping, Pinduoduo), who also do not pay any dividends (with the exception of Apple and Tencent), and will be led more by highly-profitable quiet innovators, including dividend-yielding cloud Software-as-a-Service (SaaS) companies.

Notably, of the 90+ cloud software companies listed in the U.S., nearly all (>95%) do not pay any dividends, with many still looped in a negative free cashflow position, while the 20 global SaaS portfolio companies in the Fund are unique in being exceptional market leaders in their respective field with ample internal cashflow generative capacity to reinvest for higher-margin growth and still consistently produce rising dividend yield to reward shareholders.

Case Story: Finland's #1 Market Leader in Specialized Cloud-Based ERP & Accounting Software Solutions for Construction, Building Services Engineering, and Manufacturing Companies
[Week 28 Sep-2 Oct: +14.3%]
Another uplifting story in our portfolio companies in the Fund is Finland's #1 market leader in specialized cloud-based ERP and accounting software solutions for construction, building services engineering and manufacturing SME companies, which is up 14.8% since the inception of the Fund on 28 August 2020, versus MSCI ACWI World index/NASDAQ -3.6%/-5.3% over the same period. The rising dividend-yielding company has also compounded 754% in capital gains in the recent 3 years vs MSCI ACWI World index +13.1%. Notably, after it reported on Friday a set of resilient third quarter results and revised upwards its previously announced EBITDA target of 35–45% to 40%-47% for the current year with net sales growth for 2020 to be at least +37%, the highly-profitable and cashflow-generative SaaS innovator, with 90% of its revenue recurring, jumped 17.2% in its share price, even as markets choked on Trump’s COVID news.

The Purpose Quotient (PQ) and Curious Mind story started with founder Mr. H. After completing middle school, Mr. H worked for his father's electrical contracting company before starting his studies as an electrical engineer. Curiosity led Mr. H to the first contact in the software industry in 1979 at an electrical contracting company he founded, and went on to develop its own ERP system. The company was also the pioneer on the SaaS model, where the company faced limited competition in its target SME customer segments. The company has many partial competitors but it remains the only one to provide extensive industry-specific SaaS ERP solution in its target groups. As a pure SaaS innovator, the company does not suffer from the burden of licence based legacy software technology or business model, which is an important asset. The transition to the SaaS model is often painful and long to a software company due to requiring changes in the company’s operating culture, customer and software provider processes, technology, product development and cash flows, among other things.

The company’s R&D phase took as long as 6 years with a team of approximately 10 people. The company did not rush to set off to commercialise the product, but first developed it patiently with a few customer accounts to a sufficiently mature phase that facilitates strong scalability. In 2010, the company’s focus shifted from development to commercialisation, starting with a solution aimed at the special needs of building services SMEs, where the company quickly began to take over the market from previous generation software and solutions comprised of miscellaneous software products. Initially, the software was offered only to companies specialising in building technology, and it expanded to construction companies from 2013 onwards, and into industrial solutions in 2017. (Revenue: Construction 44%, Building Services Engineering 35%, Manufacturing 17%). The company's estimated market share is approximately 20% in building services engineering, 8% in construction and approximately 1% in manufacturing.

The company has over 20,000 active users of its cloud software with its unique project revenue recognition logic to boost operational efficiency by automating manual processes and complex integrations to produce real-time information and the right metrics for business management. The company provides an overall solution with very comprehensive features that provides the customer with all of the applications required for ERP without needing to integrate several systems or migrating data between systems. It can substitute up to dozens of customers’ standalone systems. The system is also based on fully paperless administration, accounting and reporting. These factors provide the operations of an SME with significant efficiency, which can actually completely eliminate the need for an office employees running administration, and the administrative workload of the management is significantly reduced. The system also extensively automates reporting to third parties, such as the reporting to the tax authority pursuant to the construction industry obligation to provide information.

Bringing in a new software product that meets the industries’ needs and is equally comprehensive would require long development work, which raises the bar of entering the segment. The bar is also set high for new foreign competitors, as in addition to a strong product, the Finnish industry specific ERP market requires a lot of localization and the market is relatively small on the global scale. In the SaaS based business model, individual markets are often “winner takes it all” markets, as the customers are continuously covered by up to date software and the threshold of replacing a continuously evolving software integrated into their own processes is high. competitors. Once the market is sufficiently strongly established, it is no longer interesting for an international competitor or developer of universal software to start investing in a product customised for an individual segment in the Finnish market.

In March 2020, the company had acquired 100% of a strategic local construction software company who is a pioneer in the development of cost accounting, scheduling, BIM and cost tracking solutions for more than 4,000 construction professionals in mostly mid- to large construction companies, thus complementing and expanding the company's market position and leadership. Functionalities included in the cloud ERP include quote calculation, production control, project management, access control, reporting, product data management, accounting, invoicing, project calculation, document management, and payroll administration. The software also features standard integrations into banking connections, reports to the authorities, e-invoicing operator, and construction supply price data interfaces. Following the acquisition, the solution also expanded into the areas of cost calculation, information modelling and scheduling.

The company is known for publishing its financial results as early as week 2 or even the first week of the period close. No Finnish listed company had previously reported its financial statements so early. The company justified the announcement on the basis that, since it offers its customers real-time financial guidance, it must be able to set an example in this regard. Hence, the company has been able to announce the third-quarter and nine-month (Jan-Sep 2020) results on 2 Oct. The company considers the long-term commitment of the owners and the entrepreneurial motivation of the employees to be a secret to its success. Approximately 40% of the employees are shareholders in the company.

CEO Mr. S shared: "In cloud ERP, we are the market leader in the SME field of building technology, construction and manufacturing companies. Our cloud-based system, designed for industry needs, automates financial management routines and industry specificities more widely than everyone else. During the past year, we developed more new industry-specific features, increased financial management automation, and launched development work related to artificial intelligence (AI), which we hope will secure our long-term pioneering spirit. Our journey as a pioneer in ERM in the SME sector is at a good stage, but we feel that the journey is still ongoing and that financial automation has many steps to take."

"Our net sales grew by 41% during the period of Jan-Sep 2020. So far, our revenue has not been significantly affected by the coronavirus, as approximately 90% of it is recurring. Our ERP SaaS competitiveness in the market has not deteriorated [due to the coronavirus epidemic]; rather, the opposite has happened, which is strengthening as a cloud-based product. The company expects net sales growth for 2020 to be at least +37%. The previously announced EBITDA target of 35–45% is revised upwards to be between 40%-47% in the current year.”

Case Story: Swiss Global #1 Technology-Based Leader in Peptide-Based Active Pharmaceutical Ingredients (APIs) for the Pharma, Biotech, Diagnostics and Cosmetics Industries
[Week 28 Sep-2 Oct: +7.6%]
Another uplifting story in our portfolio companies in the Fund is Swiss global #1 technology-based leader in peptide-based active pharmaceutical ingredients (APIs), many of which are biologically active, for the pharma, biotech, diagnostics and cosmetics industries, which is up 7.7% since the inception of the Fund on 28 August 2020, versus MSCI ACWI World index/NASDAQ -3.6%/-5.3% over the same period. The rising dividend-yielding company has also compounded 697% in capital gains in the recent 5 years vs MSCI ACWI World index +39.7%. The stock is also up over 88% from its cost since it was invested in April 2020 in the separate managed accounts (SMAs) of the equity portfolio asset of our institutional investor client with the application of the H.E.R.O. framework in our client's portfolio in early March 2020.

The Purpose Quotient (PQ) and Curious Mind story started when chemical laboratory technician Dr. G founded the company with two employees in Liestal near Basel in 1971 almost 50 years ago and who has never sold a single stock since its listing in 1998. Today, the company has grown to become the undisputed global market leader in peptides, the most robust and sustained supplier in the industry with the focus on amino acid and peptide synthesis, supporting API production and services in all stages of drug development (preclinical research, clinical phases I-III and after commercial launch), and is unique in its ability to produce long-chain and complex peptides in large quantities for commercial applications.

From the very beginning, the company specialized in the production of peptides, a special type of small molecules that are used as active ingredients in drug production. The synthesis of the peptides present in all living organisms may require a complex procedure, depending on the degree of complexity of the underlying structure. Dr. G's curiosity led him to recognize this high value problem at an early stage and offered himself to drug manufacturers to take on this task. Dr. G reflected: “It was only in the USA that I recognized the true potential of peptide chemistry. The continuing discovery of new peptide-based molecules triggered rising demand for peptides in Europe as well, which is what encouraged me to return to Switzerland and build up a company of my own.” He turned the small quantities of individual orders into larger lots and thus achieved the economies of scale, which not only made him increasingly indispensable to customers, but also increased the return per unit produced.

The company has been a pioneer in the field of peptides for 50 years and has built long-term customer relationships. The company's customers in the field of research are universities, institutes, and the research departments of pharma companies who want speed and availability. With the largest portfolio of peptide chemistry and most comprehensive catalog of products in the industry and its online shop in particular, a substantial proportion of the more than 5,500 products are in stock and can be delivered within one to two days. Every year, the company supplements its catalog with new, innovative products emerging from the latest key areas of research. If, despite this broad portfolio, a product is not included in the catalog, the company can rapidly offer this as a custom synthesis option, focusing on demanding customer segments requiring technically sophisticated high-quality products, such as diagnostic and cosmetic peptides.

The company also supports numerous new chemical entity (NCE) customers in their clinical development with products and services. The company typically works closely with customers over many years with a view to bringing a new drug to market. This requires extensive experience in the development of new drug substances. Long-term supply contracts often regulate prices, purchase volumes and other obligations, thus providing security for both parties and resilience in earnings for the company. Above all, the company's business model requires close collaboration with its customers, based upon sharing of sensitive critical information, and the company has built a corporate culture that fosters innovation and collaboration and highly qualified employees at all levels of the organization who are specialists in their respective fields. The company has also successfully expanded into the oligonucleotide APIs market in 2019 and will commence production of commercial quantities starting in 2021, building a sturdy second pillar for the company.

As the world's leading peptide manufacturer, this position gives the company a special position in the current coronavirus crisis. Peptides are currently in high demand from diagnostic companies that want to launch blood tests to determine antibodies against the coronavirus. Roche plans to enter the market with such a test at the beginning of May and quickly increase its monthly capacity to a high double-digit million range. Advances in medical research are giving peptides new applications. In the future, the molecules or their close relatives, the oligonucleotide peptide conjugates, could increasingly contribute to the healing of people with severe hereditable diseases, who are treated with novel gene therapies. The production of such substrates in combination with the production of conventional peptides promises considerable synergies. The company is also participating in several projects that target COVID-19 infections.

On 25 May 2020, the company commented that as the world's leading producer of the anaesthetic agent Propofol, whose demand is currently accentuated by the need for additional supplies for the treatment of COVID-19 patients, it is investing capex expansion at its Swiss production site and 24/7 production to ensure the global market supply of this critical small molecule active ingredient. In normal times, short-acting Propofol is given intravenously to help start and maintain general anaesthesia and sedate mechanically ventilated patients who cannot breathe on their own. As millions of people infected with the new coronavirus have needed intensive care as their lungs filled with fluid, demand for the 43-year-old drug has risen.

CEO Mr. M shared: "In these extremely challenging times, it is important for me to share my support and solidarity with you and your family. To contain and ultimately overcome the COVID-19 health crisis is a challenging task and affects all of us in our private life, daily work and social interaction with others. We are facing this extraordinary situation with our full commitment to our partners and the patients that depend on drugs and uninterrupted API supply. We strive to achieve uninterrupted supply of APIs for marketed therapeutics and clinical development, which will treat millions of patients all over the world today and tomorrow. We proudly participate in several projects that target COVID-19 infections. All our sites remain fully operative! We are extremely proud of our teams and grateful that they come on site every day to ensure business continuity, and hence secure uninterrupted API supply. Be brave is our commitment. Together we will win the fight against COVID-19!”


WEEKLY MARKET COMMENTARY BY H.E.R.O. (28 Sep to 2 Oct 2020)
Nordic and Swiss H.E.R.O. innovators were resilient winners in the Fund which rose for the fourth consecutive week during the week ended 2 October 2020, vs MSCI ACWI All World index +1.7%, Australia All Ord -2.6% in its worst weekly performance since late April 2020, Japan Topix -1.5%, demonstrating her resilience in turbulent market conditions and extending her overall absolute positive and relative outperformance against major world indexes since her recent birth on 28 August 2020, during which MSCI ACWI All World index tumbled -3.6%, S&P 500 -4.5%, NASDAQ -5.3%, and Greater China stocks slumped with Hang Seng index -7.7%, CSI 300 index -5.3% and HSCEI -8.8%, and gold physical spot (in USD) -3.3%.

  • Nordic and Swiss stocks were key contributors during the week, led by: (1) Nordic Global #1 Technology Leader in Weather, Environmental, and Industrial Measurement (+15.4%); (2) Finland’s #1 Market Leader and Pioneer in Specialized Cloud-Based ERP and Accounting Software Solutions for Construction, Building Services Engineering and Manufacturing Companies (+14.3%); (3) Nordic Global #1 Leader in Sauna & Spa Tech (+10.2%); (4) Swiss Global #1 Technology-Based Leader in Peptide-Based Active Pharmaceutical Ingredients (APIs) for the Pharma, Biotech, Diagnostics and Cosmetics Industries (+7.6%); (5) Canadian Global Cloud SaaS Leader in Endpoint Cybersecurity and Data Risk Management Solutions (+7.4%); (6) Swiss Global Leader in Critical Actuator and Control Valve Technology for HVAC (+6.8%).
  • The K-shaped recovery divergence, coupled with the worsening U.S.-China relationship, points towards the new world order in the post-pandemic future that marks the ascent of the quiet Nordic powerhouse region – comprising of Sweden, Denmark, Norway, Finland and Iceland with a combined GDP of over US$1.6 trillion, combined population of around 27.3 million people, and the highest regional GDP per capita in the world at over US$62,000 – where they are a Winter War kind of country: innovation happens when things are tough, not when they’re easy and comfortable.

“POTUS has COVID = Increased odds of new ‘Phase 4’ stimulus” has been the market narrative in its clinging on to vague hope that prevailed over the new layer of uncertainty and deteriorating economic data in waning job gains, rising permanent layoffs, and contracting labor force. Cyclicals, banks and Russell small caps bounced off their Friday lows, while Nasdaq crumbled 2.2%. House Speaker Nancy Pelosi on Friday floated the possibility that Trump’s coronavirus diagnosis could make an agreement more likely. “This kind of changes the dynamic, because here they see the reality of what we have been saying all along: This is a vicious virus,” Pelosi said on MSNBC. Markets latched on to the view that Trump, now unable to hold his large, raucous in-person campaign rallies in front of supporters across the country's swing states, would try to push for a deal to counter the loss of momentum in the economy’s recovery as federal unemployment benefits fade in recent weeks.

Even if Trump were to recover but lost the November 3 elections to Biden, markets are bracing for greater post-election risk after Trump repeatedly refusing last week to commit to a peaceful transition of power if he lost. A prolonged period with the election result in dispute would be negative for markets. A flashback would be after the presidential election of 2000, when a dispute involving Florida votes was ultimately resolved through a Supreme Court ruling. Stocks fell more than 8% in the weeks after the vote, as the race remained unresolved. Also, any federal government response to an upsurge in coronavirus cases this season would be hard to pull off if there was a prolonged battle over the outcome of the election. That leaves investors facing the possibility of months without an operating government. The January VIX futures contract is also pricing in the danger that the post-election political ructions might last into 2021.

Earlier on Wednesday, the Fed has caped 33 Big Bank’s dividends and halted share buybacks for another three months, citing the need to conserve capital during the coronavirus-induced downturn. In another sign of the uncertainty facing the industry and the broader economy, the Fed has required big banks to undergo a second round of stress tests later this year. Results of the tests, designed to ensure banks can continue to lend in a crisis, will be announced by the end of the year. U.S. banks’ loan loss reserves have risen by US$110 billion since the crisis began, and are now equivalent to 2.2% of their loan portfolios, the highest level since after the financial crisis in 2012.

Big Tech cratered after a “NASDAQ whale” was unveiled as buying large blocks of call options in the popular FANG stocks on Thursday before Trump’s COVID diagnosis, paying a premium of US$180 million on a notional value of US$1.7 billion. Similar large call purchases in Big Tech in August by SoftBank, followed by retail investors, has been the supposed catalyst for September's tech-driven gamma sell-off in US stocks that recorded its first monthly decline since March. The biggest question on everyone’s mind is this: While Trump seems to exhibit “mild symptoms” and “shortness of breath” while undergoing treatment at the Walter Reed National Military Medical Center, how would markets react if Trump’s conditions were to worsen to require ICU care and the unthinkable happen with Trump unexpectedly succumbing to COVID?

Notably, after Finland’s #1 Market Leader and Pioneer in Specialized Cloud-Based ERP and Accounting Software Solutions for Construction, Building Services Engineering and Manufacturing Companies reported on Friday a set of resilient third quarter results and revised upwards its previously announced EBITDA target of 35–45% to 40%-47% for the current year with net sales growth for 2020 to be at least +37%, the highly-profitable and cashflow-generative rising dividend-yielding SaaS innovator, with 90% of its revenue recurring, jumped 17.2% in its share price, even as markets choked on Trump’s COVID news. So while the short-term day-to-day price movement can be volatile, what continues to be crystal clear is that the quiet structural growth H.E.R.O. innovators remain the most visible and vibrant pathway in a foggy, volatile, whipsawing, uncertain market to deliver sustained outperformance with their healthy fundamentals results.


A CURIOUS MIND & YOU
One of the most calming and powerful actions you can do
to intervene in a stormy world
is to stand up and show your soul.
Soul on deck shines like gold in dark times.

The light of the soul throws sparks, can send up flares
builds signal fires, causes proper matters to catch fire.
To display the lantern of soul in shadowy times like these,
to be fierce and to show mercy toward others;
both are acts of immense bravery and greatest necessity.
Struggling souls catch light from other souls who are fully lit
and willing to show it.

- Clarissa Pinkola Estes, You Were Made For This
https://www.dailygood.org/story/1538/do-not-lose-heart-we-were-made-for-these-times-clarissa-pinkola-estes

Warm regards,

KEE Koon Boon ("KB") | Email: kb@heroinnovator.com | WhatsApp: +65 9695 1860
www.heroinnovator.com

Leave a Reply

Your email address will not be published. Required fields are marked *