I challenge all of you to recite as much of Dr Seuss’s classic Green Eggs and Ham as you can remember. To get you started…
Do you like green eggs and ham?
I do not like them Sam I am, I do not like green eggs and ham.
Would you like them here or there?
I can remember much more Dr Seuss than I can Shakespeare – although I am sure that you are much more cultured than I am. So how is this relevant? In his recent article COVID and Forced Experiments, tech and media guru Benedict Evans argues that the COVID-19 lockdown has forced all of us to try new things and some of these, just as with green eggs and ham, we might just find that we like. For example, working from home (WFH) has proven to be perfectly effective in many of the UK’s service industries and surely WFH will be more common after we are all released from lockdown.
John Sawers, former Head of MI6, commented last week that:
In a crisis … history tends to accelerate. The trends that are underway anyway, the growing dependence on technology, the weakening on international bodies like the UN, the shift of economic powers to Asia. These are all going to move forward more rapidly now.
It will be fascinating to see over the coming years which changes forced by COVID-19 will become permanent and which will be merely a short-term adjustment. Taking the example of Disney, the entertainment giant invested billions of dollars in its new Disney Plus platform in response to the rise of Netflix and Amazon Prime Video – reflecting the company’s belief that online streaming will be key to the future of entertainment. Surely nobody at Disney in their wildest dreams could have wished (upon a star) that they would have over 50 million subscribers in the first five months since launch (for context, Netflix had c.160 million subscribers in January 2020). Many parents will be hoping that this subscription is temporary but good luck to them telling their children that they intend to cut their unlimited access to Frozen 2!
On a less positive note, taking on debt is a way of borrowing from the future – i.e. getting money now that you will have to give back in future (plus interest). The future has been an unwelcome early arrival for highly geared companies in sectors that were already struggling. Just look at cruise liner Carnival that was recently forced to pay lenders 11.5% per annum in order to secure $4 billion of financing. If Carnival does manage to survive this crisis, the company’s equity holders will be writing checks to lenders for years to come. Carnival Plc will pay the price of insufficiently flexible finances colliding with COVID-19 for a long time yet.
We cannot say how the future will look but a core theme that has been true throughout history is that companies who invest in future innovation, whilst being disciplined in maintaining the financial strength and operational flexibility to respond to current crises, stand the best chance to survive and thrive over the long-term. This combination of both creativity and ruthless financial discipline is at the heart of what makes a great management team and a lasting business. When meeting a new company, we always like to ask the management team how technology is changing their industry. The wrong answer goes something along the lines of, ‘our industry is immune from technological change… we have not been disrupted so far and so will not in future’. When we asked Andrew Williams, CEO of Halma (one of our investments) this question, Andrew replied that technology is at the heart of everything they do and that investing to stay ahead of the curve here is an unrelenting challenge. There are no certainties but our level of confidence in a business, such as Halma, that is being proactive and adaptable today for challenges to come and to survive the future, is infinitely higher than it’s less innovative peers. Andrew Williams has so far repaid our trust in him many times over.