Do You Have a Quiet H.E.R.O. In Your Portfolio Protecting & Fighting For You? [Nordic Global #1 Leader in Advanced Communications & Hearing Protection Systems to Enable Communication in Noisy & Mission-Critical Environments]
Case Story: Nordic Global #1 Leader in Advanced Communications & Hearing Protection Systems to Enable Communication in Noisy & Mission-Critical Environments
[Week (14-18 Sep): +8.8%]
Another uplifting Innovation Stack story in our portfolio companies is the Nordic global #1 leader in advanced communications & hearing protection systems to enable communication in noisy and mission-critical environments, which is up 12.8% since the inception of the Fund on 28 August 2020, versus MSCI ACWI World index/NASDAQ -3.6%/-7.6% over the same period. The rising dividend-yielding company has also compounded 294% in capital gains in the recent 5 years vs MSCI ACWI World index +47.6%.
The company has long-term contracts with defense authorities in the USA, the UK, Canada, Australia and Denmark, among others, and its customers include the American Department of Defense, the US Marines and the US Air Force elite unit, British Army, Australian Army, Canadian Army, Belgian Army, French Army, Royal Danish Army, the Guardian Angels, the German, Swedish and Japanese police, etc. The company's solutions make a difference in demanding environments and give operational advantages and increased security for military and security personnel. They also contribute to reducing the costs of hearing loss for individuals and society. A growing awareness of the effect of hearing loss on individuals and society is a further factor in increasing demand for the company's solutions. Hearing impairment and tinnitus are the most common injuries among veterans of the American defense forces, and the American defense forces’ direct costs for care and support amount to billions of dollars annually. The growing significance of communication for military and law enforcement operations entails demands for better access to new or modified communication equipment for a growing number of users, creating structural growth in demand for the company’s systems.
The company's Innovation Stack story originates from Denmark's long tradition of world-leading industry cluster "The Danish Sound" in hearing and acoustics in production of high quality and innovative loudspeakers, hearing aids, test equipment and other communication equipment. The business was established in 1999 in Copenhagen to develop headsets for communication based on bone conduction technology. For more than 50 years the Copenhagen region has been home to several world-leading companies in sound technology, whose success was made possible through internationally recognized and close collaboration with Danish universities and institutes of technology in three related areas: (1) Psychoacoustics – how sound is perceived by humans, (2) Acoustics – the science of sound properties and behavior, (3) Signal processing – how to manipulate sound electronically. The company's strong corporate culture and values on R&D, which is characterized by close collaboration between employees and insights about users and their needs, has been able to successfully recruit engineers with training and experience in these disciplines. By combining different technologies and skills in acoustics, electronics, mechanics and hearing, the company creates innovative and customized solutions that replace traditional methods.
CEO Mr. H: "We are the global market leader within advanced hearing protection and communication systems with more than 200.000 systems fielded globally. This position is based on more than 15 years of mission proven experience using cutting-edge technology, and providing industry leading solutions to the most demanding elite units in the world. We are constantly pushing the limits of technologies in order to protect and enable professionals to operate and communicate clearly and safely in all environments. Our solutions build on a deep understanding of sound and human hearing. Many of our R&D staff have roots in ‘The Danish Sound’ – a world-renowned industrial cluster of excellence in acoustics, hearing and mobile communications based on collaboration between industry and academic research. This cluster has a long tradition of producing high quality, innovative loudspeakers, hearing aids, test apparatus, audio systems, and other communications equipment. systems can be tailored to fit any critical operation or scenario and across different teams and individuals."
"We are intensifying our penetration of the law enforcement and security market. We have received initial orders from new markets in Asia, which may lead to larger orders in the long term. We see two trends in particular that drive demand for our solutions. The strongest trend is the increasing need for modern communication equipment that makes it possible for the police to work effectively and safely in noisy and mission-critical environments. The second trend is a rising awareness of the high costs that hearing loss gives rise to and the personal suffering it means for those affected. The attractive market conditions, together with breakthroughs both in North America and in several European markets, mean that we feel great confidence in focusing on the law enforcement and security market.”
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.
This is the only equities strategy in the market that focuses on both dividend yield and innovation-driven capital gains to enhance total shareholders’ returns. This is also the only dividend-yielding equities strategy 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 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. 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.
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.
III. 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.