TheChek News Flow

French carmaker aims to protect ‘residuals’ of its models, says finance chief Thierry Piéton

Renault has warned that cutting electric vehicle prices will “kill” the residual value of cars, hours after Tesla vowed to keep reducing its own rates to drive sales higher.

The French carmaker said on Thursday its main aim was to keep customers’ monthly lease payments as low as possible, which would require it to protect the “residual value” of a car.

“When you cut prices significantly, residual value takes a hit,” said Renault’s finance chief Thierry Piéton.

“There is no big incentive to go cut the prices and kill the residuals and go into a spiral that some of the competition has done,” he added. “If it results short term in slightly lower volume, so be it.”

Tesla has slashed prices by up to 20 per cent on some models since the start of the year, leading to fears of a price war across the industry.

The US electric-car maker has seen the residual value of its vehicles fall significantly over the same period, the Financial Times reported last month, potentially making its cars more expensive to lease.

Elon Musk on Wednesday indicated Tesla would keep lowering prices to pursue its target of growing market share.

Shares in Renault dropped 6 per cent in Paris on Thursday, though the stock has risen 50 per cent in the past year.

In luxury watches, revenues are up but volumes are down, creating new winners, losers, opportunities and threats, writes Robin Swithinbank.

Is the clock ticking for the Swiss watch industry? That depends on how you read the figures.

Judged by its revenues, it’s booming. According to the Federation of the Swiss Watch Industry (FH), in 2022 Swiss watch companies exported watches with a value of 24.8 billion Swiss francs ($27.6 billion), an all-time record and a year-on-year jump of 11.4 percent.

But at the same time, the industry is haemorrhaging volumes. In 2015, Switzerland exported 28.1 million watches, a figure the FH said had fallen to just 15.8 million last year.

Some analysts say the industry will never recover lost volumes, and that the current figure is propped up by a shrinking pool of groups and brands, particularly Rolex and the Swatch Group.

In March, Morgan Stanley released a report that estimated Rolex and the Swatch Group — which owns Omega, Longines and Tissot, among others — accounted for around 80 percent of Swiss watch exports by volume. That included a million of Swatch Group’s MoonSwatch, a $260 mash-up between Swatch and Omega that caused a buying frenzy on launch last March.

“We have lost half of the volume of the Swiss watch industry in only 20 years,” said Oliver Müller, founder of the Swiss consultancy LuxeConsult and one of the Morgan Stanley report’s authors. “Those volumes are gone forever.”

Recently, most of the pain has been absorbed by the lower end of the market. The FH’s 2022 figures indicate that watches with an export value (roughly half the retail price) of between 200 and 500 Swiss francs took the brunt of the impact, falling 24 percent in value and 22.2 percent in volume last year.

It now appears there’s no escaping that Apple’s Watch, which arrived in 2015, has decimated that end of the Swiss market. Some estimates suggest Apple now shifts more than 50 million units a year, more than three times the Swiss watch industry’s total output by volume.

Not that everyone’s worried. “It’s no concern for our part of the market,” said Cartier’s chief executive Cyrille Vigneron at a press conference during the recent Watches and Wonders Geneva fair. “The market above 3,000 Swiss francs [at export] is not plummeting at all. The Swiss watch market is not about volume.”

He had a point. The FH’s 2022 report showed watches with an export value above 3,000 Swiss francs climbed in value by 15.6 percent that year. And the trend has continued. In February, the category grew by a further 13.7 percent compared to the same month last year.

Other brand bosses have expressed concern, though. “I feel more comfortable when we [Swiss watchmakers] have big volumes,” said Julien Tornare, chief executive of LVMH’s Zenith brand. “Someone affording a less expensive watch might get the virus, enjoy wearing a watch and buy more expensive watches later. It’s feeding the industry.”

One explanation is that the watch industry is simply reflecting global luxury trends, concentrating around fewer brands and higher-end products. “You see this worldwide premiumisation of society in fashion, in wine, in art, in cars,” said Jean-Marc Pontroué, chief executive of Richemont’s Panerai brand.

Pontroué said over the past five years he had introduced low-volume, high-priced watches with unique VIP experiences attached to them (such as Arctic adventures or training with the Italian special forces) in order to raise the average price point of his watches. “We have seen the value [of our watches] has increased two to three times more than the volume,” he said. Richemont does not break out results by brand.

The shift up in price has created a void down below. Brands such as Omega and TAG Heuer were once considered a “first luxury watch,” but with everyday sports watches such as the Speedmaster and the Carrera now costing around $6,500, younger, first-time buyers of Swiss watches are often priced out.

Smartphones have killed the camera industry, but smartwatches have not killed the watch industry.

Guillaume Laidet is the chief executive of the recently revived heritage brand Nivada Grenchen. The company’s Swiss-made mechanical watches start from $750. “The big groups have abandoned the below $2,000 category and we’re taking the space they’re leaving,” he said. “This gives us a niche to exploit and a big opportunity to grow our business, because people still like to have something mechanical on the wrist. For a big occasion, you don’t want to have a smartwatch like everyone else.”

Laidet said his most recent watch, the F77, had driven revenues of half a million dollars during a 77-hour sales window that doubled as a launch stunt earlier this month. The stainless steel sports watch costs $1,150 and is sold out, according to the brand’s website. “There is a market, but the big groups want maximum profit in the short term,” said the Frenchman, who was previously employed at LVMH and Richemont.

Tornare said he felt it was important the Swiss watch industry maintained a foothold in the lower-price segment. “It’s healthy to have a wide base, which we have less and less,” he said. “At some point, we need to work as an industry to make people appreciate mechanical watches even when it’s at an entrance price.”

But Pontroué argued that the industry’s repositioning and recent resilience were proof it was on the right track. “Smartphones have killed the camera industry, but smartwatches have not killed the watch industry,” he said. “This country continues to export billions of Swiss francs worth of watches every year. The difference is we are now associated to the luxury world.”

Müller, however, said there would be casualties. “The worries are not for the verticalised groups and brands such as Swatch Group, Richemont and Rolex, but for literally all the others,” he said. “In the long run, the groups will largely over-perform the market and polarise it. An industry without volumes can’t provide innovation and sustainable production prices.”

Company pushed to become less reliant on products high in sugar and saturated fats

A group of institutional investors in Nestlé has increased pressure on the world’s largest food company to become less reliant on unhealthy products and warned that consumers’ overconsumption of packaged goods with limited nutritional value poses “systemic risks” to financial returns.

Shareholders with more than $3tn in combined assets under management are calling on the Switzerland-based group to set a target to increase the proportion of its revenues from healthier foods and drinks. Ahead of Nestlé’s annual general meeting in Lausanne on Thursday, they said they were prepared to “escalate” the matter unless directors addressed their concerns.

The public statement, co-ordinated by responsible investment charity ShareAction and signed by institutions including Legal & General Investment Management and several public pension funds, is the latest initiative in a long-running campaign among concerned shareholders to push food companies to make their products more nutritious.

Several governments have introduced taxes on high-sugar products and restrictions on advertising as the industry comes under increased scrutiny over the extent to which it contributes to global obesity.

The investors’ intervention comes even as Nestlé, whose confectionery brands include KitKat, Milkybar and Smarties, has recently become more open about the nutritional value of its product line-up.

The statement — whose signatories include EOS at Federated Hermes, which acts on behalf of clients on environmental, social and governance matters and advises them on voting at AGMs — is also in spite of the company’s commitment to publish a target for increased sales of healthier fare.

The group said it was calling for Nestlé — whose portfolio also spans Cheerios cereal, Maggi noodles and Buitoni pasta — to specify a target for the proportion of its revenues from healthier foods, whereas the company said the goal would be to increase sales of such products in absolute terms.

Nestlé, which said it had “set a new standard in corporate transparency” across the industry, last month disclosed that less than half of its portfolio of mainstream products could be considered “healthy”, using a commonly accepted definition.

Mark Schneider, chief executive, said Nestlé had made progress in reducing sodium, sugar and saturated fats. However, he also indicated there were limits to how far the company could push healthier alternatives and that treats such as chocolate were not meant to be healthy.

While the coalition of investors said it welcomed the increased disclosure from Nestlé, it added that supermarkets were “flooded with less healthy foods, causing significant harm to population health”, and that this created “systemic risks to investor returns”.

The investors said they wanted to work “constructively” with the board, but added they were willing “to escalate our engagement” if the company failed to provide the necessary assurances.

“They have fallen short of setting a target in the way we wanted them to,” said Jessica Attard, programme director at ShareAction. “Nestlé’s responses to many of our questions have been quite poor.”

She added that a shareholder resolution to increase pressure on Nestlé had been “on the table” for the AGM year, but “we agreed to delay, on the basis that Nestlé have agreed to continue to engage with us”.

Nestlé said: “We are the first company to report on the nutritional value of our entire global portfolio against a single externally recognised, nutrient profiling scheme.

“We are determined to maintain our industry leadership in nutrition: Nestlé topped the Global Access to Nutrition Index in 2021 and 2018 and ranked first in the nutrition measurement area of the World Benchmarking Alliance.”

‘Inflation is still too high,’ says New York Fed President John Williams

A top Federal Reserve official said the central bank had more work ahead to bring down inflation, suggesting another interest-rate increase would be warranted at the Fed’s meeting in two weeks.

“Inflation is still too high, and we will use our monetary policy tools to restore price stability,” said New York Fed President John Williams in a speech Wednesday night to a group of financial-industry professionals in Manhattan.

Investors see a greater than 80% chance that the Fed will raise rates by a quarter point at its May 2-3 meeting, according to CME Group. Mr. Williams, a close ally of Fed Chair Jerome Powell, offered little to push back against those expectations just days before central-bank officials begin their traditional premeeting quiet period when Fed officials don’t communicate publicly before their decision.

Fed policy makers raised rates by a quarter-point at each of their two meetings this year, most recently in March, to a range between 4.75% and 5%. The Fed has been trying to slow investment, spending and hiring to combat inflation.

But officials have signaled greater uncertainty about the rate outlook because of banking-system stress last month, triggered by the closures of two midsize banks experiencing huge outflows of deposits.

Mr. Williams said stresses in the banking system had stabilized, but he said he anticipated they would lead to tighter lending standards for households and businesses, which would in turn reduce consumer spending. He said it was too soon to judge the magnitude and duration of any such tightening.

The New York Fed leader pointed to signs that both demand for labor and inflation were cooling, and he said he expected inflation to decline to around 3.5% this year. The Fed’s preferred inflation gauge, the personal consumption-expenditures price index, climbed 5% in February from a year earlier.

“The thing that makes this very difficult [is that] we’re in an economy that’s very strong,” he said. “So the tightening that might happen in credit conditions—that’s in the context of what is otherwise a very strong economy.”

The Fed’s job is to balance the risks of a sharper slowdown from any lending pullback with the risks of a stronger-than-anticipated growth because of better global economic activity, including in Europe and China, said Mr. Williams. “The uncertainty can go both ways,” he said. “I’ve been surprised by the economic data.”

The advertising holding company says first-quarter net revenue rose 10% from a year earlier

Publicis Groupe SA reported higher-than-expected organic growth of 7.1% in the first quarter, and the advertising holding company said demand for its services continues despite the choppy macroeconomic environment.

Analysts expected 5.89% growth in the quarter, according to FactSet.

Paris-based Publicis, which owns agencies such as Saatchi & Saatchi, Leo Burnett and Zenith, also said it expects to hit organic growth this year in the top half of its previously stated range of 3% to 5%. Organic growth refers to the change in net revenue excluding the effects of acquisitions, disposals and currency fluctuations.

The firm also reported first-quarter net revenue of 3.08 billion euros, equivalent to $3.37 billion, up 10% year-over-year.

Despite mixed signals for the U.S. economy, advertising is still expected to grow in 2023, according to forecaster Magna, a media research and investment firm that is part of Interpublic Group of Cos.’ Mediabrands. The economic climate would have typically led Magna to expect advertising to fall, but growth in areas including ad-supported streaming video are bringing new spending into the marketing field, the company said when it released its forecast last month.

Publicis echoed that perspective, citing continuing growth while acknowledging caution from some marketers.

“We have seen, so far, some local cuts in traditional advertising, but not material enough to have an impact,” said Publicis Chief Executive Arthur Sadoun. “We are also starting to see some delay in decisions for bigger investments like business transformation. That has not been so much the case in [the first quarter], but it could be the case later in the year.”

According to Publicis, a third of its revenue comes from data and technology services. The company and its competitors in recent years have developed consulting businesses to help clients adapt their businesses digitally, whether to build apps or develop new e-commerce strategies.

“There is no way our clients are going to stop investing in that transformation, because if they do, they die,” Mr. Sadoun said. “Maybe they’re going to do it at a slower pace, but they will continue to do it.”

Rival Omnicom Group on Tuesday said its organic revenue grew 5.2% in the first quarter from the same quarter a year earlier.

Along with Omnicom, Publicis competes with Interpublic and WPP PLC. Analysts from research firm MoffettNathanson wrote in a note this week that the agencies are well-positioned to weather the broader macroeconomic environment because their clients include many larger companies that can absorb rising costs from inflation.

“If one were to want to be in any part of the broader media [and] advertising landscape at the moment, there are far worse places to be than an agency,” the analysts wrote.

Big tech groups are racing to incorporate the groundbreaking new technology into their products

Google plans to introduce generative artificial intelligence into its advertising business over the coming months, as big tech groups rush to incorporate the groundbreaking technology into their products.

According to an internal presentation to advertisers seen by the Financial Times, the Alphabet-owned company intends to begin using the AI to create novel advertisements based on materials produced by human marketers.

“Generative AI is unlocking a world of creativity,” the company said in the presentation, titled “AI-powered ads 2023”.

Google already uses AI in its advertising business to create simple prompts that encourage users to buy products. However, the integration of its latest generative AI — which also powers its Bard chatbot — means it will be able to produce far more sophisticated campaigns resembling those created by marketing agencies.

According to the presentation, advertisers can supply “creative” content such as imagery, video and text relating to a particular campaign. The AI will then “remix” this material to generate ads based on the audience it aims to reach, as well as other goals such as sales targets.

One person familiar with Google’s presentation said they were worried the tool could spread misinformation, since text produced by AI chatbots can confidently state falsehoods.

“It is optimised to convert new customers and has no idea what the truth is,” the person said.

Google told the FT it planned to put firm guardrails in place to prevent such errors, known as “hallucinations”, when it rolls out its new generative AI features in the coming months.

The ads move comes as big tech companies are racing to capitalise on generative AI, which has swept to prominence in recent months by creating highly sophisticated material such as text and images in response to human inputs.

Last month Google launched Bard in a bid to take on Microsoft-backed OpenAI’s ChatGPT, which can write convincingly humanlike responses to questions and prompts.

The Alphabet-owned company has also recently integrated generative AI into its widely used productivity applications, such as Google’s Workspace, Google Docs and Gmail.

The new technology will be embedded into Performance Max, a program Google has offered since 2020 that uses an algorithm to determine where its ads should run and how marketing budget should be spent, as well as producing simple ad copy.

The advertising industry is facing significant headwinds, as businesses seek to control costs and increased restrictions on using personal data for marketing purposes.

Google’s advertising revenue slipped 4 per cent in the final quarter of last year, leaving its parent, Alphabet, with overall revenue growth of just 1 per cent.

The largest social media platforms, which rely on advertising for the majority of their revenues, are racing to use the latest automation technologies to draw in clients.

Meta, which owns Facebook and Instagram, launched a similar offering to Performance Max last year called Advantage+. It also plans to use generative AI in its ads systems by the end of the year.

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