TheChek News Flow

The accessible luxury player is looking to reduce costs and boost growth after a tough year, it said as it reported its numbers for 2023.

PARIS – SMCP, the owner of contemporary labels Sandro, Maje and Claudie Pierlot, is in the final stages of defining a new plan to boost its growth and profitability.

The turnaround efforts, which will be revealed in detail in April when the accessible luxury player reports its first-quarter sales, involve actions to boost growth and increase market share in a weak economic context, rebalance the portfolio geographically, especially in China, to mitigate risk, and optimize costs and protect profits, chief executive officer Isabelle Guichot told journalists during a call prior to the publication of its fourth-quarter and full-year results for 2023.

“It’s a very broad action plan,” said Guichot. “We are looking at our brands, at our store network, at untapped opportunities, like reinforcing our position in men’s and accessories,” she said. “There is a lot to do.”

She continued, “We will reallocate CapEx [capital expenditures] to the most promising regions,” she said, citing the U.S. as one area where she sees white space for the company. There are also high hopes for its launch in India later this year.

A significant rationalization of the company’s store footprint in China is expected to be one area of focus — it could close as much as 15 percent of its network there.

The company expects to reap significant benefits from the new plan starting in 2025.

Commenting on the 2023 results, Guichot said, “It was a difficult year…Our results will be no surprise, given our last warning in January.”

SMCP reported a 78.2 percent drop in its net income for 2023, to 11.2 million euros, on the back of weak sales and increased costs.

The accessible luxury group has issued several warnings on its numbers in recent months, most recently in January, when it said sales for the year would come in below previous estimates.

While its 2023 gained 2.1 percent at reported rates, to 1.23 billion euros, the company said lower than anticipated revenues in China and the slowdown in Europe, especially France, dinted its numbers in the second half. On an organic basis, total sales were up 2.9 percent

Inflation — on both store rents and staffing costs, especially in Europe — was also a factor in the decline in net profit as well as on adjusted earnings before interest, taxes, depreciation and amortization, which dropped 11.3 percent to 236.4 million euros.

The company’s domestic sales for the year fell 0.1 percent year-on-year in reported terms, to 413.2 million euros, while revenues in the rest of Europe, the Middle East and Africa were up 3.1 percent. Sales in the Americas fell 6 percent, to 173.4 million euros, although Guichot said the company had been performing well Stateside. Sales for the year in Asia-Pacific were up 10.6 percent, to 255.2 million euros.

Brand-wise, Sandro, the company’s biggest label, performed well, with its sales up 3.3 percent to 601.4 million euros. In breaking the 600 million sales barrier, “It has become a significant player,” observed Guichot.

Vice, which acquired the women’s lifestyle site in 2019 for $400 million, is retrenching under new ownership

Essence Magazine’s parent company is in talks to acquire Vice Media’s women’s lifestyle site Refinery29, a deal that could help the Black-owned media brand expand its digital profile and reach more young women.

The price being discussed couldn’t be learned but Essence would likely pay a fraction of the $400 million Vice paid when it bought Refinery29 in 2019, according to people familiar with the situation.

News of the discussions, which could still fall apart, comes just days after Vice’s largest shareholder, Fortress Investment Group, said it would stop publishing content on the company’s namesake site, Vice.com, and was laying off hundreds of staffers.

Refinery29, founded in 2005, was one of the early digital-media players to gain relevance among millennial women, with revenue generated through ads, events and licensing deals. Vice was drawn to Refinery29 as a way to complement its male-heavy audience and draw in new advertisers.

Refinery29 has struggled with the same challenges as other online publishers, including a volatile ad market and a decline in traffic sourced from Google and social-media sites. Refinery29 saw a decrease in revenue to $30 million last year from around $50 million in 2022, The Wall Street Journal previously reported.

Essence Ventures, which is owned by Richelieu Dennis and is the magazine’s parent, is among the companies marketers are targeting as they try to increase spending on Black-owned media. Adding Refinery29 to its stable would substantially increase the inventory Essence can sell to those advertisers.

Dennis is chairman and co-founder of the Group Black consortium, which aims to help advertisers more efficiently spend greater sums of money with Black-owned media. Group Black in recent years has expressed interest in acquiring various digital publishers, including Vice.

Vice Media was once valued at $5.7 billion and was among the most promising digital-media ventures, but has struggled to stay afloat. Fortress, which took over Vice in bankruptcy last year, is now focusing on its remaining assets, which include its production studio, TV network and ad agency Virtue.

Payments company’s value is 30% higher than last year but is still well below its 2021 peak

Stripe will allow its employees to cash out about $1bn of stock at a valuation 30 per cent higher than last year, as the payments processing group continues to put off going public amid uncertainty in global markets.

Investors including Goldman Sachs’ growth equity fund and Sequoia Capital will acquire the employee shares as part of a tender offer announced on Wednesday. The sale is also being supported by a small amount of capital from Stripe’s own balance sheet.

The deal values Stripe at $65bn, which is higher than its $50bn valuation a year ago — but far below its peak value of $95bn in 2021.

Having soared in the boom times, the company is now regarded as an industry bellwether. The extent of its valuation decline since 2021 and likelihood that it will delay an initial public offering into next year has set a marker for other late-stage start-ups that will need to raise funds this year.

Stripe carried out one of the largest private stock sales in US history last year, accepting a big discount to secure new funds. It raised $6.5bn from investors including Peter Thiel’s Founders Fund, Josh Kushner’s Thrive Capital and Andreessen Horowitz, which allowed it to pay billions of dollars of tax liabilities associated with employees’ stock units.

The latest share sale means Stripe staff can access liquidity despite the company’s delay in pursuing an IPO that was first discussed years ago. Public listings for tech companies have been largely paused as valuations have whipsawed and interest rates have risen, pushing investors away from riskier investments.

A series of large private tech start-ups have arranged stock deals for their employees in the past few months, including ChatGPT-maker OpenAI, design software developer Canva and Elon Musk’s SpaceX.

“We’re pleased to once again offer employees an opportunity for liquidity,” said Stripe chief financial officer Steffan Tomlinson. “Our business continues to see strong momentum with the most advanced companies in the world.”

Stripe, which is based in San Francisco and Dublin, was Silicon Valley’s most feted start-up as it rode frothy private markets to secure investments from top venture funds. It has been expanding its core payments business from tech companies such as Shopify and Instacart to retailers that have increased their online sales during the pandemic, including Best Buy and Zara.

UK wealth manager under fire from regulators over fee structure

Wealth manager St James’s Place has announced a £426mn provision for potential client refunds and slashed its dividend, sending shares in the group down almost a third in early trading on Wednesday.

The group said it had received a significant increase in the number of client complaints late last year about whether they had received a sufficient level of service, prompting St James’s Place to make the provision.

“We recognise that this is a disappointing outcome for everyone,” said chief executive Mark FitzPatrick, who was presenting his first set of results since taking the top job in December. The provision pushed the company to a pre-tax loss of £4.5mn last year, down from a pre-tax profit of £504mn in 2022.

FitzPatrick cautioned that the industry outlook remained “challenging”.

Shares in the wealth manager closed on Wednesday at 505.80p, down over 18 per cent.

The Financial Conduct Authority has repeatedly warned wealth managers to ensure consumers are receiving value for money when they pay for financial advice, and this month it said it may crack down on high charges.

The warnings are part of the watchdog’s consumer duty regulations, introduced last year, which require companies to meet higher standards of customer protection. Under the new rules, firms must act in good faith towards customers, avoid causing foreseeable harm, and enable and support customers to pursue their financial objectives.

St James’s Place said it anticipated it would take between two and three years to settle the issue, and had engaged “extensively” with the FCA on the matter.

The FCA said on Wednesday that it had “significant engagement” with SJP ahead of the announcement, and it would continue to engage with the company as it develops and implements its approach to the redress. It also warned consumers not to engage with claims management companies and to be alert to the possibility of scams.

The £426mn provision was based on a “statistically credible representative cohort” of clients, the company said. However it did not know how many clients in total were affected. SJP said that over the course of 2023, the company “switched off” ongoing advice charges for 2 per cent of clients, totalling nearly 20,000.

“The further back in time we go, our ability to evidence the interaction that the client and the adviser had is less available,” said FitzPatrick. 

The company said the introduction of a new IT system from Salesforce in 2021 meant that it was now able to monitor the service provided to clients, and that it expected the claims to be a “historic issue”.

But analysts at Numis said on Wednesday that it was “disappointing to see another piecemeal warning/major adverse development to the investment story . . . rather than seeing these issues dealt with comprehensively on one occasion”.

Based in Gloucestershire, SJP became a powerhouse over three decades as its more than 4,000 financial advisers offered clients everything from wealth management to retirement planning.

However, over the past year the group has found itself in the crosshairs of the Financial Conduct Authority over a fee structure long regarded as opaque and expensive.

SJP charges an upfront advice fee for clients when they sign up, and then an ongoing advice fee annually for the relationship with their adviser, which is 0.5 per cent of assets for most clients.

Following pressure from regulators, SJP in October announced an overhaul of its fees, including scrapping penalties for customers pulling their money within a certain period.

The company said on Wednesday that the new charging structure would hit its ability to increase profits, and “reduces our ability to invest for long-term growth in our business over the next few years”.

It has cut payouts to shareholders as a result, reducing its final dividend from 37.19p a share to 8p a share. The total payout for the year was 23.83p, less than half the level of 2022.

Rules would have made companies liable for alleged human rights abuses by suppliers based in China’s Xinjiang region

Germany and Italy have torpedoed an EU law imposing liability on companies for alleged human rights abuses in their supply chain, such as in China’s Xinjiang region.

At a meeting of EU ambassadors on Wednesday, no majority could be established for the law, which had been previously agreed, due to Berlin and Rome’s last-minute objections reflecting concerns that the new legislation would hurt their industrial base.

The aim of the due diligence law is for companies to take responsibility for any human rights abuses or environmental damage found in their supply chains. It would also enable campaigners to take businesses to court for harm they cause.

Xinjiang, where the Chinese government has been accused of using forced labour and ordering the mass detention of local Uyghurs, has become a significant issue for German chemical maker BASF and carmaker Volkswagen. Both companies have come under intense criticism from human rights activists and investors for their plants in the region. Beijing denies repressing the Uyghurs.

The US has already banned imports from north-west China and the EU is separately seeking to adopt similar restrictions regarding forced labour. Even companies that avoid Xinjiang but source parts or raw materials from China are at risk of falling foul of the US rules, as evidenced by a recent report by Human Rights Watch, which showed that many of the world’s biggest carmakers were buying aluminium sourced in Xinjiang.

French officials made a last-ditch attempt to bring Germany and Italy back on board by suggesting that the scope of the law could be drastically reduced, officials and EU diplomats said. Paris proposed options including raising either the threshold for the number of employees or for the revenue to establish which companies will have to comply, officials and EU diplomats said.

The Belgian government, which currently holds the EU’s rotating presidency and is chairing the negotiations, said it would now have to “see if it’s possible to address the concerns put forward by member states” and rescue the law in coming months.

Two EU diplomats said a deal may be struck involving amendments to a different law to reduce packaging waste, which Italy has opposed. “There is hope and days left to find a solution,” one said.

Human rights groups criticised the governments’ failure to agree on the law.

“This is a major setback for human rights and the environment,” said Beate Beller, corporate accountability campaigner at Global Witness, a non-governmental organisation.

She said EU countries were “threatening a once-in-a-generation opportunity to protect some of the most vulnerable people on the planet, safeguard the climate and protect nature”.

The future of the law, initially agreed in December, was thrown into doubt after Germany’s industry-friendly Free Democratic party, which is a member of Chancellor Olaf Scholz’s coalition government, withdrew its support, forcing Berlin to abstain in a vote normally regarded as a rubber-stamping exercise.

Germany is one of few countries in the EU that has already adopted its own supply chain law. The legislation, passed last year, was criticised by corporate lobby groups as making it near impossible for small companies, without big due diligence, to source parts internationally. Some executives have privately complained that by thwarting the EU-wide legislation, small German companies will be less competitive than their European counterparts.

The issue many companies face is that the sheer complexity of global supply chains means it is near-impossible to know where parts and raw materials come from. Cobalt, which is needed to power the battery-driven cars European regulators want to replace combustion engine vehicles with, is extracted in countries such as the Democratic Republic of Congo, in mines that often do not comply with the EU’s environmental and human rights standards.

German liberal justice minister Marco Buschmann said on X on Wednesday that “there were too many objective reasons against the current proposal: too much bureaucracy, too many new liability risks, unmanageable due diligence requirements — and too few clearly visible benefits”.

The German abstention emboldened other countries, including Italy and Bulgaria, to also abstain, which meant there was no majority in favour given that nations such as Sweden, Austria and Finland were already opposed to the law.

Richard Gardiner, head of EU policy at the World Benchmarking Alliance, said that “in 15 years following EU legislation, this is one of the messiest and disappointing processes I have ever witnessed”.

The “simple goal” of greening the EU economy had “ended up [with] member states pushing national self-interests and intentionally disrupting any attempt to form a consensus”.

The telecom group’s remaining markets are not problem-free

Staring reality in the face is the healthy thing to do. But there is no guarantee one will like what one sees.

That is the predicament telco giant Vodafone finds itself in. In choosing to sell its €8bn Italian unit to Swisscom outright, it has made the rational decision to exit a hyper-competitive market and to do so cleanly. But the unexciting price it is getting for this once-core asset underscores its weakened position. It remains hard to generate much enthusiasm, as the beleaguered group’s share price shows.

The decision to cut Italy loose after almost a quarter of a century is surprising, not least because it is Vodafone boss Margherita Della Valle’s home turf. But selling to Swisscom is cleaner than the alternative, a potentially messy merger with Iliad, which would have incurred lengthy antitrust approval.

Coming hot on the heels of Vodafone’s exit from Spain, where it sold its unit for €5bn to telecom fund Zegona, this is Vodafone finally making good on pledges to streamline its business. Not perhaps the break-up some investors wanted for the chronically underperforming group but a useful approximation nonetheless.

It is not helping. Vodafone’s shares have continued to slide this year, reaching multi-decade lows. The group is not managing to get full valuations for its assets. Spain was distinctly underwhelming. Swisscom is paying 5.5 times last year’s Italian ebitda adjusted for lease payments. European telecoms incumbents trade at 7.2 times on the same basis, according to Karen Egan at Enders.

True, Vodafone’s Italian business is rapidly shrinking. It also uses intercompany corporate services for €176mn. Adjusting for these plus an unspecified non-cash charge yields a more reasonable 7.6 times for the year to March 2024. On the same basis, Iliad valued Vodafone’s business at almost 10 times, although part of the value would have been equity in the merged entity.

Despite that, this is progress — of sorts. Upon the completion of the Italian and Spanish sales, Vodafone will have reduced leverage, from about 2.5 times 2024 ebitda to about 1.8 times the ebitda of its remaining units. It will also have solved two problems and simplified its structure. Ongoing merger talks with Three in the UK could provide the next step.

Decades of mismanagement are not undone with a single deal. Vodafone’s remaining markets are not problem-free. Germany, for instance, faces a turbulent period of customer churn. And a shrinking business is hard to manage: it needs to shed overheads alongside local units. Vodafone remains closer to the start of its reckoning with reality than the end.