Companies can live and die on their strategies. Lets have a look at BAE Systems (LSE: BA) (NASDAQOTH: BAESY.US) and Unilever (LSE: ULVR) (NYSE: UL.US), as both companies have strategies that could help or hurt their bottom lines in 2015.
BAE Systems is being smart
Look no further than the hacking of Sony Pictures Entertainments computer systems whether its identity theft or tax fraud, many of the worlds security threats are coming via cyber-attacks.
BAE Systems has traditionally made money from military hardware. Now its looking to earn more from its computer software. Specifically, its turning to the information security market for further revenue.
NetReveal is a service already offered by the defence company. Its currently in talks to sell its NetReveal anti-tax evasion (tax fraud) software to a number of central Europe governments. According to The Financial Times, Slovakia implemented the platform in March and made back the price it paid to BAE within a month of operations. The Czech Republic, Poland and Hungary are also all in talks with BAE.
It product works by processing vast reams of payment data all the authorities need to do to catch fraudsters is join the dots created by this system.
Rome wasnt built in a day
BAE is slowly building up its artillery against financial crime. The company bought American cyber security company SilverSky in October, software outfit Norkom in 2011, and tech company Detica in 2008. Its all under the bannerhead of BAE Systems Applied Intelligence, and last year the division brought in 1.24 billion in revenue for the group.
Sovereigns will be working harder in coming years to collect tax revenues, and cyber-crime only looks set to increase over the same period. BAE Systems has turned this business Threat into an Opportunity with its cyber division. In the medium term it may become a strength for the company.
Jukebox in Siberia running out of music for Unilever
The Russian economy stinks right now. Inflation is north of 10%, while the ruble plunged over 40% in 2014. Russia is now experiencing stagflation with Finance Minister, Anton Siluanov, warning the countrys economy could contract by around 4% in 2015 if oil stays below US$60 per barrel.
This has consequences not only for Russian consumer demand, but also for China and other countries connected economically to Russia. It also has big implications for companies exposed to emerging markets in general.
Unilevers Russian businesses include cosmetics maker Kalina, and ice cream producer Inmarko, among others. The CEO concedes the faltering Russian economy will have an impact on Unilevers business, but hes far from pessimistic about the situation. Earlier this year he said he would be looking for bolt-on acquisitions in the region. Despite revenue growth slowing from double to single digits over the past 12 months, Unilever says its primarily concerned with increasing its market share. My concern is that as the overall Russian market gets smaller and smaller, Unilevers share of the pie will be less and less enticing for investors.
Where to from here?
So there you have it: one company boldly looking to push into largely unchartered territory, the other looking to navigate economically dangerous territory. I like where BAE Systems is going, but Im just not sure I understand what Unilever is doing. Its certainly taking a risk by pushing further into the emerging economies of the world in 2015.
Who am I to say, though, that what Unilever is doing is a mistake? I don’t understand it but the CEO might have more information than I do. More broadly, whether it’s pushing further into an underperforming investment, or simply holding onto an existing ‘stinky’ investment, you need to be able to hold your nerve. Sometimes it pays off, other times it doesn’t. That’s why you need a diversified portfolio.
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