TheChek News Flow

Consumer expectations of further high prices pose key challenge for central bank in reining in price growth

Half an hour before midday on a sunny morning in Istanbul, dozens of people queued at an eatery bearing a logo of a heart bobbing in a bowl.

A chalkboard touted the menu: tomato soup and green bean and meat stew, with a pastry. The kent lokantası, a type of eaterie subsidised by the city, filled up moments after its doors opened at 12pm.

“This place is not just for the jobless or the destitute . . . elsewhere I would have to pay TL200 ($6.25) for a meal that costs TL40 here,” said Hasan, a 53-year-old deliveryman who eats there every day.

Hüseyin, a 67-year-old retiree, said he would struggle if it were not for the kent lokantası: “I cannot afford fresh fruit or meat. Prices change every time I go to the market,” he said.

Istanbul’s 14 kent lokantası each serve around 1,000 meals priced at TL40 every day, said Erdal Celal Aksoy, the city’s deputy general secretary. The municipality subsidises the food cost by two-thirds, he said. The restaurants were introduced in 2022 amid a long-running inflation crisis as inflation reached a peak above 85 per cent. But two years later, demand is still so strong that Istanbul plans to open another two dozen outlets.

The popularity of the kent lokantası underscores how President Recep Tayyip Erdoğan’s government has struggled to tame runaway inflation a year after it launched a sweeping economic overhaul.

Turkey’s central bank has increased its main interest rate to 50 per cent from 8.5 per cent since the economic overhaul, led by finance minister Mehmet Şimşek, kicked off last June. The maximum monthly interest rate on credit cards, a popular way of borrowing for cash-strapped consumers, has tripled since last June to 4.25 per cent.

The government has also boosted taxes and signalled that it would not lift the minimum wage again this year following a 49 per cent rise in January. It pledged last week to cut public spending on everything from foreign cars for the government fleet to construction of new government buildings.

Erdoğan’s programme has drawn accolades from investors. But it has yet to pay dividends for Turks, who face inflation of nearly 70 per cent, surging borrowing costs and a reduction in the stimulus measures that in recent years dulled the impact of price growth.

“It is a bitter medicine,” said Selva Demiralp, a former US Federal Reserve economist now working at Koç University in Istanbul. Pensioners and those on low incomes were “going to pay for the fight against inflation the most”, she added.

Şimşek’s goal is to quell a long-running inflation crisis triggered by Erdoğan’s former policies, which centred on a failed wager that low interest rates would cure rather than cause high inflation.

Erdoğan pledged earlier this month that there would be “no turning back” from the new plan, signalling the government would not provide “temporary relief” as it had in the past, including the huge handouts before his re-election in May 2023.

Turkey’s new programme is slowly rebuilding confidence among international fund managers, who have poured almost $10bn into Turkish equities and lira-denominated government debt over the past year, central bank data shows. S&P Global Ratings and Fitch Ratings have upgraded Turkey’s rating this year, while high rates are cooling lending growth.

The situation at grocery stores and shopping malls has yet to reflect this improving picture, however. A butcher in Istanbul’s working-class district of Fatih sells ground beef for TL640 a kilo, about double what it cost a year ago. “Our customers have fallen to a trickle. Those who come buy a half-kilo or 250 grammes, when they used to buy a kilo, just to give their kids a bit of protein,” said shopkeeper Ekrem.

Hacer Foggo, founder of the Deep Poverty Network, a research group, said Turkey risked a “poverty spiral” as the hunger threshold, estimated by labour unions last month at TL17,725 a month for a family of four, climbed above the minimum wage of about TL17,000 in April. “The working poor . . . cannot meet basic needs of nutrition, shelter, health and transportation,” she said.

Many consumers remain doubtful the new economic measures will succeed, having watched the central bank miss its inflation target every year since 2011. Voters rebelled against the long-running inflation crisis in local elections this March, which dealt Erdoğan’s ruling Justice and Development party its biggest defeat since its founding two decades ago.

“Inflation expectations are persistent because of the credibility erosion of the past years. Financial markets seem to partly buy the disinflation story but it is more challenging when it comes to expectations of households and small enterprises,” said Hakan Kara, a professor at Bilkent University, who was previously a Turkish central bank chief economist.

Turkey’s central bank said earlier this month that it expected the annual inflation rate to fall to 38 per cent by the year-end after peaking around 75 per cent this month. But a central bank study shows consumers anticipate the rate will hit 80 per cent in a year’s time. More than 90 per cent of consumers in a separate Koç University survey said now was a good time to buy long-lasting goods, a sign they believed prices would continue rising.

Those expectations are a key challenge for the central bank in reining in price growth, as they cause demand to be pulled forward, contributing to the spiral of ever-higher prices, economists say.

Demiralp said that “the current level of tightening is not enough”, both in terms of monetary and fiscal policy, for the central bank to achieve its goal. Central bank forecasts earlier in May suggested the year-end economic growth rate would be roughly 2.1 per cent, much faster than estimates released in February.

“Growth has to slow much more to bring inflation to the desired path,” Kara said, adding: “The main question is whether authorities will be patient enough to withstand the political consequences of this bitter stabilisation process.”

It’s not often that you hear about a seed round above $10 million. H, a startup based in Paris and previously known as Holistic AI, has announced a $220 million seed round just a few months after the company’s inception.

It has managed to raise so much money so quickly because it’s an AI startup working on new models with an impressive founding team. Charles Kantor, the startup’s co-founder and CEO, was a university researcher at Stanford.

The four other co-founders all previously worked for DeepMind, the AI company owned by Google: Karl Tuyls was a research director at DeepMind, where he worked on game theory and multi-agent research. Laurent Sifre was a principal scientist who contributed to many of DeepMind’s flagship projects, such as AlphaGo, AlphaFold and AlphaStar. More recently, he also worked on Google’s Gemini and Gemma AI models. Daan Wierstra, who will become H’s chief scientist, was a founding member at DeepMind. And, finally, Julien Perolat worked on game theory and multi-agent research at DeepMind.

As you may have guessed, H is going to work on AI agents: automated systems that can perform tasks that are traditionally performed by human workers. The company’s minimalistic site states that H is working on “frontier action models to boost the productivity of workers.”

Investors in the startup include a long list of billionaires (or their family offices); some well-known VC funds; and a few strategic backers. On the billionaire list you’ll find notable names like Eric Schmidt, Xavier Niel, Yuri Milner, Bernard Arnault (via Aglaé Ventures) and Motier Ventures (the family office of the owners of the Galeries Lafayette Group).

On the VC list, investors include Accel, Bpifrance’s Large Venture fund, Creandum, Elaia Partners, Eurazeo, FirstMark Capital and Visionaries Club.

Finally, there are a handful of industrial investors, including Amazon and Samsung. Interestingly, UiPath is also an investor in H. The European robotic process automation unicorn will help H when it comes to commercialization and partnerships.

The rest will be converted to equity at a later stage, when H raises another round of funding. The investors’ stakes for this debt part will be based on the future valuation of the company.

The H founding team has already put together a group of 25 engineers and scientists, which indicates the startup plans to move quickly. Comparatively, Mistral AI, another well-funded AI company, has been much more conservative when it comes to hiring.

H also needs to raise a lot of money to pay for compute power and datasets. The company says it wants to reach full artificial general intelligence (AGI), a concept where AI is capable across a wide range of tasks at a level that’s comparable with human intelligence. But let’s be honest, that’s a marketing promise since nobody knows if or when AGI will happen.

As TechCrunch reported last year, Paris has become a magnet for AI startups and talent. Mistral AI is arguably the biggest name in town, but there are dozens of tech founders who have decided to focus on artificial intelligence and set up shop in the French capital.

In addition to access to funding, tech giants — including the likes of Facebook and Google — have historically set up AI research labs in Paris and London. While the biggest AI startups, such as OpenAI and Anthropic, are based in San Francisco, AI company-building ecosystems are also emerging in Paris and London.

The French couture house reported revenues up 16 percent in 2023 and plans to increase capital expenditure by as much as 50 percent in 2024.

Chanel’s revenues rose 16 percent excluding currency shifts to $19.7 billion in 2023, the French luxury house said Tuesday. Price increases drove up sales by around 9 percent, while greater volumes accounted for the rest, chief financial officer Philippe Blondiaux said.

Demand for Chanel’s quilted leather handbags, Swiss-made watches and Bleu de Chanel fragrances held strong across categories throughout the year even as demand slowed sharply for many luxury rivals. “Double digit growth across all categories continued into the final quarter of 2023, where we delivered a top line growth of 14 percent,” Blondiaux said.

Operating profits rose 11 percent to $6.4 billion.

The record sales and profits represent “a testament to the desirability of Chanel’s creations and the sustained investment we’ve made in our brand, in creating the ultimate luxury experience for our clients and in supporting our people to grow and develop,” chief executive Leena Nair told BoF.

Privately-held Chanel, luxury’s second-biggest brand by revenue, has ramped up capital investments in recent years as it seeks to solidify its position in a turbulent market: upgrading and expanding its stores, internalising supply chains and converting more of its beauty business to retail after decades operating the division on a wholesale model.

“In the last decade, we have more than doubled our revenue; we have more than doubled our headcount. And in the last five years, we’ve doubled the size of our distribution network. So that’s a lot of change internally, and you’re operating in what is a rapidly changing context globally, which is complex. We see multiple crises in the world,” Nair said.

2023 capital investments of $1.2 billion included 47 additional stores, 31 of which were free-standing beauty and fragrance boutiques. Other new locations included revamped flagships for fashion, watches and jewellery in Milan’s Montenapoleone and Los Angeles’ Rodeo Drive, as well as expanding its “Chanel et Moi” after-sales service and repair network (more often referred to by clients as “Chanel spas”.

“My priority along with my leadership team is to continue protecting our differentiation and evolving as an iconic brand and business. And this means protecting the strength of our brand and cherishing what makes us different, as well as our freedom of creation,” Nair said.

Marketing investments rose 20 percent to $2.5 billion, resulting in recent efforts including the first fragrance ads fronted by new “Bleu de Chanel” spokesperson Timothée Chalamet and for “Coco Mademoiselle” face Whitney Peak, as well as a big-budget handbag campaign starring Brad Pitt and Penelope Cruz.

Online Discourse

Despite major investments and blockbuster results in 2023, the brand has faced criticism in 2024 as eye-popping price hikes appeared increasingly out of step with slowing economic growth and more frequent reports of quality issues. In March, prices for Chanel’s medium flap handbags surpassed €10,000, nudging ahead of many of Hermès’ Kelly and Birkin styles at a moment when TikTok was flooded with complaints of crooked stitches and loose hardware.

While the brand continues to “invest relentlessly” in improving its manufacturing, “the numbers for 2023 confirm that our consumers totally endorse the level of quality,” Blondiaux said. Recent runway collections have also drawn mixed reactions, including a May cruise outing in Marseille that was called out for its unflattering styling.

“Collections can be more or less successful, these things happen to any designer,” acknowledged Blondiaux, adding: “But since Virginie [Viard] took over from Karl…the Chanel fashion business has been multiplied by 2.2. The Chanel ready-to-wear business has been multiplied by 2.5, and the ready-to-wear business last year of Chanel grew by 23%.”

“I think it’s a testament to the quality of her collection, to her creativity,” Blondiaux added.

“Judging social media, campaigns, etc. is one measure — but when I look at measures of employee and customer satisfaction, for example, across all our boutiques, I see those numbers going up… When I look at brand equity studies that we do, we see the numbers going up,” Nair said. “But having said that, we always stay humble as a brand and are always willing to take feedback.”

Downturn Opportunity

Rival groups LVMH and Richemont both reported sales that fell slightly on a reported basis in the first three months of the year as luxury demand cools following a multi-year surge. Hermès outperformed the market, with revenues rising 17 percent.

“We cannot deny that 2024 will be a more challenging environment,” Blondiaux said, declining to comment further on the brand’s current trading.

Still, Chanel says it plans to invest through the slowdown, increasing capital expenditures by as much as 50 percent at a time when many rivals are slashing budgets. “This period of slowdown, as it’s been characterised by some of our competitors, will offer opportunities, whether it’s in terms of real estate, boutiques, vertical integration of our supply chain, people,” Blondiaux said.

Even amid a sluggish Chinese economy and with sales to Chinese nationals rebounding abroad with the resumption of long-haul tourism, Blondiaux flagged Mainland China as a focus for growth.

“We have today 18 fashion boutiques in China, while most of our competitors have over 45 or 50, which means China is still a place where we can continue to invest, which is what we’re going to continue to do,” Blondiaux said.

Biden’s failure to stand with Israel emboldens Tehran in its strategy to dominate the region.

The death of Iran’s President Ebrahim Raisi may further unsettle the region, but it doesn’t change a fundamental reality: The U.S. has fallen into Iran’s trap. Tehran needed only seven months of war to accomplish a primary strategic objective—dividing the U.S. and Israel. The Biden administration has accelerated a potential rupture with the Jewish state that overwhelmingly benefits America’s enemies in the Eurasian axis. The result will be more war.

After months of negotiations and largely empty diplomatic discussion, Israel moved into Rafah last week. In response, the Biden administration said it had paused various military support shipments to Israel. Although these U.S. actions are unlikely to curtail the Israeli military’s operational performance, the Biden administration has taken broader, more dangerous diplomatic steps. It also extended a waiver that allows the U.S. to sell weapons to countries boycotting Israel, including Lebanon—whose government is increasingly subordinated to Hezbollah and Iran—and Qatar, Iran’s crucial financial conduit in the Gulf. The U.S. may well abstain from future United Nations Security Council resolutions on Palestinian statehood, allowing them to pass.

Iran understands that it can’t defeat Israel militarily. Israel and Iran are separated by 600 miles and multiple countries. Despite the sophistication of Iran’s missile program, its still-improving nuclear capacity, and its solidified military-technical relationship with Russia, Iran can’t deploy large-scale armored units along the Israeli border and invade. Nor can Iran’s proxies, numerous as they may be, credibly threaten to take and hold Israeli territory given the Israel Defense Forces’ conventional superiority and well-designed plans to defend the Golan Heights.

Rather than conquer Israel, Iran’s objective is to destroy the state’s political character—that is, to convert Israel from a state that is democratic and Jewish into a non-Jewish, likely nondemocratic state primarily populated with Iran’s Islamist partners. This requires Iran to sap the strength of Israeli society.

It won’t work if America and Israel have a robust relationship. The U.S. provides Israel with extraordinary diplomatic and military cover, which facilitates modern Israel’s economic dynamism and allows it to function as a multiparty capitalist democracy. By undermining, and ultimately eliminating, the U.S.-Israel relationship, Iran could force Israel into a new political and strategic paradigm emphasizing defense of local settlements and continuous societal armament. This would cause enormous social stress. International isolation would trigger a cycle of emigration and impoverishment, until Israeli society crumbles.

The Biden administration has been playing directly into Iran’s hands. U.S. leaders with a strategic backbone and coherent political instincts would grasp the unmistakable links among Hamas, Hezbollah and Iran. They would understand that Iran has orchestrated the current confrontation, hoping to drive the U.S. from the Middle East. They would recognize that Iran wants to slow down the war in Gaza so that it can turn world opinion against Israel and the U.S. They would accept that the protests on American college campuses are part of this coordinated media strategy. And they would grasp, most critically, that Iran’s objectives are fundamentally aligned with those of Russia and China. All three countries seek to destroy the U.S.-backed Eurasian security system.

The Biden administration’s nonstrategy for dealing with the emerging axis of Iran, China and Russia is to avoid conflict at all costs and restrain American allies. By progressively undermining the U.S.-Israel relationship, the administration sends a profoundly destabilizing message to Ukraine. After months of political stasis, Kyiv has finally received a fresh tranche of U.S. aid, with more to arrive in the coming weeks. Combined with the Czech Republic’s artillery-shell initiative and other European aid, Ukraine now has a chance to neutralize Russian offensive capacity. Yet the Biden administration has increasingly signaled its unwillingness to facilitate real Ukrainian gains. The result is policy listlessness that hangs Kyiv out to dry and provides Europe and Ukraine no guidance.

China, meanwhile, continues to menace Taiwan and has extended its pressure to the Philippines. Taiwan’s new president, the pro-independence Lai Ching-te, was inaugurated this week. A major crisis is improbable for a variety of reasons, including China’s domestic situation, economic difficulties, and the coming typhoon season. Yet the Biden administration’s message to Israel—and increasingly to Ukraine—is clear. China will be emboldened, convinced that it can move on Taiwan absent an American response, particularly if it triggers enough domestic psychosis through media manipulation and presents its operation as a response to manufactured domestic Taiwanese disruption.

All this could have been avoided with a modicum of strategic coherence. Had the White House provided Israel the political cover to execute its Rafah operation two months ago, Hamas might not have been able to reconstitute in northern Gaza. Hamas might now be damaged enough to incapacitate itself, enabling legitimate discussions around postwar reconstruction.

Instead, the White House has chosen to dishonor its allies and force them to accept a strategic disaster. War is coming, sooner or later.

Move to censure International Criminal Court a sign of US anger over request for arrest warrants for Israeli ministers

The Joe Biden administration will work with Congress on possible sanctions against the International Criminal Court after its prosecutor announced it was seeking arrest warrants for senior Israeli and Hamas officials, US secretary of state Antony Blinken said on Tuesday.

Congressional Republicans have signalled they plan to introduce legislation that will impose costs on the court for its decision and are expected to force a vote on a measure that could lay bare the divisions with the Democrats over the Israel-Hamas war.

Jim Risch, the top Republican on the Senate foreign relations committee, asked Blinken at a hearing whether he would support legislation to counter “the ICC sticking its nose in the business of countries that have an independent, legitimate democratic judicial system”.

Risch said he and other members were working on legislation to address the court’s actions, which he described as “wrong-headed”.

Blinken’s openness to bipartisan co-operation over the ICC is a sign of the level of anger in Washington over its request for arrest warrants for Israel’s Prime Minister Benjamin Netanyahu and defence minister Yoav Gallant.

Blinken told the committee that while the “devil’s in the details”, the Biden administration would consider Republican proposals and “take it from there”.

“We want to work with you on a bipartisan basis to find an appropriate response,” Blinken said.

The administration of Donald Trump in 2020 sanctioned top ICC officials in response to their efforts to investigate alleged US war crimes in Afghanistan. The sanctions were lifted by the Biden administration in 2021, although at the time it said it was opposed to the court’s actions relating to Afghanistan and the Palestinian territories.

The Biden administration lifted the sanctions “to find the best way to protect our service members who served in Afghanistan”, Blinken said, adding that the ICC’s arrest warrant application had changed its calculus.

“Given the events of yesterday I think we have to look at the appropriate steps to take to deal with . . . a profoundly wrong-headed decision,” Blinken told the committee.

Republicans have not indicated who or what they would sanction, but US officials expect the measures would target prosecutor Karim Khan and others involved in the investigation.

The sanctions could be similar to those imposed by the Trump administration on the ICC’s then chief prosecutor Fatou Bensouda and the court’s head of jurisdiction Phakiso Mochochoko for their investigation into alleged US war crimes in Afghanistan. The sanctions froze their American assets and banned their travel to the US. The Biden administration has not yet indicated what kind of sanctions it would support.

White House press secretary Karine-Jean Pierre on Tuesday said the administration “is having discussions . . . with the [Capitol] Hill on the next steps”.

Republicans have signalled they are united in their intention to censure the court. Republican House Speaker Mike Johnson is expected to hold a vote on sanctions as soon as this week.

But the view of the Democrats is less clear. While the Democratic leadership, including Senate Majority leader Chuck Schumer and House Minority leader Hakeem Jeffries, have criticised the court, they have not yet said whether they would support sanctions.

Progressives such as Senator Bernie Sanders of Vermont have said they support the ICC and its actions.

Republican Senator Lindsey Graham praised Schumer’s response to the ICC warrant application and urged him “to follow strong words with strong deeds”.

“It is imperative that the Senate, in a bipartisan way, comes up with crippling sanctions against the ICC — not only to support Israel but to deter any future action against American personnel,” Graham said.

In an interview with MSNBC on Tuesday, Netanyahu said his response to the ICC’s announcement was “no different from what President Biden said, this is outrageous and many people across the political spectrum in the United States . . . have called it exactly that”.

“It’s a rogue prosecutor who’s out to demonise the one and only Jewish state,” he added.

The French luxury giant said its ready-to-wear business grew 23 percent in 2023.

PARIS – Chanel has given Virginie Viard its vote of confidence after the French luxury house again delivered record revenues in 2023.

Chanel global chief executive officer Leena Nair and chief financial officer Philippe Blondiaux said the luxury behemoth plans to maintain both its brand strategy and creative direction, despite a slowdown in global luxury spending and mixed online reactions to its latest price increases and ready-to-wear collections.

The French fashion house reported on Tuesday that revenues totaled $19.7 billion last year, up 16 percent at comparable rates, with double-digit growth across all categories. Sales increased in all markets as tourists returned to many locations, while demand from local customers remained sustained.

“It’s a testament to the desirability of Chanel’s creations and the sustained investment we’ve made in our brand in creating the ultimate luxury experience for our clients and in supporting our people to grow and develop,” Nair said in an interview with WWD.

She underscored that Chanel has more than doubled its revenues and headcount in the last decade. In the last five years, it has doubled the size of its distribution network.

Viard, who took over as creative director following the death of her predecessor and mentor Karl Lagerfeld in 2019, has been instrumental to the brand’s success in recent years. Under her watch, Chanel’s ready-to-wear business has been multiplied by 2.5 and it grew 23 percent last year alone, Blondiaux said.

“From a consumer perspective and a brand perspective, Virginie has been a massive contributor,” he said.

Nair said the brand is tracking feedback on social media, but it is only one of several key metrics. “Performance has to be viewed holistically across all measures, across all important stakeholders,” she emphasized.

“Social media is one form of feedback and we look at it and we learn from it and we always have the humility and curiosity to continuously learn and improve. But if I look at some of the other numbers, client satisfaction across all geographies has gone up. Our brand equity scores have gone up across all demographics,” she added.

“Virginie is an inspiring woman very successfully creating for women everywhere, and the feedback of clients – the comfort, the silhouette, the fit – it’s really positive, it’s landing really well,” she continued.

She also noted strong employee satisfaction rates, despite a rash of high-profile executive departures last year, including that of John Galantic, president and chief operating officer of Chanel Inc. since 2006, as well as regional leaders for Japan, Asia-Pacific, and the U.K., Canada and Latin America.

The former Unilever executive said it was all part of a carefully prepared succession plan that began with her arrival in 2021.

“Leadership changes and retirements are a part of the natural cycle of business. At Chanel, we are very privileged and lucky to have accomplished leaders who forged long careers,” said Nair, noting that it’s not unusual for executives to serve for decades at the company.

“Each of them makes a significant contribution and nurtures a new generation of talent, and it’s a testament to their leadership that we have an incredible bench and these new leaders are stepping in and taking over. All these changes have been prepared, planned and done thoughtfully, as we do everything at Chanel,” she said.

“These retired leaders are loyal friends and advocates of our house,” said Nair, who was keen to counter reports of a mass exodus at the house. “I have a great team. Mood and morale at Chanel is very good. Our people pride and engagement levels are the highest [they’ve] ever been and our attrition levels are the lowest they’ve ever been.”

Operating profit was up 10.9 percent to $6.4 billion and the brand plans to increase capital expenditure by 50 percent in 2024 from a record $1.23 billion last year as it snaps up prime store locations and invests in craftsmanship, Blondiaux said.

Chanel increased its network to 612 boutiques, with 47 net openings, including twin fashion and watches and jewelry boutiques on Milan’s Via Montenapoleone; the reopening of its flagship in Beverly Hills, and dedicated spaces for its “Chanel & moi” program, which offers after-sales services including restoring and repair.

Chanel’s investments in “brand-support activities” jumped 20 percent last year to $2.46 billion as the company splashed out on global advertising campaigns, high-profile events and client-centric activities in order to keep the brand top of mind.

In addition to its ready-to-wear and haute couture shows in Paris, Chanel unveiled its cruise 2024 collection last year in Los Angeles and repeated that display in China’s tech capital of Shenzhen later in the year.

In a change in strategy, it also targeted a new generation of luxury clients by unveiling its Métiers d’Art collection in Manchester, England, a rainy manufacturing city famous for its mills that once supplied cotton to the world.

Chanel moved its global headquarters to London from New York in 2018, and the brand is building a new building in Berkeley Square, which is set to open in 2025, housing IT, commercial, business, culture and non-fashion offices.

The company hired 4,500 people last year, primarily in digital and retail, raising its headcount to 36,500.

Is hydrogen the eco future of superyachting?

The launch of Sanlorenzo’s radical new ship brings zero-impact energy production to the industry for the first time

This week, at its headquarters in La Spezia, Italy, the Italian superyacht maker Sanlorenzo launched a yacht that its CEO Massimo Perotti is describing as “revolutionary”. The 50m long 50Steel model named Almax is the group’s most climate-friendly ship ever, and is the first superyacht to use a green methanol reformer fuel cell system that produces hydrogen to power the ship’s onboard systems and creates zero carbon-dioxide emissions. Replacing the traditional diesel generator with a hydrogen one, says Perotti, “means the boat’s engines can be entirely turned off when the yacht isn’t sailing”.

Perotti bought the yacht maker in 2005 and has increased its revenue from €40mn in 2004 to €840mn last year. He built this new yacht for himself but is taking orders now for delivery in 2027. “I couldn’t really sell Almax to anybody else [because it’s an industry first].” There are still, he says, marinas where green methanol is hard to find. 

Yachts are responsible for 0.2 per cent of emissions within the shipping industry, which overall is responsible for three per cent of global emissions. Yacht makers are, increasingly turning to green solutions that include hybrid engines as the industry has come under pressure to reduce its carbon footprint. Industry insiders say that taking onboard electricity consumption out of the emissions picture is a step in the right direction as yacht owners spend an increasing amount of time on board during the year, thanks to post-pandemic flexible working arrangements.

“In our view this move by Sanlorenzo proves it is the trailblazer of the green transition of the yachting industry,” says Chiara Rotelli, an analyst at Mediobanca, a member of the Net Zero Banking Alliance. “We expect other players to follow.”

The yacht also features a “hidden engine room”, patented by Sanlorenzo, that has changed the layout of the ship, freeing up the lower deck area for extra lounging space, cabins and a spa. A fully chartered weekend-long trip on the ship – which spans five staggered decks designed by Bernardo Zuccon – was auctioned for charity for €160,000 during a gala dinner to mark the launch. The boat, which can host up to 10 guests and nine crew members, will make its maiden voyage in July and will be available for more charters. 

“It’s one thing to pollute because you are operating a hospital and saving lives,” says Perotti, “but if you are polluting because you need to go take a dip out at sea with your megayacht, it’s different. My children ask me all the time why we are building these large ships. New generations see things differently, so we have to start doing things differently.”