Minggu, 23 Oktober 2016

Carlos Ghosn stakes his reputation on Mitsubishi

Even for Carlos Ghosn, the man dubbed “le cost killer” after overhauling Renaultand saving Nissan from near collapse, leading three companies could be a dangerously bold stretch.

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The 62-year-old chief executive of Nissan and Renault is putting his own reputation on the line by agreeing to become chairman of lossmaking Mitsubishi Motors.

Mitsubishi formally joined the Renault-Nissan alliance on Thursday via a $2.3bn capital injection, in a move that means the enlarged group should be right behind Toyota, Volkswagen and General Motors in terms of number of cars sold each year.

“With 10m cars, we have a handicap to nobody and we have an advantage on most,” said Mr Ghosn at a media briefing in Tokyo.

In order to devote enough time to reviving Mitsubishi, which was engulfed in scandal in April after admitting to cheating on its vehicles’ fuel economy data, Mr Ghosn will for the first time share the role of Nissan top manager with a colleague.

Becoming Mitsubishi chairman is “a confident move but a big gamble for Mr Ghosn”, says Tosh Kojima, managing director at DC Advisory, a corporate finance adviser. “If things go wrong, it will definitely tarnish his otherwise fabulous reputation and godlike status not just in the industry but in Japan as a whole.”

Analysts say Nissan’s purchase of a 34 per cent stake in Mitsubishi for $2.3bn is as much about ensuring the survival of the Franco-Japanese alliance in a new era of technology competition as it is about a bailout of a smaller rival.

“It looks like Mr Ghosn rescued Mitsubishi,” says Takaki Nakanishi, a former Merrill Lynch analyst who now runs his own research group. “But having Mitsubishi’s platform will make it easier for Renault and Nissan to draw its next phase of growth strategy.”

The partnership between Nissan and Mitsubishi, makers of the Leaf and i-MiEV electric vehicles respectively, will give them the scale to cut costs amid the rapid rise of Tesla, the new industry entrant that has made a name for itself by manufacturing sophisticated battery-powered cars.

The new alliance will generate ¥24bn ($231m) in cost savings and other benefits in 2017-18 and ¥60bn in the following fiscal year, said Mr Ghosn.

In spite of depressed car sales in Japan due to several safety scandals dating back to 2000, Mitsubishi has maintained a loyal customer base in Southeast Asia, which would help address Nissan’s weakness in the region.

Mitsubishi also has a global manufacturing hub in Thailand from where its pick-up trucks are now exported to the Middle East, Africa and Latin America.

“Obviously we are not happy with our performance in [the Association of Southeast Asian Nations],” said Mr Ghosn. ‘This is where the synergy is working the other way, where Mitsubishi can deliver a lot of good examples and benchmark for Nissan to perform better.”

Meanwhile, the promotion of Hiroto Saikawa, Nissan’s chief competitive officer, to the role of co-chief executive will give Mr Ghosn some space to focus on Mitsubishi’s turnround.

Mitsubishi will probably need to carry out painful restructuring in Japan, according to Mr Nakanishi, to rebound from expected net losses of ¥240bn in 2016-17.

In the case of Nissan, Mr Ghosn closed five Japanese factories, axed 21,000 jobs worldwide and halved the number of parts suppliers after joining the company as chief operating officer in 1999 following three years at Renault.

Mr Ghosn stressed his chairman role at Mitsubishi will focus on ensuring strong corporate governance, including support to Osamu Masuko, who has been asked to stay on as chief executive. “I have no intention to interfere with the management of Mitsubishi,” he said.

Mitsubishi Motors' chief executive Osamu Masuko © EPA

His new responsibilities at Mitsubishi also come at a time of fraught relations between Mr Ghosn and the French government, which commands about 20 per cent of voting rights at Renault. The state voted in April against Mr Ghosn’s pay package at Renault, which wields effective control over Nissan through a 43 per cent stake.

Still, a Renault investor based in Paris is optimistic about Mr Ghosn’s additional responsibilities. “Ghosn can probably handle another role,” says the shareholder. “That man is a machine.”

A deeper uncertainty for investors is whether the alliance led by Mr Ghosn can thrive in the new age of electrification and self-driving cars, particularly given technology groups including Google are working on vehicles.

“Like it or not, Carlos Ghosn’s competition is not Toyota but the likes of Tesla and Google,” says Mr Kojima. “Buying Mitsubishi Motors is not going to help them on this front.”

Source : FT

Minggu, 02 Oktober 2016

Coach, in Turnaround Mode, Reports Sales Growth

Coach Inc. reported strong demand for higher-priced handbags at its retail stores and said it would slash its business with department stores, as the fashion company works to wean customers off discounts.

Sales at the handbag maker’s existing North American stores grew for the first time in more than three years in its latest quarter, evidence that the company’s turnaround is starting to take hold.

Coach Chief Executive Victor Luis told analysts on Tuesday that the results “capped a year where we returned the Coach brand to growth while elevating brand perception.” He predicted sales would continue to improve in the current fiscal year even as the company reduces sales to retail chains.

The company plans to pull out of 250 department stores in the current fiscal year, which would reduce its distribution in the channel by about 25%. It is also reducing the amount of money it provides department stores to cover the cost of discounts, which would exclude the brand from certain storewide promotions. The move will hurt the company’s operating margin, with most of the effect felt in the first quarter.

“This is very much a surgical move that is meant to drive the long-term sustainable health of our brand,” Mr. Luis said, adding that he wants to avoid confusing shoppers who see Coach items selling for higher prices at its retail stores than at department stores.

Coach has upgraded its handbags and accessories with better quality and more fashion, while curtailing discounts—efforts that have helped it stem a long sales decline in the Coach brand in its home market, where sales at existing stores increased 2% in the three months to July 2.

The company still faces challenges, including sluggish growth in overall handbag sales, continued competition from Michael Kors Holdings Ltd. and other rivals and intense discounting across the retail landscape. Last week,Kate Spade & Co. shares tumbled after the company slashed its financial forecasts for the year. Kors reports results on Wednesday.

Investors who had bid Coach stock up 25% since the start of the year had been looking for even stronger growth. Coach shares slipped 50 cents to $40.95 in early afternoon trading.

North America outlet stores, which have been hurt by a pullback in tourist spending, pose another challenge. Sales at existing Coach outlet stores were flat in the period, and the company isn’t expecting sales to increase materially for the balance of the year.

The company remodeled 300 stores in its recently completed fiscal year, bringing total remodels to 450 world-wide.

It is also rolling out its high-end 1941 line, with handbags that can sell for as much as $800, to all of its Coach stores as its seeks to appeal to more affluent shoppers. Handbags and accessories priced over $400 accounted for 40% of is sales in the quarter, up from 30% a year ago.

Quarterly sales rose 15% to $1.15 billion in the fourth quarter. Net income totaled $81.5 million, up from $11.7 million a year ago.

Coach said the Stuart Weitzman brand, which it acquired last year, had sales of $345 million for the year. Founder Stuart Weitzman will step down as creative director in May 2017, but will remain chairman. He will be succeeded byGiovanni Morelli, who has worked for Marc Jacobs, Chloe and Burberry.

Coach expects revenue for the current fiscal year to increase by roughly 2% to 5%. Operating margin should range from 18.5% to 19%, compared with 17.3% in the recently completed year.

Source : WSJ

Selasa, 20 September 2016

Aerolíneas Argentinas’ New Chief Struggles to Turn Around Company

As chief executive at General Motors in Argentina, Isela Costantini cut costs and raised revenue at one of the most admired companies in the country. Last year, she quit and took a very different job at the urging of Argentine President Mauricio Macri: running the country’s bloated state-run airline, Aerolíneas Argentinas.

Nine months later, Ms. Costantini is finding it tough to overhaul the flagship carrier. With 12,000 workers, six powerful unions and a deeply ingrained bureaucratic culture, the 65-year-old airline is more like a government ministry than a cost-conscious company, she said in an interview.

“I knew I was going to find a black box, but I didn’t know how big it was going to be,” Ms. Costantini said. For managers who have worked in private enterprise, moving to the public sector can be a jarring shift. Leaders must balance the interest of more stakeholders, including government officials and deeply vested political interests, said Philip Armstrong, vice chairman of the International Corporate Governance Network. What’s more, workers aren’t necessarily sold on the benefits of increasing productivity.

“You have to have a very high level of political astuteness and judgment,” Mr. Armstrong said.

Since taking office in December, the market-friendly Macri administration has laid off almost 11,000 employees across ministries, slashing payrolls that had soared under Mr. Macri’s populist predecessor, Cristina Kirchner.

But the 45-year-old Ms. Costantini is finding it more difficult to streamline Aerolíneas, which was on track to lose $1 billion this year, after dropping $1 million to $2 million a day for much of the past decade. The CEO said the airline lacked the organizational trappings of a normal business, such as budgets, performance and sales targets.

“We had more employees than we needed. The challenge was that we didn’t know exactly where we had the extra employees,” she said.

Ms. Costantini, one of numerous CEOs who accompanied Mr. Macri into power last year, is finding that the company’s omnipresent, politically active unions oppose change. To save money, she asked pilots to agree to fly a smaller, less expensive plane to Rome. They balked.

Aerolíneas has too many administrators, yet Ms. Costantini is pushing to increase earnings, rather than reduce head count, in part because unions could react by shutting down flights. Instead of firing thousands of workers, she is trying to woo them, inviting them to participate in corporate decisions. She has written letters to labor leaders, carefully explaining plans and seeking feedback.

Her approach appeared to be working until last Thursday, when pilots unexpectedly went on strike for nearly a day to demand better pay and benefits. The move left thousands of passengers stranded and led Mr. Macri to hire a private plane to fly to a United Nations meeting in New York.

Though the strike ended, the pilots union has called the company’s management “intransigent” and is doubling down on calls for higher wages.

In many ways, Ms. Costantini is building from the ground up. Early on, when she asked employees to find ways to cut spending, a staffer replied, “I don’t have a budget,” she recalled. “There was no culture of cost. There was no culture of revenue,” Ms. Costantini said.

Mrs. Kirchner’s government nationalized Aerolíneas in 2008, claiming that its previous owner, Spain’s Marsans Group, had run up $890 million in debt and mismanaged flights that often were canceled, and punctual only 50% of the time.

The nationalization was part of a broader increase in government control over Argentina’s economy, which included the expropriation in 2012 of energy company YPF. Mr. Macri, then mayor of Buenos Aires, criticized those moves, but as a presidential candidate, he promised to keep the companies in government hands.

Though it could save the government money, “privatizing Aerolíneas would be like privatizing the national soccer team,” Ms. Costantini said. “People feel like they own it.”

Under Mrs. Kirchner, Aerolíneas doubled the number of flights and passengers flown. It improved punctuality, added 3,000 employees and burned through $5 billion in taxpayer subsidies, according to Guillermo Dietrich, Argentina’s transportation minister. By one estimate, the government was spending more on Aerolíneas than Argentina’s poorest province was allocating to public education.

Mr. Dietrich has described the previous management as “disastrous,” claiming its former chief executive, Mariano Recalde, had no business plan.

“That’s a lie as big as an Airbus A330,” Mr. Recalde said in an interview, referring to the company’s new aircraft. He almost tripled the fleet to 75 planes, he noted.

Ms. Costantini has slashed non-operating costs, boosted revenue, and says Aerolíneas could cut its losses to as low as $260 million in 2016. She expects the airline to be profitable within four years. Sales are up 10% this year and in July Aerolíneas flew a record one million passengers, up 13% on the year.

But with the Macri administration facing budget problems, it is unclear how much it will fund Aerolíneas.

Franco Rinaldi, author of a book about Aerolíneas, said Ms. Costantini has vastly improved the company, but added that she must take painful actions to truly overhaul it. The airline has 160 employees per plane, but can operate efficiently with closer to 100, he said.

“She’s focused on reducing costs without making the hard and inevitable decision that you have to make,” Mr. Rinaldi said. “If you don’t reduce the workforce, it’s going to be impossible to turn the company around.”

Source : WSJ

Senin, 12 September 2016

BlueScope Steeled by Turnaround Despite China Glut

BlueScope’s largest profit since 2008 follows cost-cutting to keep Australia’s biggest steelworks open

RHIANNON HOYLE

Aug. 22, 2016 4:34 a.m. ET

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SYDNEY—A year ago, BlueScope Steel Ltd. worried that its Port Kembla steelworks—Australia’s biggest with more than 4,000 workers—no longer had a future.

China was flooding the global market with steel made at a fraction of the cost of material produced elsewhere. Governments from the U.S. to Australia risked a global trade war by imposing tariffs on steel imports, fearing inaction would lead to steep job losses. BlueScope’s domestic rival Arrium Ltd. became insolvent.

BlueScope Chief Executive Paul O’Malley offered Port Kembla’s labor unions a deal: support a radical cost-cutting plan that included 500 job losses, a three-year wage freeze and suspension of bonus payments, and BlueScope would keep the steelworks south of Sydney open. That bet paid off when BlueScope told investors in October an agreement had been reached.

With manufacturing operations spanning the U.S. to Southeast Asia, BlueScope has achieved a turnaround that has eluded many of its biggest rivals so far. On Monday, BlueScope reported annual net profit of 353.8 million Australian dollars (US$270.3 million)—its biggest since 2008 and a near tripling on the A$136.3-million profit in the prior financial year.

“There is nothing more satisfying than saving 4,500 jobs,” Mr. O’Malley said. “Twelve months ago we weren’t sure whether the steelworks had a future.”

In contrast, U.S. Steel Corp. continues to be loss-making despite cutting thousands of jobs and idling plants. In Europe, German conglomerateThyssenKrupp AG has held talks with Tata Steel Ltd. of India and other steel groups over a potential tie-up as those companies seek to strengthen in rocky markets. London-based Caparo Industries PLC initiated bankruptcy proceedings last year for 16 of its 20 steel businesses.

The global steel industry’s woes have become a major issue for many governments, given the jobs at risk. The U.K. government has met with Tata Steelas it weighs the future of its operations in the country, which employ 11,000 people at nine plants. The U.S. and Europe have imposed hefty tariffs on imports of certain steel products in an effort to shore up profits of local producers.

Most complaints of lawmakers and industry executives are directed at China, the world’s No. 1 steel producer, which has been churning out steel at a record daily pace. China’s first-half exports hit 57.12 million metric tons, up 9% on-year. China’s premier, Li Keqiang, recently said the steel supply glut is a global problem and “not triggered by one country.”

“I think we should plan for global oversupply occurring for some time,” Mr. O’Malley said.

He said Port Kembla will need to keep reducing costs to stay open for the long run and warrant the next big upgrade that will be required a decade down the line.

Still, he expects BlueScope’s underlying earnings to rise by 50% in the six months through December, compared with the January-June period.

ENLARGE

Workers oversee production at the BlueScope Steel Port Kembla Steelworks, Australia’s biggest.PHOTO: BLOOMBERG NEWS

BlueScope’s recovery has benefited from the U.S. tariffs, which sent local steel prices sharply higher. U.S. benchmark hot-rolled coil is up almost 60% this year to roughly US$596 a ton, according to The Steel Index. Prices in Europe and Asia are also sharply higher.

During the year, BlueScope bought out Cargill Inc. from their U.S. venture North Star for US$720 million.

When BlueScope bought the rest of North Star in October, management targeted net-debt-to-earnings, a key fiscal metric, of less than 1.0 times within 12 to 18 months. In late 2015, net-debt-to-earnings was recorded as 1.6 times and halved to 0.8 times by the end of June.

“They had very strong profitability despite what we agree are very weak operating conditions,” said Moody’s Investors Service analyst Matthew Moore.

BlueScope has faced painful decisions before. A strong Australian dollar, caused by a mining boom, made its products less competitive. In 2011, BlueScope abandoned its unprofitable export business that historically accounted for around half its sales.

It also snubbed the strategy pursued by Arrium, spun off from BHP Billiton Ltd.in 2000, which bought iron-ore mines to counter the rising cost of steelmaking ingredients. Arrium’s strategy unraveled as a 70% slump in iron-ore prices left it struggling to repay debts, forcing its lenders to call in insolvency specialists earlier this year.

ENLARGE

Paul O'Malley, chief executive officer and managing director of BlueScope Steel Ltd. Despite the company’s turnaround, he said the Port Kembla facility will need to keep reducing costs to stay open for the long run. PHOTO:BLOOMBERG NEWS

BlueScope hasn’t ruled out buying parts of Arrium’s business, although Mr. O’Malley was circumspect about a deal. “To be honest, investing in North Star at the moment is probably as good as it gets in steelmaking,” he said.

BlueScope has also kept paying dividends, including a final payout of 3 Australian cents a share, despite the global headwinds.

Sandon Capital analyst Campbell Morgan was among those who advocated closing the Port Kembla steelworks. Now, he thinks the deal reached by BlueScope and unions is a “fantastic outcome.”

When BlueScope’s share price tumbled toward A$3 a share in the middle of last year, from almost A$7 a year earlier, Sandon Capital bought up almost 700,000 shares over May and June 2015 for an average price of A$3.30 each.

“It’s always a hairy experience when you are buying commodity companies as they’re bumping along the bottom of the cycle,” said Mr. Morgan. BlueScope’s stock has more than tripled to A$8.72 since reaching a 2½-year low in late June last year.

Source : WSJ