If you are tasked with running Unilever, the fabled consumer goods company, you probably aren’t having a good time right now. Previous CEOs had built up the company’s woke credentials (and, to be honest, these were pretty good decisions — Ben and Jerry’s, the ice cream maker, etc). Now woke is out! Old people love to rant against woke without knowing that they mean! They pick up their sticks and shake them at the youth! Anyway — now Unilever has encountered a few problems — the first is that supermarket generics are becoming more popular (cost of living, etc). The second is that you can only squeeze margins so much before it gets a bit much — they get sqoze when the consumer goes no. Anyway; they are reducing about 1/3rd of the European workforce (I think this is fine — I read somewhere that the bulk of white-collar jobs are now spent in meetings — something like 54% of time was spent on Microsoft Teams. Meetings are pointless and useless and should be treated like a terrible disease or plague).
But – you know – maybe don’t restructure a lot of people out of a job and then say “we love your energy, hun, but let’s put that towards the job!”
That’s exactly what one exec at Unilever did say.
Yeah! “Instead of wasting it in the anxious thoughts, let’s put our great energy into serving our customers!”
I am not sure if people being fired want to hear this! Just a thought. I mean, I don’t have a position in Unilever — and certainly I am not taking a position now — but I am not sure if this is a way to be running a company. I am always astounded by CEOs and top brass who hide themselves away in ivory towers and look at employees like numbers — it always ends badly — look at Nick Grayston at The Warehouse. Compare that to the King, Rod Duke. Easy comparison.
I mean — I am all for firing useless workforce. I am also all for banning Microsoft Teams. I am a madman, I know — such a radical. But perhaps don’t tell them to put all that negative energy into something positive, sweetie!
Housing continues to correct
I have been saying a lot that the housing market in NZ is in a kind of la-la land and is unsustainable. The big statistic I have is the price-to-income ratio, which still sits at around 8x, versus 4-5x for other developed countries. You need demand to keep up a ratio like that — and demand has sunk — REINZ reported 4,356 residential sales in June, down 25.6% YoY, and nearing GFC levels — similar sales in June 2008. You need demand to sustain high ratios of price-to-income!
Remember how the banks have been calling for rate cuts — of course they have — they have mortgages to sell.
We have been in an unprecedented bull market for housing — a cycle if you will — for a long time — +24 years. See below. While the dot com crash and ‘08 impacted prices, the impact was nominal when compared to other regions (see: Ireland, 2008 — the Celtic Tiger).
Actually, let’s take a look at Ireland in ‘08.
That’s an almost +30% drop in property values. It ain’t ten. It ain’t pretty.
I doubt a 25bps cut by the RBNZ will make much of a difference. People are already locked into new rates, and their excess savings are already spent (see: the progressive deluge of “Kiwis” pulling out KiwiSaver money for hardship). To see another upswing in the property market, you need an increase in wages, at least +75bps of rate cuts, and more demand — right now there is sell-side pressure and limited buyers. Increase in real wages is unlikely to be soon given the uptick in liquidations and business bankruptcies. See liquidation figures below…
European Luxury
Solid results at Brunello — H1 sales up +14.7% — total revenues of €309 million. America continues to be a very strong region for the house, with growth of +19.4%, and sales up +28% (!) in Asia. Guiding +10% growth for FY24. Stock is down +2% or so on the news — I wonder how much of this has to do with the political situation in France (the far left has suspended negotiations). Continue to have a strong preference from Brunello (BC) — is has Hermes-like economics with a far longer growth trajectory ahead of itself. However, remember that Hermes continues to have thousands (and thousands) of appointment requests per week, per city, and only does a handful a day. Those economics of desire, baby.
CEO change at Burberry (continue to hate this stock!) — Jonathan Akeroyd was a bit of a failure — under his direction Burberry tried to be high fashion but never really hit the mark — that’s because, like the gumboot brand Hunter (I have some), it’s an outerwear brand with a distinctly British identity. In other words: they need to focus on trenches first, everything else after. The great example of this is Moncler, which has thrived — great outwear, fashion bend secondary. New CEO is Joshua Schulman, who comes from Capri (Versace) and Alexander McQueen. Capri/Tapestry merger ahead – Tapestry own that bastion of middle America — Coach — I’ve seen Coach bags on surprisingly quite a few shoulders lately. Point is, Schulman needs to focus on the “hero” product — the trench — and rethink everything else. Previously Burberry was led by Marco Gobbetti, who now serves as the CEO of the embattled Ferragamo (small houses can’t catch a break!)
Richemont — Plenty of speculation as to what happens to the House of Rupert when the old man goes. I don’t think his son, Anton, is equipped to run it — he wasn’t raised in the brand like the Arnault kids have been (if there’s one thing we know, if you’re gonna be the no.1 boy, you need to live and breathe the business). Likely — best deal for everyone — is Cartier and the other crown jewels are sold. Everybody thinks LVMH will buy this, but I am not 100% on that — Kering has dry powder and could come in with a convincing bid — especially considering LVMH owning Tiffany and Cartier would be likely faced with regulatory opposition. Like owning Richemont on i) the jewellery + watch front + ii) the ever-impending prospect of a break-up.
NZ
It’s all a bit ho-hum out there, unless you are Fletcher Building. Rebecca and Oli at BD reporting that cost overruns on the horrendously named Digital@Fletcher digital rollout (who calls it that??) have extended to +$24mn in the six months to Dec 31. Jenny, over at Just The Business, speculates that Chair Barbara Chapman is holidaying in Europe, while laying into the governance of the co (quite rightly). I wrote earlier to somebody that the old days of Fletcher Challenge are well behind us, and any attempt to hold onto them is futile.
Scales — Closed previously flagged transaction for sale of two apple orchards to Craigmore for $34mn. We continue to like Scales…their move to premiumisation of fruit (plus the pet foods business) should be accretive to margins in the long run.
EBOS — AFR’s Street Talk speculating that the co might acquirer pet food business Prime100. Makes sense — John (CEO) at EBOS has said he’s hunting for another business to chew on, and this ticks many boxes — pet foods, NZ/AUS based, and an acquisition will likely been in the mid hundreds of millions rather than billions (i.e. it isn’t a heart attack for investors). Remember that EBOS also upped their stake in MedAdvisor (MDR) recently, too, just shy of the 10% mark… All feels like speculation but expect EBOS to make some kind of acquisition … question is what.
Update (12.53pm)— EBOS advising it isn’t engaging in talks to buy Prime100. Still think they’ll buy something
The Thiel of it all
JD Vance — new VP candidate, who dis? Think it’s worth remembering (and been under reported) Vance’s links to Peter Thiel, the early Facebook investor and sometimes blood-injecting1 libertarian. Vance previously worked as a VC for Thiel, and then invested in Vance’s own firm. Thiel later donated to Vance’s SuperPAC. In other words, Thiel is closer to the presidency in terms of power than ever before. No opinion, but Thiel must be happy…
Charts
These two – that show how much of an outlier Dennis Rodman really was (red is Rodman)…just highlights — price is what you pay, value is what you get.
Things I have read recently and enjoyed
I really enjoyed this piece in the NY Times, about ex-Google CEO’s Eric Schmidt’s web of affairs. Link
I equally enjoyed this piece about Vanderpump Rules and the sprawling TV-meta-empire that the show (and its progeny) has spawned. Link.
Also, this — about a glittering Hamptons life gone all wrong — smoke and mirrors. Link.
https://www.vanityfair.com/news/2016/08/peter-thiel-wants-to-inject-himself-with-young-peoples-blood