TheChek News Flow

Richemont publishes its full-year results on Friday but the Cartier and Chloé owner is unlikely to give much detail about the ongoing sale of its loss-making online fashion retailer Yoox-Net-A-Porter (YNAP). It will say that some parties have expressed interest, but it will not admit that many have pulled out of the bidding after seeing YNAP’s numbers.

Several private equity firms including Sycamore Partners, Bain Capital and Permira have walked away, spooked by YNAP’s track record, losses and shaky business plan, sources with first-hand knowledge of the matter said. They do not believe YNAP can be turned around, they said.

“Most private equity firms that looked at it are no longer interested,” one of the advisers involved in the talks said. “They’ve all left the process.”

In documents presented by Richemont to potential investors, YNAP loses money for four years and makes a profit only in the fifth year. YNAP’s annual operating losses are estimated to amount to about €220 million, and the cash burn is a bigger number. That’s a lot of money. Richemont has so far booked €1.8 billion in non-cash write-downs on the business and reported an operating loss of €128 million in the first half to September 30 of its current financial year to end-March.

Potential investors question YNAP’s growth prospects. Most big brands belonging to the Kering and LVMH groups have severed ties with online fashion retailers such as YNAP, Farfetch and MatchesFashion in recent months. One wonders what kind of business YNAP will be doing with these brands in a few years’ time. Only small- and medium-sized brands will be left, labels that need such an online retailer to reach out to consumers and sell their products since they have only a few boutiques of their own, if any. Most stock from LVMH and Kering brands you find on online fashion retailers these days is mostly from previous collections or thanks to distribution agreements that will expire soon.

Fashion brands use multi-brand online retailers mostly for marketing purposes and keep their best-sellers for their own website and boutiques. Adding to the pain, big brands have been drastically cutting the margin these websites are allowed to make from selling their wares.

That is also why they have been struggling to make money. Since the end of the pandemic, big brands do not need them as much as when their boutiques were closed because of the lockdowns. Today, most big fashion houses give online multi-brand sites only a few items that allow them to say they carry the brand, but if you look closely at the assortment, their offer is pretty scant.

Last week, on the “New In” section of Net-A-Porter, there was hardly anything from big brands aside from one raffia tote by Loewe and one Bottega Veneta bag. Big labels such as Prada, Miu Miu, Armani, Celine and Loro Piana are absent from the website altogether. For Celine and Dior, there is only eyewear. For Givenchy, two pairs of shoes. Net-A-Porter, on the other hand, offers bigger assortments for Chloé and Alaïa, fashion brands that belong to Richemont.

“There isn’t a single online fashion retailer today that makes money apart from Mytheresa, and Mytheresa’s profitability is declining,” one industry source with knowledge of the process said. “In the current environment, investors are skittish and YNAP’s record is terrible. The truth is that I do not see any big private equity firm willing to invest in this business.” Also, the more time passes, the more it will be hard to find a buyer, the source added.

Complicating the deal is the fact that Richemont wants to retain a minority stake in YNAP. Since the company sells many of its brands, including watchmakers IWC and Vacheron Constantin, the Swiss group wants to make sure that they are not sold at a discount or presented badly, as this would affect their desirability and brand equity.

Rival online fashion retailer Mytheresa has been approached by Goldman Sachs, Richemont’s advisers, about making a bid. However, the Munich-based retailer is not oozing enthusiasm either. There could be some synergies in terms of warehousing and shipping costs but “merging the two companies presents many risks and difficulties”, a source close to the company said. It is still early in the process and Mytheresa is “far from any concrete discussions with Richemont for now,” the source added.

In an ideal world, it would make sense for Mytheresa to merge with Net-A-Porter (NAP) and Mr Porter (NAP’s menswear online arm) whose brands are still strong. Their business is close to that of Mytheresa in that these two companies provide editorial content and a curated selection of brands like the German retailer does. Yoox, on the other hand, is a discount online retailer, specializing in selling stock from previous seasons. Yoox also provides white-label e-commerce services to some brands. It still powers Armani’s online boutique and Federico Marchetti, Yoox founder and ex-YNAP CEO, still sits on Armani’s board.

It would be complicated and costly to separate NAP from Yoox, several sources close to the two companies have said. Many aspects of their back-office operations, such as warehousing, customer service and IT, are integrated. “It would be a nightmare to try to rebuild them into two separate entities,” one person close to the company said. Hence, NAP and Mytheresa make sense on paper but in reality, any buyer will have to take on both companies. It is not clear whether Mytheresa would have the money to fund YNAP’s losses.

In the quarter to March 31, it is expecting to report a net loss ranging from €3.4 million to €4 million. Mytheresa has been the most successful of all online fashion retailers thanks to its strong fashion point of view and affluent customer base. It has positioned itself as the go-to place for fashion-conscious buyers and regularly organizes events to cultivate good relations with them.

Earlier this month, Mytheresa organized a glamorous party with Brunello Cucinelli on the romantic Lake Orta in Piedmont, in Italy.

This category continues to spend money, but the revenue Mytheresa generates from them has not been enough to compensate for the exodus of thrifty aspirational customers in the past year. Consumers have been tightening their purse strings because of inflation and high interest rates. They are looking for highly discounted items, which are not Mytheresa’s core business. Mytheresa focuses on selling products at full price. That’s why it has good relations with brands and these in turn allow platform to sell of their best-selling items. In addition, Mytheresa’s cash reserves are small. In June 30 last year, its last fiscal year-end, it had only €30.1 million left, down from €113.5 million the previous year.

Mytheresa CEO Michael Kliger outlined the company’s strengths when it published its first-quarter sales on April 18. “We build a community for luxury enthusiasts and create desirability through digital and physical experiences,” Kliger said in a statement. “This makes us the winner in an otherwise still tough market environment.” The company said its net sales would reach €230 million-€235 million, representing an increase of between 15 and 18 percent compared with the same period last year.

“What is not helping is that Richemont is not giving any details of how much money they are ready to inject in the company to offload it,” one of the people involved in the talks said.

Richemont has classified YNAP as assets for sale on its balance sheet. The Swiss luxury group knows that this description is only valid for a year. Technically, it became applicable after the deal to sell 47.5 percent of YNAP to Farfetch and 3.2 percent to the Emirati businessman Mohamed Alabbar foundered in November. Hence, from then on, the business was put back on the market.

Shocked by Farfetch’s mounting losses, Richemont Chairman Johann Rupert lost faith in the company and in its founder and CEO José Neves and pulled the plug. As part of the deal with Farfetch, Rupert was ready to inject $290 million of cash into YNAP to help cover its losses in the short term and provide a $450 million 10-year credit facility to mop up future losses.

Neves was counting on future business with Richemont brands such as Cartier to boost its revenues and profitability. Richemont’s retreat most probably accelerated Farfetch’s downfall. In December, the company narrowly escaped bankruptcy when it was acquired by South Korea’s online retail and delivery company Coupang. Since that deal took place, most of Farfetch’s top management have left and Neves has resigned. It is not clear what will happen to the company. However, for now the website continues to operate.

Richemont needs to secure a sale of YNAP soon or consider alternative solutions such as offloading the business and letting it survive on its own, or shutting it down.

In theory, it would seem there could be interest from trade buyers such as Alibaba, with which Richemont has a joint venture in China with Farfetch. There also is America’s Amazon, which is desperate to get into fashion and luxury. Alibaba is present in the sector with its luxury platform Tmall Luxury Pavilion, on which many of Richemont’s brands do business.

However, China’s Alibaba is not keen on buying YNAP. It has bigger fish to fry. The company is struggling with declining demand for luxury goods in China and is undergoing a restructuring as it is being split into several entities. It is also facing growing competition from the social media platforms TikTok and Pinduoduo which are stealing market share.

Also, why would Alibaba buy YNAP, a lossmaking company, when it is already doing business with the brands of its owner Richemont? Amazon, on the other hand, is likely to be a much more serious contender. Its entry into fashion and luxury has been a flop. The only luxury items the U.S. company sells are second-hand, from brands such as Gucci, Burberry and Saint Laurent.

None of the big brands want to work with Amazon because it has carried counterfeits for too long. Amazon has always been seen as the enemy of the luxury industry. If Amazon bought YNAP, it is not clear how small and medium fashion and luxury brands would respond. They might be desperate to boost their top line, but perhaps not to the extent of doing business with the mighty Amazon.

Investors always have always known that finding a buyer for YNAP was going to be difficult. However, it is proving much harder than they expected.

Donald Trump has reportedly told oil executives that he will end electric car incentives if they contribute $1 billion to his election campaign.

The former president has been all over the place with his comments on electric vehicles.

Most of the time, in his rallies, he has brought them up as a talking point to ridicule them – focusing on the premise that “don’t go far” and “charging is a pain”. He went as far as calling them a “hoax”.

But he has also claimed that he is “all for electric cars” and during his 2020 campaign, he tried to take credit for incentives put in place during the Obama administration.

In practice, the former president was trying to put in place policies to slow down electric car adoption – at the request of some automakers, to be fair. The Trump administration attempted to eliminate the tax credit for electric vehicles in the original version of their 2020 budget, though the provision never passed.

Furthermore, Trump was actively seeking to roll back vehicle emission standards that were encouraging automakers to produce more electric cars.

With this new 2024 campaign, the former president has been clearer about the fact that he is against any initiatives that would accelerate the rollout of electric vehicles.

Now, the Washington Post reports that it had sources in a meeting between Trump and oil executives in Trump’s Mar-a-Lago Club last month. In the report, the publication claimed that Trump made them an offer when asked about his plan recording environmental regulations:

Trump’s response stunned several of the executives in the room overlooking the ocean: You all are wealthy enough, he said, that you should raise $1 billion to return me to the White House. At the dinner, he vowed to immediately reverse dozens of President Biden’s environmental rules and policies and stop new ones from being enacted, according to people with knowledge of the meeting, who spoke on the condition of anonymity to describe a private conversation.

The former president reportedly specifically mention rolling back policies on electric vehicles and wind energy.

Electrek’s Take

I don’t like to get too political at Electrek. Those who know me personally know I’m as apolitical as it gets. I don’t believe the biggest changes come from politics. I’m not biased toward any side in politics, but I am biased toward electric vehicles and I do like policies that encourage them, especially those that incentivize them in a way that represents their benefits for the environment. Since Trump has a real chance of becoming president again, it’s important to cover his views and policies on electric vehicles.

I think it’s pretty clear at this point that Trump would roll back incentives if reelected, which I would have no problem with as long as he implements a carbon tax to properly represent the cost of fossil fuel burning, but who are we kidding?

Even if you don’t believe in human’s contribution to climate change, you must at least believe in clean air?

Everyone agrees that burning fossil fuels is extremely polluting. That’s why you don’t start your car’s engine inside your garage. Now, that’s for a small, closed environment, but the science is also clear that this affects general air pollution when you have millions of cars in the same area, which is most cities today.

This air pollution has a massive health cost calculated in the billions of dollars in the US alone.

From this perspective alone, it makes sense to encourage the purchase of EVs over ICE vehicles. Then, there’s also the clear fact that the rest of the world is moving to EVs at an incredible pace.

A strong market helps a strong industry. If the US auto market falls behind in electrification, the US auto industry will also fall behind and it will be another manufacturing industry that the US is going to lose.

You don’t want to be the last country with a strong fossil fuel industry.

OpenAI has a livestreamed announcement planned for 10 a.m. PT on Monday — but it’s trying to keep expectations under control.

The company is describing the event as “a chance to demo some ChatGPT and GPT-4 updates.” CEO Sam Altman, meanwhile, promoted the event with the message, “not gpt-5, not a search engine, but we’ve been hard at work on some new stuff we think people will love! feels like magic to me.”

Altman’s wording was presumably alluding to a Reuters report published earlier this week, suggesting that OpenAI plans to announce an AI-powered search product on Monday — stealing some thunder from the Google I/O developer conference, which starts Tuesday. The report also said the announcement date “is subject to change.”

The Information and Bloomberg had previously reported that OpenAI has a search product in development. According to The Information, the product will be partly powered by Bing (Microsoft is a major OpenAI investor and partner); Bloomberg said it will work as a feature within ChatGPT, allowing the chatbot to search the web and cite sources — making it less of a black box that returns answers of unknown origin.

So in theory, at least, OpenAI could announce a search feature Monday and Altman’s insistence that it’s “not a search engine” could still be true. We’ll see.

The livestream starts at 10 a.m. PT on Monday. You can watch on the OpenAI website. : https://bit.ly/4dvnBTj

- Sidara's initial £1.4B offer was rejected but is seen as just an opening salvo in a bidding process that could also draw in prior bidder Apollo

- To set up an AI chip division with plans for a prototype by spring 2025 and mass production later that year carried out by contract manufacturers like TSMC

- Softbank expected to provide some funding for the initiative which is expected to cost hundreds of billions of Yen

- Once mass production begins the AI unit could be spun off with Softbank as the controlling owner

UK waste confronts its carbon problem

Incineration plants have been attractive to investors, but must soon start paying for emissions

Pizza boxes, coffee cups and food packaging: roughly 15mn tonnes of these household waste items are gathered around the UK per year and sent to incinerators. 

These incineration plants make money not only from fees to take the waste but also from the electricity that is produced from the steam created from flue gases in the 1,000-degree centigrade furnaces. That has made the plants an appealing proposition for investors ranging from KKR, the US investment giant, and Suez, the French utility. 

That appeal is now being tested. The “energy-from-waste” sector is under pressure as the UK government tries to curb the country’s greenhouse gas emissions in line with its legally binding commitment to net zero emissions by 2050. 

Ministers have paused environmental permits for new plants and plan to make the sector start paying for its emissions, triggering potentially large costs for its customers, which include cash-strapped local authorities.

The number of energy-from-waste plants in the UK has soared since taxes were introduced in 1996 to deter the amount of waste sent to landfill, with 60 operational today and a further 12 being built. 

The fleet accounted for about 3 per cent of the country’s power generation in 2022, but also emitted more than 6mn tonnes of carbon dioxide equivalent, up 5 per cent on 2020. That raised alarm at the Climate Change Committee, which advises the UK government; it argues that the UK needs to boost stagnant recycling rates and prevent waste. The emissions figure does not include emissions from biogenic waste, which are counted as carbon neutral in the UK.

Wales introduced a moratorium on new energy-from-waste plants in 2021, while Scotland says it will only support developments “in very limited circumstances”. Last month, UK government ministers said they would pause issuing new environmental permits in England until May 24 while they review the case for new plants, sending jitters through the sector. 

“There are a lot of worried investors about the implications of this political interference in what should just be a purely technical determination,” said Jacob Hayler, executive director of the Environmental Services Association trade group. 

The move came after the UK government said last year that it planned to include the energy-from-waste sector from 2028 in its emissions trading scheme, under which polluters have to pay for the carbon dioxide they emit.

The cost of emissions is currently low, at roughly £40 per tonne, but that is expected to rise as the scheme is tightened up.

“We think this is going to be a massive driver of change for our sector,” added Hayler. “Our working assumption is that [carbon credits] are going to cost about £100 per tonne.” That compares with median payments from local authorities in 2022 of £103 per tonne of waste taken, according to a study by Wrap, a non-governmental organisation dedicated to tackling the climate crisis.  

Energy-from-waste is being included in the emissions scheme despite objections from local councils which, depending on contract terms, face having to foot the bill for the waste they send to incinerators. 

“We are concerned about the potential financial impacts to councils,” said Darren Rodwell, Labour leader for Barking and Dagenham Council and environment spokesperson for the Local Government Association. 

“For the scheme to succeed it is critical that the costs fall on the industries producing the material in the first place, rather than the council that collects, processes and disposes of the waste.”

Several energy-from-waste plant owners are now looking at plans to fit their plants with technology to capture their emissions. Yet carbon capture and storage systems have yet to be proven at scale in the UK and may not be suitable for many.

“[Carbon capture] is not a silver bullet for the entire industry,” said Cory Reynolds, director of corporate affairs at Veolia, one of the UK’s largest operators, which is exploring using the technology at one of its plants. “We need to focus on the prevention of fossil carbon emissions by removing plastics from the waste stream input.”

Enfinium, which owns four plants and is building two more, outlined plans this month under which it would potentially invest £1.7bn in emissions-cutting, including carbon-capture technology, across its fleet.

“I want the industry to be creating a solution before it becomes a problem,” said Mike Maudsley, chief executive of Enfinium, owned by Igneo Infrastructure Partners.

He and others also believe that they could generate new revenue streams by generating so-called “negative emissions” and selling credits to other companies struggling to cut their own.

The idea is that because emissions from biogenic waste, such as food and garden waste are considered carbon neutral, capturing and storing them would amount to a net removal.

Rival Viridor, which was bought by KKR for £4.2bn in 2020, last month said it would enter final negotiations with the government over support for carbon-capture technology at its plant in Runcorn, claiming this could generate about 450,000 tonnes of “negative emissions” per year.

The CCC and others acknowledge that “negative emissions” will be needed to offset emissions from sectors struggling to decarbonise, and that energy from waste plants could contribute to this.  

However, that is likely to spark debate about the carbon accounting behind the treatment of biogenic waste, which can include products such as kitchen roll and contaminated paper.

The CCC maintains that reducing waste should remain the goal. “Although negative emissions from energy-from-waste plants may be possible, emissions from the waste sector should be reduced through increased recycling and a reduction in the amount of waste produced,” it said.

The UK government’s department for energy, environment and rural affairs said it was “committed to reducing waste, improving recycling and meeting our net zero ambitions by sending less waste for incineration”.

“We must make sure we have the right waste management infrastructure to meet these goals, and are rightly considering the need for more waste incineration facilities.”

Kepco has held early-stage discussions with British officials over mothballed Wylfa site

South Korea’s state energy monopoly is in talks with the UK government about building a new nuclear power station off the coast of Wales, in what could be a big boost to Britain’s plans for a new nuclear fleet.

Kepco has held early-stage discussions with British officials about a new facility at the Wylfa site in Anglesey, and a ministerial meeting is expected this coming week, according to people briefed on the matter.

In his March Budget, chancellor Jeremy Hunt announced the government would buy the mothballed site and another from Hitachi for £160mn. In 2019, the Japanese industrial group scrapped its plans to develop a nuclear project at Wylfa, writing off £2.1bn in the process. 

Hunt’s move was designed to facilitate a fresh deal with a new private sector partner to build a power station at Wylfa, which could boost the government’s plans to replace Britain’s current ageing fleet of nuclear power stations. 

About 14 per cent of the UK’s power was supplied by nuclear plants in 2022 but all but one of the fleet is set to close by the end of the decade, just as demand for low-carbon electricity is set to rise as part of the shift away from fossil fuels. 

The government wants the UK to have 24GW of nuclear capacity by 2050, compared with roughly 6GW today.

A consortium including US construction group Bechtel and US nuclear company Westinghouse has already proposed building a new plant on the Wylfa site using Westinghouse’s AP1000 reactor technology. 

One industry executive with knowledge of the situation said: “Kepco is certainly interested in the project and the company is in talks with the UK government about it.” 

Energy minister Andrew Bowie is expected to meet Kepco this week to discuss the proposals, a government official said. The Department for Energy Security and Net Zero (Desnez) said: “Wylfa has excellent potential and we welcome the interest of all parties who are looking to invest in UK nuclear projects.”

Other industry figures pointed to increasingly active engagement between London and Seoul on a possible investment at Wylfa in recent months. “The Koreans are all over Desnez,” said one. 

One UK government official briefed on the matter said talks were “very much early stages” but that Claire Coutinho, energy secretary, would “very much welcome all interest” in nuclear investment.

Another industry figure said Wylfa’s future would depend on a decision by GB Nuclear, the government quango which now owns the site.

GBN could give the go-ahead for a large reactor or reactors at Wylfa or judge that it is a suitable site for building a cluster of new “small modular reactors”. Supporters of SMRs claim their modular design would make them relatively quick and cheap to build.

“Wylfa is now the next priority site for the UK so it makes sense that Kepco are interested, but they just need GBN to make a decision soon about whether they do want a traditional nuclear power station there,” the figure said. 

One senior Korean government official struck a cautious note about the prospect of Kepco buying the site, saying that building nuclear power stations in the UK was “difficult”. 

“In order to rebuild our nuclear ecosystem and since we have the technological prowess, we can certainly do nuclear projects in the UK if the conditions are right,” he said. “But it is not a good idea for our companies to stretch themselves and do those projects at a loss.”

Kepco declined to comment. 

Despite the UK government’s ambition for 24GW of nuclear capacity by 2050, only one project — Hinkley Point C — is under construction, and it is running wildly over-budget and late.

The government has meanwhile asked potential investors in a second proposed project at Sizewell in Suffolk to submit final bids before the summer as ministers seek to reach a final investment decision (FID) by July.

One industry figure said that while there had been conversations about announcing the FID by then, he was not sure that would be feasible.

Centrica is among companies that have expressed an interest in backing the new facility at Sizewell, which is being jointly developed by French-state owned energy company EDF and the UK government. Enec, which is owned by the Abu Dhabi sovereign wealth fund, has also been reported as one potential investor

The Department for Energy Security and Net Zero said it was “delivering the biggest expansion of nuclear power in 70 years” and “exploring a range of nuclear technologies” to reach 24GW of capacity by 2050.

“We are already making progress on our nuclear revival, securing two sites to host new projects,” it added.