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GreenWood Investors 1Q20 Commentary

GreenWood Investors 1Q20 Commentary

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GreenWood Investors letter to investors for the first quarter ended March 31, 2020, discussing their long position in CTT Correios de Portugal SA (ELI:CTT).

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Q1 2020 hedge fund letters, conferences and more

Dear GreenWood Investor:

Reporting our performance this quarter feels quite a bit like the same experience I had preparing for my first confession as a young Catholic. Our performance, which has not been great in recent years, was truly terrible - a record new low for me since starting to manage the portfolio. I do not take this continued underperformance lightly, and if you would permit me, I’d like to confess in a rather longer quarterly letter than normal, some of what went into this historically undesirable result for us. And I’d also like to explain why in some ways, it’s the best thing that could have happened to us.

Psychologists over the past century have largely identified two separate voices in our own heads. Daniel Kahneman calls these two minds System 1 and System 2. System 1 is what ancient Greeks and Buddha called the ego, it is the rapid-firing and emotional part of our brains, which is largely housed in the amygdala and the limbic system. System 2 is the slow, deliberate part of our minds that can handle complexity, and is inherently very creative. It is housed in the pre-frontal cortex, a segment of the brain that is unusually developed in humans over other mammals. In talking about the two separate parts of our minds, brilliant psychologist Carl Jung explained the great benefit that confession has brought to people throughout the ages. Confession admits and embraces the behavior patterns of System 1, which often leave us red-cheeked and embarrassed. As Jung wrote in Modern Man in Search of a Soul, "There appears to be a conscience in mankind which severely punishes the man who does not somehow and at some time, at whatever cost to his pride, cease to defend and assert himself and instead confess himself fallible and human.”

While investing requires a humble approach, our recent results are indeed humbling, and reflect the decidedly fallible parts of our nature. They also reflect my previous cavalier disregard for System 1 thinking, which actually proved to be harmful to us, rather than helpful.

CTT

System 1 is the passionate, angry, greedy, and fearful parts of our minds. The amygdala, which is largely our survival mechanism, serves to keep us alive. It got mankind from 400,000 BC to 4,000 BC. But after civilizations arose in the ancient middle east, System 2 thinking was the value driver. It is the cooperative, collaborative, generous part of our mind. It enables teamwork, complex and structured thinking, and infinite creative possibility. It is the source of value creation throughout these last millennia. This is why, as Carl Jung asserted, self-restraint was one of the earliest celebrated virtues of society. It wasn’t the System 2 self that needed restraint, it was the System 1 ego. But Mr. Market is only capable of System 1 thinking. My constant attempt to quiet System 1 through meditation, has built up this disregard for Mr. Market, the very counter-party that determines our fate on a short-term basis. As Jung asserted, claiming ownership of this part of our minds is key to the process of healing. So in that vein, I have a few more confessions.

The Book

For the past few years, I’ve been using runs, chores and office commutes as opportunities to listen to research for a book I’m working on, The Builders. It’s a historical and psychological look at some of the most impactful value creators of all time. While macro-economists like to look at centuries of data to inform their thinking on where we are in the arc of history, this project is a micro-economic and psychological analysis of the biggest builders over the past three millennia.

Perhaps the most interesting outcome of that research was the realization that while the originator of value creation has been a highly developed pre-frontal cortex, or the home of System 2, all major commercial value creators also had a very strong System 1, or at least keen understanding of its methods, tricks and behaviors. Many of them understand System 1 so well that the products or services they create catch the world by fire, or rather by involuntary reactions of System 1. System 1, or the ego, doesn’t think before it acts. It wants immediate gratification. While many of these products or services either are a hook, line, and sinker to consumers’ limbic systems, in many other cases, they invite their customers into System 2 stimulation. One of the brilliant, possibly accidental, virtues of Private Equity and Venture Capital, is that these funds can mark their funds to model as opposed to the whims of System 1. While this lack of volatility is a complete illusion, it saves its limited partners the pain of constantly being subjected to the amygdala. System 1 is not a fun place to hang out, as the evergreen scowl on President Trump’s face bears witness.

CTT

So in my cavalier disregard for Mr. Market’s or System 1’s views, I was actually ignoring a theory which my own research has been able to unearth. The most impactful value creators are masters of both Systems 1 & 2. To be fair, the insight only came in early January, but this entire social dialogue that the “ego is the enemy” that has taken hold has not served us well. Quite frankly, I’d rather be empathetic to the needs of Mr. Market, and not keep “pushing rocks uphill.”

Accelerating Our Framework Evolution

As Chris and I were chatting about portfolio construction in the context of our ranking framework in early February, he articulated that too much of our portfolio had tough stock market narratives. Too many companies, it seemed, had managers swimming upstream. I’m not sure what I looked like to him, but internally, it was as if I had seen a ghost. He was exactly right. My penchant to puzzle-solve complex situations, and my contrarian nature had naturally attracted me to deeply out of favor transformations where we had a very different view of the world than Mr. Market’s. This is the “hedgehog” approach that psychologist Phil Tetlock talks about. But while hedgehogs hit home-runs, they are less reliable in hitting steady singles every time they bat.

I immediately agreed with Chris and we evolved our framework that very afternoon. As a result, we are no longer allowing an extreme outlier in one area of our framework, which ranks companies on three continuums: value - quality - behavioral, to over-ride a terrible ranking in the other two criteria. The second evolution to the framework has been abandoning the 3, 6, 12-month roadmap of the market’s vs. the fundamental views. Instead, we now select three major concerns of Mr. Market’s, assess the fundamental reality of such drivers and make probability-adjusted estimates of the likely progression of those drivers. We also have added three probability-adjusted narrative inflection points, or developments which can cause a sudden and forceful shift in the market narrative.

System 1 is inherently unpredictable. It’s sort of like a child that falls. If there’s no blood, and you maintain a smile, maybe you can avoid the tantrum. Maybe they’ll be laughing 60 seconds after crying. The evolution of that is unpredictable, but we can at least understand what System 1 cares about, and where those inflection points may be.

We were getting there with our entire portfolio, and then the Covid-19 (C-19) market turmoil hit prior to us selling down some companies that had a low likelihood of reaching an inflection beyond the narrative of “pushing the rock up the hill.” It didn’t mean we were paralyzed by the turmoil. Rather, it was almost refreshing for us. While it was both a frustration and a great opportunity, fundamentals didn’t matter during the C-19 selloff. That meant these “rocks uphill” companies sold off with equal vigor to companies that are managed by Builders with better narratives. The funny thing about the selloff is that while Mr. Market did a great job differentiating between industry and market sectors, it did a very poor job distinguishing between good managers and administrators, or companies with a debt or a cash position. Frankly, in a world where the MBA “optimization” processes are no longer relevant, I trust managers who actually embody their business more than I trust the MBAs. I trust cash over debt. I trust organic growth over financial engineering. Mr. Market still hasn’t differentiated between these dichotomies, and owner-operators and familycontrolled businesses have still managed to underperform the market by over 10-points so far this year.

These are the people we feel most comfortable with, and who have generated the most significant long-term outperformance. The recent market drawdown and underperformance of this class of ~2k companies (with a market capitalization over $1 billion) has been historic. These managers have a large amount of skin in the game. They don’t give quarterly guidance. They use less cash for acquisitions, buybacks and dividends. They have lower profit margins, but significantly faster revenue, employee and fixed asset growth despite carrying lower debt levels. In the white paper I’m working on with my friend Ehren Stanhope, we will publish our findings on their behaviors, which unsurprisingly run counter to so many of their peers who are largely compensated in stock options by a board with no share ownership (after all, they need “independence”).

When Mr. Market failed to differentiate, and in fact, penalized this class of companies, we moved quickly. We added five new long positions, three of which are founder-led, and the other two of which have very good management teams with significant skin in the game. Four of these five businesses are net beneficiaries of the current pandemic environment, despite them selling off more than global markets in the beginning of the panic.

I confess we went into the crisis with a larger-than-normal gross long positioning in our fund, which is clearly reflected in the performance. It was because we were so enthusiastic about the year ahead at our coinvestment, or CTT Correios de Portugal (CTT). With deep gratitude to an anchor investor, we started investing in this company in early 2018, and have managed to buy over 8.5% of shares today. We had a playbook of drivers that we believed would deliver very substantial value to the company, and in early 2019, we sought a board seat to help secure execution over these initiatives. We wanted to wait to publicly talk about CTT until we were more advanced in executing these strategic priorities for the company. But, as our very large weighting in the fund suggested, and our funds’ overall heavier gross long exposure show, we think the year ahead, the company’s 500th year in operation, will be one of the most transformational in its long history. It’s a good time to discuss what we’ve been working on in Portugal.

CTT - Committed to Deliver

As a constructivist investor, we took an opposite approach to a traditional activist in the American markets, which typically argue for a leveraged recapitalization of the company. The traditional activist re-arranges the capital structure to favor shareholders in the short-term, and often leaves a long-term bill that will be brutally painful to pay one day down the road (most likely by the creditors). In hindsight though, it would have made sense for our playbook to include a few “quick wins” that would have led to more immediate performance for our investors, who have patiently waited for our more transformational efforts to bear fruit. We could have planned a better roadmap for both System 1 and System 2, but we don’t think we’ll have to wait much longer.

After we took a large position in CTT Correios de Portugal (CTT), the postal carrier of the country, we were welcomed on the board last year. The very meeting we were voted in, we abstained from the vote on the company’s dividend payment. Rather than payout all the cash from the company, which is basically admitting defeat, we saw a lot of potential for growth in the core business, as well as many peripheral areas where the brand could be extended.

Over the prior year, I had developed a relationship with many other large shareholders of the company, during which I got to know João Bento. Through too many conversations to count, we shared ideas for the company and its diverse business activities. When CTT's former CEO decided to retire, João serendipitously had his 100-point plan ready to go. He hit the ground running in late May 2019. He has refreshed some of the executives at the company, and more importantly, created a bench of ~40 direct reports, nearly all of whom I’ve met and impress me with their work ethic. Since last summer, João and these able executives have been laying the groundwork for a return to growth at our company, and a robust return at that. Rather than a centralized structure reminiscent of a government-controlled entity, this team and its collaborative approach has already completely redefined the purpose of the company and its relationship with customers.

How can a postal company, a melting ice cube, return to growth? Well, while mail is reported as a large portion of the company’s revenue, only a quarter of the overall revenue last year was tied to ordinary transactional mail (the secularly declining kind being eaten by the internet), and it will clearly be lower this year. Surely that will be going away over the medium term. Two major parts of that reported segment, registered mail and international mail don’t face the same underlying digitalization headwinds. In fact, the company’s international mail is largely being driven by soft parcels coming in from China, as Chinese e-commerce companies were the first to arrive in Portugal.

The company’s ubiquitous network that touches nearly every house and business almost every day is a fantastic delivery mechanism for the clear bull market in parcels, particularly e-commerce-driven parcels. Express networks are not properly set up for the last mile outside of highly urban areas. That’s why postal companies largely win the last mile of e-commerce. It’s a business that’s somewhat similar to a cement company, local market share matters heavily. As we all learned in geometry, when a truck’s delivery radius shrinks by half, as its market share doubles, the total area driven is reduced by ~75%. That means market share conveys a very significant cost advantage. And while CTT is not a sexy business, it’s almost as boring as it gets, it is highly durable. It’s one reason why challenger mail delivery companies in the past always failed. But now that mail is disappearing, it’s not guaranteed the postal carriers win ecommerce. There are two separate networks anddelivery methods. Mail routes have been traditionally fixed, while express & parcels routes are typically more dynamic. We have a great challenge, but also a great opportunity, to try and converge these two networks into one. Already, around 70% of the company’s parcels are being delivered by postmen, and frankly, the word postman should really be parcel-man today. The bag or van has mostly parcels in it.

As already mentioned, this year is the company’s 500th anniversary, and as a new board member told me when I met her last year, “you need to know something, everyone in Portugal has a piece of CTT in their hearts. We all have ownership over it.” It was a symphony to my ears, as she mentioned the key skin in the game trigger that drives highly favorable outcomes no matter what business or industry we’re in. It’s no surprise that the largest telecom in the country was once a segment of the company. Just a few years ago the company launched its own bank, which we estimate has taken almost half of all new accounts in the country since being opened. It has the highest customer satisfaction, and with a labor and physical footprint around one tenth of its competitors, it will have a permanent cost advantage versus peers.

Investors have given this bank, with a balance sheet of €212 million in equity, a zero or negative valuation in the market. We don’t share their pessimism, and originally wanted to help underwrite an IPO to allow a spin off of the bank. Unfortunately, investor appetite for European banks over the past 18 months has collapsed to a state of revulsion. Still, the bank is accelerating growth plans to become more like a fin-tech than a bank, and we’re encouraged by the strong growth in profitability and significant revenue coming from non-interest income. That’s not because the bank charges aggressive commissions to its customers, in fact it’s the opposite. But the bank handles a very considerable portion of the payments in the country, which is no surprise that when fin-tech Revolut wanted to partner with a local bank, as an experiment with cash top-up of payment cards, it chose us. We believe there will be many more partnerships in the payments arena. We are excited about an acceleration in the non-interest income, no matter what happens to the pervasive negative rates in Europe. The value of the bank is not very concerning to us, though it has been to the market. We’re in the very early stages of working on something to help alleviate investor stress there. But it’s certainly not worthless, despite Mr. Market giving it such an appraisal.

We are much further along in optimizing another under-appreciated asset within the company, the significant real estate portfolio throughout the country. Because the company is centralizing its distribution centers, in order to more fully automate tasks, a very large number of logistics centers will be left vacant over the course of the next year or two. While the portfolio is quite diverse, some of these are fairly well-located assets, and can be repurposed to a highervalue mission. As CEO João Bento disclosed on the last quarter’s call, the value of this portfolio today is over €200 million, and we believe there will be incremental value-add as we work with a real estate manager to unlock the considerable value in this portfolio. Thus, combined with the bank, and even if we take a major haircut to the bank’s value, the stock with just over a €300 million market cap today and a €32 million net cash position, means the company’s current enterprise value is deeply negative. So investors today are getting paid to take a core business which before the coronavirus, was on track to hit over €90 million in EBITDA in 2020, even after the new lease expenses and banking income are removed.

Mr. Market is also worried about the company’s deteriorated regulatory relationship, which last year accelerated the loss-making status of the regulated universal mail service. GreenWood estimates that this contract is loss-making at the EBITDA line, and including depreciation, which is roughly equal to maintenance capital expenditures, lost nearly €20 million. That is the definition of unsustainable. In early March, I had the chance to meet with Portuguese Economy Minister Pedro Siza Vieira and confirmed that at least this large shareholder is committed to keeping the universal service, as the government wishes, but only under a sustainable contract. The current contract, which was abruptly changed in January of 2018, carries with it a deep negative net present value.

Read the full letter here.

 

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Economics

After a near 10% rally this week can the Netflix share price make a comeback?

The Netflix share price rallied by nearly 10% (9.6%) this week after co-CEO Ted Sarandos confirmed the film and television streaming market leader is to…

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The Netflix share price rallied by nearly 10% (9.6%) this week after co-CEO Ted Sarandos confirmed the film and television streaming market leader is to introduce a new ad-supported, cheaper subscription. The company also announced it is to lay off another 300 employees, around 4% of its global workforce, in addition to the 150 redundancies last month.

Netflix has been forced into a period of belt-tightening after announcing a 200,000 subscriber-strong net loss over the first quarter of 2022. The U.S. tech giant also ominously forecast expectations for the loss of a further 2 million subscribers over the current quarter that will conclude at the end of this month.

netflix inc

The company has faced increasing sector competition with Paramount+ its latest new rival, joining Amazon Prime, Disney+, HBO Max and a handful of other new streaming platforms jostling for market share. A more competitive environment has combined with a hangover from the subscriber boom Netflix benefitted from over the Covid-19 pandemic and spiralling cost of living crisis.

Despite the strong gains of the past week, Netflix’s share price is still down over 68% for 2022 and 64% in the last 12 months. Stock markets have generally suffered this year with investors switching into risk-off mode in the face of spiralling inflation, rising interest rates, fears of a recession and the geopolitical crisis triggered by Russia’s invasion of Ukraine.

Growth stocks like Netflix whose high valuations were heavily reliant on the value of future revenues have been hit hardest. No recognised member of Wall Street’s Big Tech cabal has escaped punishment this year with even the hugely profitable Apple, Microsoft, Alphabet and Amazon all seeing their valuations slide by between around 20% and 30%.

But all of those other tech companies have diversified revenue streams, bank profits which dwarf those of Netflix and are sitting on huge cash piles. The more narrowly focused Meta Platforms (Facebook, WhatsApp and Instagram) which still relies exclusively on ad revenue generated from online advertising on its social media platforms, has also been hit harder, losing half of its value this year.

But among Wall Street’s established, profitable Big Tech stocks, Netflix has suffered the steepest fall in its valuation. But it is still profitable, even if it has taken on significant debt investing in its original content catalogue. And it is still the international market leader by a distance in a growing content streaming market.

justwatch

Source: JustWatch

Even if the competition is hotting up, Netflix still offers subscribers by far the biggest and most diversified catalogue of film and television content available on the market. And the overall value of the video content streaming market is also expected to keep growing strongly for the next several years. Even if annual growth is forecast to drop into the high single figures in future years.

revenue growth

Source: Statista

In that context, there are numerous analysts to have been left with the feeling that while the Netflix share price may well have been over-inflated during the pandemic and due a correction, it has been over-sold. Which could make the stock attractive at its current price of $190.85, compared to the record high of $690.31 reached as recently as October last year.

What’s next for the Netflix share price?

As a company, Netflix is faced with a transition period over the next few years. For the past decade, it has been a high growth company with investors focused on subscriber numbers. The recent dip notwithstanding, it has done exceedingly well on that score, attracting around 220 million paying customers globally.

Netflix established its market-leading position by investing heavily in its content catalogue, first by buying up the rights to popular television shows and films and then pouring hundreds of millions into exclusive content. That investment was necessary to establish a market leading position against its historical rivals Amazon Prime, which benefits from the deeper pockets of its parent company, and Hulu in the USA.

Netflix’s investment in its own exclusive content catalogue also helped compensate for the loss of popular shows like The Office, The Simpsons and Friends. When deals for the rights to these shows and many hit films have ended over the past few years their owners have chosen not to resell them to Netflix. Mainly because they planned or had already launched rival streaming services like Disney+ (The Simpsons) and HBO Max (The Office and Friends).

Netflix will continue to show third party content it acquires the rights to. But with the bulk of the most popular legacy television and film shows now available exclusively on competitor platforms launched by or otherwise associated with rights holders, it will rely ever more heavily on its own exclusive content.

That means continued investment, the expected budget for this year is $17 billion, which will put a strain on profitability. But most analysts expect the company to continue to be a major player in the video streaming sector.

Its strategy to invest in localised content produced specifically for international markets has proven a good one. It has strengthened its offering on big international markets like Japan, South Korea, India and Brazil compared to rivals that exclusively offer English-language content produced with an American audience in mind.

The approach has also produced some of Netflix’s biggest hits across international audiences, like the South Korean dystopian thriller Squid Games and the film Parasite, another Korean production that won the 2020 Academy Award for best picture – the first ever ‘made for streaming’ movie to do so.

Netflix is also, like many of its streaming platform rivals, making a push into sport. It has just lost out to Disney-owned ESPN, the current rights holder, in a bid to acquire the F1 rights for the USA. But having made one big move for prestigious sports rights, even if it ultimately failed, it signals a shift in strategy for a company that hasn’t previously shown an interest in competing for sports audiences.

Over the next year or so, Netflix’s share price is likely to be most influenced by the success of its launch of the planned lower-cost ad-supported subscription. It’s a big call that reverses the trend of the last decade away from linear television programming supported by ad revenue in its pursuit of new growth.

It will take Netflix at least a year or two to roll out a new ad-supported platform globally and in the meanwhile, especially if its forecast of losing another 2 million subscribers this quarter turns out to be accurate, the share price could potentially face further pain. But there is also a suspicion that the stock has generally been oversold and will eventually reclaim some of the huge losses of the past several months.

How much of that loss of share price is reclaimed will most probably rely on take-up of the new ad-supported cheaper membership tier. There is huge potential there with the company estimating around 100 million viewers have been accessing the platform via shared passwords. That’s been clamped down on recently and will continue to be because Netflix is determined to monetise those 100 million viewers contributing nothing to its revenues.

If a big enough chunk of them opt for continued access at the cost of watching ads, the company’s revenue growth could quickly return to healthy levels again. And that could see some strong upside for the Netflix share price in the context of its currently deflated level.

The post After a near 10% rally this week can the Netflix share price make a comeback? first appeared on Trading and Investment News.

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Government

Aura High Yield SME Fund: Letter to Investors 24 June 2022

The RBA delivered a speech this week indicating faster monetary policy tightening is to come in the near-term with the aim of curbing the rate of inflation….

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The RBA delivered a speech this week indicating faster monetary policy tightening is to come in the near-term with the aim of curbing the rate of inflation.

Inflation and Monetary Policy 1,2

This week, RBA Governor Philip Lowe spoke about the department’s monetary policy intervention to tackle inflation in the evolving economic environment. Over the last six months, similar factors have continued to put pressure on food and energy prices – namely the war in Ukraine, foods on the East coast, and Covid lockdowns in China. The ongoing lockdowns in China are causing disruptions in manufacturing and production and supply chains coupled with strong global demand that is unable to be met. These pressures have forced households and businesses to absorb the rising cost of living.

To demonstrate the rise, the RBA reporting this week on Business Conditions and Sentiments saw:

  • Almost a third of all businesses (31 per cent) have difficulty finding suitable staff;
  • Nearly half (46 per cent) of all businesses have experienced increased operating expenses; and
  • More than two in five businesses (41 per cent) face supply chain disruptions, which has remained steady since it peaked in January 2022 (47 per cent).

* The Survey of Business Conditions and Sentiments was not conducted between July 2021 to December 2021 (inclusive)

Inflation is being experienced globally, although Australia remains below that of most other advanced economies sitting at 5.1 per cent. The share of items in the CPI basket with annualised price increases of more than 3 per cent is at the highest level since 1990 as displayed in the graph below.

With additional information on leading indicators now on hand, the RBA has pushed their inflation forecast up from 6 to 7 per cent for the December quarter, due to persistently high petrol and energy prices. After this period, the RBA expects inflation will begin to decline.

We are beginning to see pandemic-related supply side issues resolve, with delivery times shortening slightly and businesses finding alternative solutions for global production and logistic networks. Whilst there is still a way to go in normalising the flow in the supply side and the possibility that further disruptions and setbacks could occur, the global production system is adapting accordingly, which should help alleviate some of the inflationary pressures.

The RBA’s goal is to ensure inflation returns to a 2-3 per cent target range over time, with the view that high inflation causes damage to the economy, reduces people’s purchasing power and devalues people’s savings.

Household Wealth 3

Growth of 1.2 per cent in household wealth, equivalent to $173 billion, was reported in the March quarter. The rise was a result of an increase in housing prices in the March quarter. Prices have started reversing since that read.

Demand for credit also boomed, with a record total demand for credit of $218.8 billion for the March quarter. The rise was driven by private non-financial corporations demanding $153.2 billion, while households and government borrowed $41.9 billion and $17.5 billion respectively. 

We will likely see a significant shift in household wealth and credit demand in next quarter’s report given the rising interest rate environment, depressed household valuations and elevated pricing pressures. 

Portfolio Management Commentary

A lag in leading economic indicators has shifted the RBA’s outlook, with an increase in the expected level of inflation to peak at 7 per cent and rate rises to come harder and faster in the near term. From a portfolio standpoint we are not seeing any degradation in our underlying portfolio and open dialogue with our lenders has us confident in their borrowing base. We are maintaining a close eye on the economic environment to ensure we maintain the performance of our Fund and ensure our lenders are in a position to maintain performance and strive to capitalise off the back of economic shifts.

1 RBA Inflation and Monetary Policy Speech – 21 June 2022

2 RBA Inflation and Monetary Policy Speech – 21 June 2022

3 Australian National Accounts: Finance and Wealth

You can learn more about the Aura High Yield SME Fund here.

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The Sussex researchers who used international collaboration and 3D printing to stem PPE shortages in Nigeria

Researchers at the University of Sussex and their partners in Nigeria used open-source designs and 3D printing to reduce personal protective equipment…

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Researchers at the University of Sussex and their partners in Nigeria used open-source designs and 3D printing to reduce personal protective equipment (PPE) shortages for a community in Nigeria during the Covid-19 pandemic – tells a recently published academic paper.

Credit: Please credit Royhaan Folarin, TReND

Researchers at the University of Sussex and their partners in Nigeria used open-source designs and 3D printing to reduce personal protective equipment (PPE) shortages for a community in Nigeria during the Covid-19 pandemic – tells a recently published academic paper.

In their paper in PLOS Biology, Dr Andre Maia Chagas from the University of Sussex, and Dr. Royhaan Folarin from the Olabisi Onabanjo University (Nigeria), explain how their collaboration led to the production of  over 400 pieces of PPE for the local hospital and surrounding community, including those providing essential and frontline services. This included face masks and face shields, at a time when a global shortage meant it was impossible for these to be sourced by traditional companies. 

In their collaboration, they leveraged existing open-source designs detailing how to manufacture approved PPE. This allowed Nigerian researchers to source, build and use a 3D printer and begin producing and distributing protective equipment for the local community to use. Plus, it was affordable.

One 3D printer operator and one assembler produced on average one face shield in 1 hour 30 minutes, costing 1,200 Naira (£2.38) and one mask in 3 hours 3 minutes costing 2,000 Naira (£3.97). In comparison, at the time of the project, commercially available face shields cost at least 5,000 Naira (£9.92) and reusable masks cost 10,000 Naira (£19.84). 

Dr Maia Chagas, Research Bioengineer at the University of Sussex, said: “Through knowledge sharing, collaboration and technology, we were able to help support a community through a global health crisis. 

“I’m really proud of the tangible difference we made at a critical time for this community. As PPE was in such high demand and stocks were low, prices for surgical masks, respirators and surgical gowns hiked, with issues arising around exports and international distribution. 

“We quickly realized that alternative means of producing and distributing PPE were required. Free and open-source hardware (FOSH) and 3D printing quickly became a viable option.

“We hope that our international collaboration during the pandemic will inspire other innovators to use technology and share knowledge to help address societal problems, which were typically reliant on funding or support from government or large research institutions. 

“With open source designs, knowledge sharing and 3D printing, there is a real opportunity for us to start addressing problems from the ground up, and empower local communities and researchers.”

Dr. Royhaan Folarin, a Neuroscientist and lecturer of anatomical sciences at Olabisi Onabanjo University in Nigeria, said: 

“During the pandemic, we saw the successful printing and donation of PPE in the Czech Republic by Prusa Research and it became a goal for me to use the training I had received in previous TReND in Africa workshops to help impact my immediate community in Nigeria.”

The international collaboration came about as a result of the TReND in Africa network, a charity hosted within Sussex which supports scientific capacity building across Africa. 

After initial use, testers provided feedback commending the innovativeness, usefulness and aesthetics of the PPE and, while the team’s 3D printer was not built for large-scale serial manufacturing, they identified the possibilities for several 3D printers to run in parallel, to reduce relative production time. During the pandemic, this was successfully demonstrated by the company Prusa Research, which produced and shipped 200,000 CE certified face shields. 


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