Business of Fashion : Adidas Plans to Still Use Yeezy Designs After Costly Divor

Adidas Plans to Still Use Yeezy Designs After Costly Divorce
The sportswear giant cut its profitability forecast for the fourth time this year as it continues to confront the fallout from its split with Ye.

German sportswear giant Adidas confirmed it plans to still use Yeezy designs as it continues to confront the fallout from a messy and costly split with Ye, the artist formerly known as Kanye West.

The company slashed its profit forecast for the fourth time this year as the end of its lucrative Yeezy partnership and falling demand for its products in China weighed on its third-quarter earnings.

Still, investors are more upbeat about the company than they have been since early October, when Ye released a “White Lives Matter” T-shirt at his controversial YZYSZN9 show in Paris and made subsequent antisemitic statements that saw him lose other brand deals and got him suspended from Instagram and Twitter. Adidas’ shares were trading up more than 2 percent early Wednesday, already buoyed by the announcement that Puma chief executive Bjørn Gulden will join the company in January.

Adidas also provided guarded updates on some of the big outstanding questions around the end of its Yeezy partnership on an earnings call Wednesday morning. The sneaker line accounted for as much as 8 percent of the brand’s annual revenue and Adidas has already said the termination will cut up to €250 million ($251 million) from the company’s net income this year,

Chief financial officer Harm Ohlmeyer, who will become interim chief executive when Kaspar Rørsted leaves the business on Friday, reiterated that the brand owns all IP, designs and colourways relating to the Adidas-Yeezy products — save for the Yeezy name itself — and “intends to make use of these rights” as early as 2023. He added that a dedicated team is working on various options for plans to “leverage the existing [Yeezy] inventory,” with further details to be provided at some point in 2023.

The brand declined to provide detail on how much of its unsold inventory is made up of Yeezy products.

The company anticipates savings of €300 million in 2023 in royalty and marketing payments that would have been paid to Ye and the Yeezy business, Ohlmeyer said Wednesday.

The Yeezy dispute is just one of a handful of long-term concerns affecting the business that Gulden will need to tackle when he begins his tenure as CEO at the beginning of 2023. Its shares are down around 50 percent since the beginning of the year.

Adidas now anticipates net income of €250 million this year, down from the brand’s previous target of around €500 million set in October (the pre-October forecast for 2022 was originally €1.3 billion).

Business Of Fashion : Can Adidas Move On From Yeezy?

Business Of Fashion : Can Adidas Move On From Yeezy?

KEY INSIGHTS
  • Ending the Yeezy partnership is projected to reduce revenue by €500 million ($502 million) for the remainder of this year, Adidas said Wednesday.
  • An early test for Bjørn Gulden will be strategising exactly how the brand will sell its existing unsold Yeezy products (of which it owns all related IP, designs and colourways) without the Yeezy name.
  • The imminent release of Adidas' and Jerry Lorenzo’s ‘Fear of God Athletics’ sub label will play a central role in the brand’s strategy to elevate its lifestyle offering.

Adidas’ new chief executive has his work cut out for him.
On Tuesday, the brand confirmed Bjørn Gulden, who currently has the top job at Puma, as its new CEO. News of his impending appointment had sent the company’s shares up 21 percent last week. (They remain down around 50 percent year-to-date.)
On Wednesday, Adidas offered up a laundry list of problems its new leader will confront: the company cut its profit guidance for a fourth time this year, forecasting net income of €250 million ($250.7 million) in 2022, down from a target of €1.3 billion at the start of the year. Bloated inventories, which will require markdowns to move, plus the loss of the brand’s Russia business and rapidly shrinking sales in China have taken their toll. After falling by as much as 2.8 percent after the results announcement, shares closed yesterday up 3.7 percent.
But it’s the sudden implosion of the Yeezy partnership last month that turned a challenging year into a disastrous one for the brand. Ye released a “White Lives Matter” T-shirt at his controversial YZYSZN9 show in Paris in early October and made subsequent anti-semitic statements which made his relationship with Adidas and several other brands untenable.

The fallout was particularly costly for Adidas, which had a 10-year deal with the rapper formerly known as Kanye West that was set to expire in 2026. The company said Wednesday that ending the partnership would reduce revenue by €500 million for the remainder of the year. Analysts at RBC Capital estimate lost Yeezy revenues could total as much as €1.8 billion in 2023. (Adidas posted sales of €21.23 billion last year, second only to Nike in the activewear category.)


Adidas executives offered up a first glimpse at the brand’s post-Ye future on Wednesday, confirming it plans to still use the sub-brand’s designs, which it owns the rights to, without the Yeezy name, which belongs to Ye. Adidas anticipates savings of €300 million in 2023 in royalty and marketing payments as a result, chief financial officer Harm Ohlmeyer said Wednesday.
Meanwhile, the company’s leadership has high hopes for a new partnership with streetwear designer Jerry Lorenzo and his Fear of God label. Lorenzo will play a central role in the brand’s strategy to elevate its lifestyle offering, which includes popular collaborations with Balenciaga and Gucci.
Adidas will be betting that Gulden, who previously worked for the company as senior vice president of apparel and accessories in the 1990s, can transform the embattled brand’s fortunes as he did for his previous employer’s. Puma’s annual sales increased by €5.3 billion from 2014 to 2022 under Gulden’s leadership. Over that time, the brand established a clear identity that saw its performance-forward basketball and running gear paired with high-profile celebrity partnerships, including Dua Lipa and chess grandmaster Magnus Carlsen, that exposed the brand to a wider audience.
That playbook is an easy fit with Adidas’ current strategy, which also leans heavily on collaborations. Only now, he’ll have a much bigger budget to play with, analysts say.
“He’s got the experience, he knows the industry and he knows sports inside out,” said Adam Cochrane, a retail and luxury analyst at Deutsche Bank. “He’ll be able to get things moving quicker for Adidas than people would have anticipated had there been a different external hire.”

New Leadership
Still, Gulden will be entering “a complex and risk-filled situation” and will need to wean the brand off its over-reliance on Yeezy to drive growth while also reversing a steep decline in China, where annual profits have contracted by €1 billion since 2019, Cowen analysts said Tuesday.
An early test will be strategising exactly how the brand will sell its existing unsold Yeezy products (of which it owns all related IP, designs and colourways) without the Yeezy name. Profiting off products designed in collaboration with Ye could invite further scrutiny to the brand, which came under criticism from both employees and customers for its near three-week silence between placing the partnership under review following Ye’s Paris show and ultimately terminating it on Oct. 25.

“To the extent that there are products sitting in their warehouses with ‘Yeezy’ written on the product or the packaging, maybe there’s a challenge as to how you clear that inventory,” Cochrane said.
Gulden will also be tasked with reversing the brand’s fortunes in China. Its revenue was down 27 percent in the third quarter, as consumers continue to favour homegrown alternatives like Li-Ning and Anta.

A New Collaborator
Ultimately, experts believe a turnaround is achievable under Gulden.
The brand has a deep catalogue of styles it can tap to drive sales in the absence of Yeezys. Adidas’ Stan Smiths are evergreen among consumers, while its Samba and Gazelle sneaker lines have enjoyed a resurgence in popularity over the past year.
In light of the Yeezy termination and Rørsted’s imminent departure, Adidas has newfound freedom to expand the highly-anticipated partnership with Lorenzo and his streetwear label Fear of God, which is set to roll out in early 2023. The Yeezy collaboration was “mistakenly expanded far too large” by Rørsted, Cowen analysts noted. Under the direction of a new CEO, Adidas may be able to redirect resources previously earmarked for Yeezy to invest in the Jerry Lorenzo collaboration. Adidas may also benefit from Fear of God’s sizeable streetwear audience — the brand and its sub-label, Essentials, have a combined 3 million followers on Instagram.
In Lorenzo, Adidas may have found a ready-made, albeit less famous, figure to fill the role vacated by Ye as the brand’s foremost collaborator. The upcoming Fear of God Athletics sub-label could give Adidas the streetwear credibility that it currently lacks without Yeezy, while it’s anticipated Lorenzo’s wide remit will see him infuse the brand’s lifestyle apparel category with streetwear-inflected products at high-end price points.
“Consumers know Lorenzo and he seems to have had incredible success [with Fear of God]. I think that will feed through into a much more exciting basketball-lifestyle category for Adidas,” Cochrane said. “Will it replace all the lost sales from Yeezy? Possibly, but it’s obviously not gonna happen overnight.”

>>> Stoxx 600 Pre-Market Indications

  • Knorr-Bremse (KBX TH) +2%
    • Knorr-Bremse 3Q Ebit Meets Estimates
  • Vodafone (VODI TH) +1.7%
  • Wienerberger (WIB TH) +1.3%
    • Wienerberger 3Q Revenue Meets Estimates
  • Allianz (ALV TH) +0.7%
    • Allianz to Buy Back Shares After Best Third Quarter Ever (1)
  • Rheinmetall (RHM TH) +0.6%
    • Rheinmetall Maintains FY Operating Margin Forecast
  • Haleon (H6D0 TH) +0.3%
    • *HALEON SEES FY ORGANIC REV. +8% TO +8.5%, SAW +6% TO +8%
  • Delivery Hero (DHER TH) +0.3%
    • *DELIVERY HERO SEES FY GMV LOW END OF EU44.7B TO EU46.9B
  • Prosus (1TY TH) -1.4%
  • Covestro (1COV TH) -1.4%
  • Adyen (1N8 TH) -1.5%
  • Vonovia (VNA TH) -1.5%
  • Aegon (AEND TH) -1.6%
    • Aegon 3Q Operating Profit Misses Estimates
  • Shell (R6C0 TH) -1.8%
  • ABN AMRO (AB2 TH) -2.7%
  • Equinor (DNQ TH) -2.7%
    • Equinor Postpones Investment Decision for Wisting Project
  • K+S (SDF TH) -3.5%
    • K+S 3Q Ebitda Misses Estimates
  • LEG Immobilien (LEG TH) -6%
    • LEG Immobilien 9M FFO I EU374.3M Vs. EU334.2M Y/y (1)

>>> TradeGate Pre-Market Indications

DAX:
  • Allianz (ALV TH) +0.5%
    • Allianz to Buy Back Shares After Best Third Quarter Ever
  • RWE (RWE TH) +0.2%
    • RWE’s Earnings Jump as Europe’s High Energy Prices Persist
  • Deutsche Post (DPW TH) -0.5%
    • Deutsche Post Cut to Add at AlphaValue/Baader
  • Siemens (SIE TH) -0.5%
    • Siemens Gamesa 4Q Underlying Ebit Misses Estimates
  • Vonovia (VNA TH) -1.1%
  • Siemens Energy (ENR TH) -1.1%
    • Siemens Gamesa Discontinues Delegated Executive Committee
  • Covestro (1COV TH) -1.2%
    • Covestro Cut to Hold at HSBC; PT 40 euros
MDAX:
  • Knorr-Bremse (KBX TH) +3.1%
    • Knorr-Bremse 3Q Ebit Meets Estimates
  • Delivery Hero (DHER TH) +0.8%
    • Delivery Hero Sees FY GMV Low End of EU44.7B to EU46.9B
  • Thyssenkrupp (TKA TH) -0.7%
  • Lufthansa (LHA TH) -0.8%
  • Aroundtown (AT1 TH) -1.3%
  • K+S (SDF TH) -3.1%
    • K+S 3Q Ebitda Misses Estimates
  • LEG Immobilien (LEG TH) -5.5%
    • LEG Immobilien Narrows FY FFO I Forecast
SDAX:
  • SAF-Holland SE (SFQ TH) +3.8%
    • SAF-Holland SE Sees FY Sales High End of EU1.40B to EU1.50B
  • Bilfinger (GBF TH) +2.4%
    • Bilfinger Raised to Buy at HSBC; PT 37 euros
  • PNE AG (PNE3 TH) +1.9%
  • Hensoldt (HAG TH) +1.2%
    • Hensoldt 9M Adjusted Ebitda EU126M Vs. EU110M Y/y
  • Jenoptik (JEN TH) -0.9%
    • Jenoptik Sees FY Revenue High End of EU930M to EU960M
  • Heidelberger Druck (HDD TH) -1.8%
  • DIC Asset (DIC TH) -1.9%
  • SMA Solar (S92 TH) -1.9%
    • SMA Solar 9M Ebitda EU50.2M Vs. EU52.9M Y/y
  • Synlab (SYAB TH) -4%
    • Synlab Maintains FY Adjusted Ebitda Margin Forecast

>>> What to look at today - 10th of November 2022

Asian stocks weakened after US shares fell and cryptocurrencies arrested a sharp decline that sapped risk appetite ahead of crucial inflation data due later Thursday. Shares in Japan, China and Australia fell. US equity futures inched higher after the S&P 500 slumped Wednesday to end a three-day advance. Earnings from Walt Disney Co. and News Corp. disappointed. The dollar treaded water after a Wednesday rally and bond yields fell in Australia and New Zealand, following Treasuries. Bitcoin climbed above $16,000 after tumbling by the biggest margin since March 2020 Wednesday as Binance scrapped plans to acquire embattled exchange FTX.com, which may face bankruptcy. The action pressured shares in Asian companies related to cryptocurrencies after their US peers fell sharply. US voters delivered a mixed verdict in midterm elections. Republicans headed for control of the House by smaller margins than forecast while the race for Senate continued. October inflation data will offer clues on the path of Fed tightening. JPMorgan Chase & Co. analysts said a hot print could send US stocks 6% lower in Thursday trade. Oil traded flat after its worst day in nearly a month as US stockpiles grew and Covid outbreaks in China threatened growth.  US After Hours Summary: APPS +24.4%, MGNI +19.4%, RNG +15.2%, ZIP +13.4%, FICO +10.9%, RIVN +6.6% higher on earnings; BMBL -15%, BGS -10%, U -6.5%, RDFN -3.1% lower on earnings

Nikkei -0,98% Hang Seng -1,91% CSI -0,71% Shanghai -O,35% Shenzen -0,88%

Eur$ 1,0026 CNH 7,2664 CNY 7,2617 JPY 146,11 GBP 1,14 CHF 0,9838 RUB 61,3875 TRY 18,5905 WTI$ 85,84 Gold 1,709 +0,10% BTC 16,402 +4% ETH 1,179,50 +6%

S&P +0,20% Nasdaq +0,38% EuroStoxx -0,64% FTSE -0,41% Dax -0,59% SMI

Macro :
- MSCI to Stop Indexes Containing Only Russian Securities
- Nicole Becomes a Hurricane as Florida Braces for Wind and Rain
- Sequoia Capital Writes Down Entire Value of Its FTX Stake
- FTX Warns of Bankruptcy Without Rescue for $8 Billion Shortfall

Keep an eye on :
- 1U1 GY : 1&1 3Q Ebitda Meets Estimates
- ARL GY : Aareal Bank 3Q Operating Profit EU66M Vs. EU50M Y/y
- AGN NA : Aegon 3Q Operating Profit Misses Estimates
- ALV GY : Allianz 3Q 3rd Party Net Outflows Pimco EU15.1B (2)
- MT NA : ArcelorMittal 3Q Ebitda Beats Estimates
- AKE FP : Arkema 3Q Ebitda Beats Estimates
- APAM NA : Aperam 3Q Adjusted Ebitda Beats Estimates
- AR4 GY : Aurelius 9M Oper Ebitda EU163.8M Vs. EU181.4M Y/y
- AUTO NO : Autostore 3Q Adjusted Ebitda Misses Estimates
- B2H NO : B2Holding 3Q Total Revenue Beats Estimates
- BAYN GY : Bayer Says It Won Another Roundup Trial in Missouri
- BYW6 GY : BayWa 9M Ebit EU459.8M Vs. EU191.7M Y/y
- BC8 GY : Bechtle 3Q Ebit Misses Estimates
- BPOST BB : Bpost 3Q Adjusted Ebit Beats Estimates
- ACA FP : Credit Agricole Regional Owners to Boost Stake by $1 Billion
- DHER GY : Delivery Hero Sees FY GMV Low End of EU44.7B to EU46.9B
- DTE GY : Deutsche Telekom Revenue Misses Estimates as Europe Sales Slow
- DUE GY : Duerr Boosts FY Order Intake Forecast, Beats Estimates
- FER SM : Vinci, Ferrovial JV Gets C$6B Toronto Subway Construction Deal
- G IM : Generali 9M Net Income Beats Estimates
- GLJ GY : Grenke 3Q Net Income EU20.3M Vs. EU20.1M Y/y
- HABA GY : Hamborner REIT Narrows FY FFO Forecast
- HAS GY : Hensoldt 9M Adjusted Ebitda EU126M Vs. EU110M Y/y
- HLAG GY : Hapag-Lloyd 3Q Ebitda Beats Estimates
- IMCD NA : IMCD 9M Revenue EU3.51B
- INH GY : Indus Holding Maintains FY Revenue Forecast
- INS GY : Instone Real Estate Maintains FY Adjusted Net Forecast
- JEN GY : Jenoptik Sees FY Revenue High End of EU930M to EU960M
- KBX GY : Knorr-Bremse 3Q Ebit Meets Estimates
- LAND LN : London REIT 1H Results Set to Show Pace of Asset-Value Descent
- LEG GY : LEG Immobilien Narrows FY FFO I Forecast
- MLP GY : MLP 3Q Ebit EU8.2M Vs. EU15.9M Y/y
- AERO SW : Montana Aerospace 9M Net Sales EU922.6M
- NWO GY : New Work FY Ebitda Forecast Misses Estimates
- ONTEX BB : Ontex 3Q Adjusted Ebitda Misses Estimates
- ORP FP : Orpea: Nextstone, Mat Letter Contains ‘Misleading Statements’
- PAT GY : Patrizia Sees FY22 Ebitdar EU70M–85M; Sees Ebitda EU60M–75M
- PST IM : Poste Italiane Boosts FY Oper Profit Forecast, Beats Estimates
- RHM GY : Rheinmetall Maintains FY Operating Margin Forecast
- ROG SW : Tamiflu Supplies Are Seen Limited in Fast Start to Flu Season
- SALM NO : Salmar 3Q Operating Ebit Meets Estimates
- SBMO NA : SBM Offshore Sees FY Adjusted Ebitda $1B, Saw Above $950M
- SHLF NO : Shelf Drilling 3Q Adjusted Ebitda $65.8M Vs. $49.0M Q/Q
- SGRE SM : Siemens Gamesa Discontinues Delegated Executive Committee
- SGRE SM :Siemens Gamesa Reports Losses for Third Year in ‘Complex’ Year
- S92 GY : SMA Solar 9M Ebitda EU50.2M Vs. EU52.9M Y/y
- SON PL : Sonae 9M Net Income EU210M Vs. EU158M Y/y
- STLA IM : Stellantis to Invest More Than EU300m in Morocco Facility
- STLN SW : Swiss Steel Group 3Q Adjusted Ebitda EU9.6M
- SAX GY : Stroeer 3Q Adjusted Ebitda Misses Estimates
- SYAB GY : Synlab Maintains FY Adjusted Ebitda Margin Forecast
- SMHN GY : Suess MicroTec 3Q Ebit Misses Estimates
- TIT IM : Telecom Italia Kicks Off Process to Set Up Enterprise Unit
- TIT IM : Telecom Italia Swings to €2.2 Billion Loss On Taxes Write-Offs
- UTDI GY : United Internet 9M Sales Meets Estimates
- UN01 GY : Sweden’s Biggest Reactor Back Online After Turbine Fault
- VLA FP : Valneva Maintains FY Revenue Forecast
- DG FP : Vinci Unit Charged in France Over Qatar Work Conditions: Lawyer
- VITB SS : Vitec Software Group Offers Up to 2.2m Shares via Nordea, SEB
- VONN SW : Vontobel 9M Net Outflows CHF3.4B
- WIE AV : Wienerberger Lifts Profit Outlook; 3Q Revenue Meets Estimate
- ZURN SW : Zurich Ins. 9M P&C Gross Written Premiums $33.50B, Says Goals on Track After $550 Million Ian Hit

>>> Europe : Brokers Upgrades & Downgrades - 10th of November 2022

>>> Up
* Bilfinger Raised to Buy at HSBC; PT 37 euros
* Fractal Gaming Group Raised to Buy at ABG; PT 25 kronor
* St James's Place Raised to Outperform at KBW; PT 1,350 pence
* Telecom Italia Raised to Neutral at New Street Research

>>> Down
* BEWi Cut to Hold at Nordea
* Coinbase PT Cut to $80 from $105 at Citi
* Covestro Cut to Hold at HSBC; PT 40 euros
* Deutsche Post Cut to Add at AlphaValue/Baader
* Idorsia Cut to Neutral at Credit Suisse; PT 15 Swiss francs
* Lenzing Cut to Hold at Erste Group; PT 72.50 euros
* Toivo Group Cut to Sell at Inderes; PT 1.50 euros
* Zur Rose Cut to Sell at Citi; PT 23 Swiss francs

>>> Initiation
* Aston Martin Rated New Overweight at Barclays; PT 175 pence

>>> Call
* Idorsia Cut at Credit Suisse on Uncertain Aprocitentan Outlook
* Zur Rose Cut to Sell at Citi With E-Rx Adoption Likely Delayed

FT : Joe Biden says Elon Musk security concerns ‘worthy of being looked at’

Joe Biden says Elon Musk security concerns ‘worthy of being looked at’
World’s richest man has courted controversy with Twitter deal and Starlink terminals in Ukraine

Joe Biden said Elon Musk’s links to foreign countries are “worthy of being looked at”, in response to a question about whether Washington had national security concerns around the world’s richest man.

“I think that Elon Musk’s co-operation and/or technical relationships with other countries is worthy of being looked at,” Biden told reporters on Wednesday, without elaborating on further details. The US president added he was not “suggesting . . . whether or not [Musk] is doing anything inappropriate”.

Biden’s comments raise fresh questions about the possibility of government scrutiny on Musk’s dealings less than two weeks after the Tesla boss closed the $44bn Twitter deal, one of the most high-profile and volatile acquisitions in recent times.

They come after media reports last month that US officials were debating whether they had any legal avenue to review Musk’s activities, including the Twitter deal and SpaceX’s Starlink terminals, on national security grounds. The White House denied the reports.

Musk has been caught up in a separate controversy over the Starlink terminals, made by his privately held company SpaceX, which were transferred to Ukraine to provide internet to the population and the military amid Russia’s invasion. After initially receiving praise from Kyiv, the billionaire upset Ukrainians when he proposed on Twitter that Crimea be ceded to Russia as part of a peace deal with Moscow.

Last month, Musk complained that the Ukraine service was costing SpaceX nearly $20mn a month before abruptly announcing he would pay for the support “indefinitely”.

The Financial Times in October reported some Starlink devices suffered outages in areas that had been freed from Russian occupation, raising questions about whether the company had stopped the service. Some devices ultimately came back online.

Some US lawmakers have expressed concerns about countries that backed Musk’s Twitter buyout. Chris Murphy, a Democratic senator from Connecticut, last week requested the Committee on Foreign Investment in the United States, an inter-agency panel that reviews inbound investments for security risks and is led by the Treasury, probe the Twitter transaction.

In a letter to Treasury secretary Janet Yellen, Murphy said financing provided by members of the Saudi royal family and the kingdom of Qatar would translate into a roughly 5 per cent stake collectively in the now privately held Twitter.

“Given Twitter’s critical role in public communication, I am concerned by the potential influence of the government of Saudi Arabia,” he wrote.

“Setting aside the vast stores of data that Twitter has collected on American citizens, any potential that Twitter’s foreign ownership will result in increased censorship, misinformation, or political violence is a grave national security concern,” Murphy said.

The Treasury declined to comment. Musk did not immediately respond to requests for comment on Biden’s statement.

FT : German chemicals giant stockpiles coal to keep producing

German chemicals giant stockpiles coal to keep producing
Soaring prices and gas shortages have led manufacturers to adopt contingency measures

A potent sign of Europe’s energy crisis can be found at the Marl Chemical Park in Germany’s industrial heartland of North Rhine-Westphalia. A coal-fired power plant that had been due to close by the end of this year will instead keep running through the winter, and beyond, to provide energy for the companies on the site — helping to maintain more than 10,000 jobs.

The power plant is owned by Evonik, one of Germany’s largest speciality chemical companies, which also runs the park. And its extended lifespan reflects the fears of power shortages in the country, as gas imports from Russia have been cut following its invasion of Ukraine. Governments and manufacturers across the continent have been introducing contingency measures to ensure power supplies continue during the colder months.

Many companies have turned to coal and other fossil fuels to keep their operations going. In Germany — which aims to phase out coal by 2030 because it is much more carbon-intensive than gas — the government has temporarily revived or extended the life of several coal-fired power plants. In addition, all three of the country’s remaining nuclear power plants, which had been due to shut down by December 31, will continue operating until mid-April 2023.

For energy-intensive industries, this power crisis is “very acute”, says Harald Schwager, deputy chair of Evonik. He likens the situation to a patient “at the doctor”, but while the “diagnosis is known, so is the therapy”. In this case, the therapy is improving supplies.

“We have a supply shock,” he says. “One [therefore] needs to find ways and means with investments into energy infrastructure so that the supply can be improved, and prices will then automatically come down.”



Engineers at Evonik, which makes products used in everything from toothpaste to tyres, started contingency planning in March. The company screened all of its production sites to determine how it could replace gas with other energy sources. Some of its smaller sites have since started using oil instead of gas but one of the biggest changes has been to keep the coal-fired power plant in Marl running until 2024.

One challenge, says Schwager, has been to ensure sufficient supplies of coal to operate the plant. Evonik has already stockpiled enough coal to keep the plant functioning over the coming winter months of 2022-23. While the price of coal has “gone up, the important thing is to make sure we can keep producing”, he adds.

The coal plant had been due to be replaced by a new gas-fired power station. Fortuitously, given the current concerns over natural gas supplies, that plant had also been equipped to burn other sources of fuel, including liquefied petroleum gas or LPG — a byproduct from refining crude oil. Using a pipeline connected to a nearby refinery owned by BP, Evonik has been able to pipe in LPG to help power the plant and reduce the amount of gas needed.

The net result of these measures is that Evonik has been able to reduce its natural gas needs by 40 per cent. Costs, however, have inevitably risen — the company’s energy bill has jumped roughly €500mn, says Schwager.

For chemicals groups, energy is just one of a number of costs that have risen this year amid wider inflation. However, Schwager is keen to stress that Evonik has maintained its financial outlook for the remainder of the 2022 financial year. Earlier this month, the company reported broadly in-line core profit for the third quarter as higher selling prices offset increased variable costs.

“Evonik has done a good job of cutting natural gas consumption,” says Sebastian Bray, chemicals analyst at Berenberg in London. “The company’s earnings have generally proven resilient. However, higher working capital requirements resulting from elevated energy and raw materials prices may make cash coverage of dividends in 2022 difficult.”

Evonik’s shares are listed on the Frankfurt Stock Exchange, but it also has a large cornerstone investor. Germany’s RAG Foundation, which was set up to help finance the social costs and long-term liabilities associated with the ending of subsidised coal mining in 2018, holds a 56 per cent stake.

Not every large manufacturer has been able to adapt to the energy crunch in such a way, though. BASF, the world’s largest chemicals group by revenue and a significant user of natural gas for its processes, revealed in October that it had spent €2.2bn more on gas at its European sites in the first nine months of 2022 than it did in the same period last year.

Martin Brudermüller, BASF chief executive, said the European gas crisis, coupled with stricter industry regulations in the EU, was forcing the company to cut costs in the region “as quickly as possible and also permanently”. The cuts were necessary to “safeguard our medium- and long-term competitiveness in Germany and Europe,” he added.

Brudermüller is not alone in warning that the energy crisis will have a potentially devastating economic impact on Europe.

“Soaring energy prices are currently precipitating an alarming decline in the competitiveness of Europe’s industrial energy consumers,” the European Round Table for Industry said in a letter to the European Commission last month.

Schwager, however, who was a board member at BASF until 2017, plays down fears of disinvestment, stressing that chemical value chains are so interwoven that it would be difficult to disentangle them. German industry, he adds, has a “task in front of us, we have the toolbox to hike energy efficiency”. 

Nevertheless, he concedes that investment into energy-intensive “upstream areas”, such as new power plants, will be more likely happen in other regions where energy is cheaper. Europe, he says, will attract investment into innovation for “downstream” products closer to the customer.

The chemical industry, he suggests, needs “massive investment” for the long term: “[The idea that] we will all run off and go somewhere else, that just won’t happen — we think in decades, and we want our investments to keep running for decades.”

FT : Real estate mogul René Benko faces a more critical spotlight

Real estate mogul René Benko faces a more critical spotlight
The filing of Germany’s biggest department store chain for bankruptcy protections intensifies scrutiny of the Austrian developer

I was cruising down the Kurfürstendamm, Berlin’s main shopping drag, with a friend last Saturday. We hitched up our cycles to grab a drink in an achingly cool place he knew: a two-storey ensemble of chrome-coloured shipping containers, at the avenue’s otherwise less fashionable eastern end.

Bouncers on the doors belied the fact this was a totally free venue, open to all. Inside DJs from Kyiv were readying a set. Upstairs was an art installation.

It was only midway through a G&T that the aha moment came. There is nothing anywhere to declare it, but Pop KUDAMM — “a place of participation” — is a project funded by the Signa Group, the property empire of Austrian real estate mogul René Benko.

Rising above the gleaming containers, the building next door, I noticed, on the plot of which Pop KUDAMM was hunkered, was a shabby Galeria Kaufhof Karstadt department store. Signa is its owner. Last month Galeria, Germany’s biggest department store chain, filed for bankruptcy protection.

For Benko’s critics — who have vigorously panned him in the German and Austrian media of late — Pop KUDAMM is emblematic of the cynicism of the developer.

Their argument is a simple one: Signa, which has a business portfolio that is otherwise focused on ultra-luxury real estate, was more interested in the underlying plots of land of Galeria than turning it into a viable business, safeguarding the livelihoods of the 17,400 people that work there. The plan on this site in Berlin is for a huge development of three towers. Pop KUDAMM is at best a glamorous distraction. At worst, a harbinger of Galeria’s demise.

But this reading does not accord with the facts. In reality, Galeria has been facing years of the industry’s decline. Its department store business model has long struggled to adapt to a rapidly changing consumer environment.

Signa has done more than the company’s previous owners to support it, pumping close to €1bn into the business. As Galeria’s chief executive Miguel Müllenbach told the Frankfurter Allgemeine last week: “Without Signa, [Galeria] would have long since ceased operating.”

The real issue is not that Galeria’s business model is out of date. It is that perhaps now, Signa’s is under question too.

Two things fired Benko’s remarkable ascent: leverage and charm. They allowed Signa to develop a business that took middling city-centre properties and — with pizzazz, spending and sometimes political support — develop them into impressive sites with vastly increased valuations.

But leverage is prone to vicious cycles, pizzazz only goes so far and in his native Austria, Benko now finds himself at the heart of a political backlash.

For years he cultivated close personal relationships with the inner circle of former chancellor Sebastian Kurz. “Mr 64 metres” was what Kurz’s political confidant, Thomas Schmid, jokingly once called Benko — a reference to the superyacht the young billionaire liked to invite his political friends aboard.

But Kurz has resigned. And the scandal that toppled him — a sprawling investigation by Austrian state prosecutors into corruption — has only grown in size. Last month Signa’s offices were raided in connection with it. No charges have been filed against Benko. But the reputational fallout from his closeness with the Kurz government is clear enough, and the gloves are off in media outlets that once gushed over him. Austria’s biggest tabloid, Kronen Zeitung, last month dubbed Benko a “clown” with “more problems than he has millions”. He is the newspaper’s second-largest shareholder.

As for leverage, Benko’s empire was built on it — directly and indirectly. Directly as the financial rocket fuel that sent Signa from small-time developer in alpine Innsbruck to part owner of the Chrysler Building. Indirectly because Signa boomed in a world of cheap money: central banks vastly inflated asset prices and consumers had all the credit they needed to go on spending.

The macro picture in 2022 is quite different. There are few banks that will lend to property developers on the terms they once did. And as for the consumer, even the denizens of Benko’s upmarket malls, apartments and hotels are watching their wealth dwindle.

Signa’s counter argument is one of exceptionalism. Its high-end portfolio is totally unique, the company tells investors, and cannot be compared with other real estate assets which are suffering falling values. It has no problem raising money from banks and new investors, it says.

As a private company — one of great complexity and opacity — it’s hard to subject it to independent judgment. That is an issue. Signa’s business model needs investors to believe in its narrative. In the current climate, it is a tougher sell.

FT : Fund managers sound alarm over fragmenting regulation

Fund managers sound alarm over fragmenting regulation
Deglobalisation strains regulation and investment choices, fund executives say

Top fund management executives have voiced concerns that fragmented regulation will hold them back, as asset managers try to balance the demands of a highly interconnected investment industry against retreats from globalisation.

Regulation of the fast-growing sustainable investment sector is an area of concern. European regulators took a lead on defining standards for so-called environmental, social and governance investing this year, with the Sustainable Finance Disclosure Regulation, which aims to improve transparency and prevent greenwashing. But the UK is consulting on its own version of rules, which could take a different approach to the EU in the aftermath of Brexit.

“It’s great that the [UK] regulators are consulting on this stuff, but it is our fear that we’ll have a separate set of rules,” Patrick Thomson, chief executive for Europe at JPMorgan Asset Management, told the Financial Times Future of Asset Management event Wednesday. “My big concern is around the federalisation or fragmentation of regulation. Adding complexity to fit a local narrative might not be the best outcome for customers,” he added.

Diverging paths between the UK and its larger neighbour create stresses for fund managers aiming to deliver global strategies to clients. “If there are nuances and differences in regulations across each European market, that makes it very difficult to have a common product across those markets,” said Jeremy Taylor, chief executive of Lazard Asset Management.

Stockpicking fund managers are also increasingly affected by deglobalisation. As global supply chains have buckled under the pressure of external shocks from the coronavirus pandemic, Russia’s invasion of Ukraine and tensions between the US and China, many companies are now looking closer to home as they consider reversing decades of global outsourcing.

“In the past 10 to 20 years, companies were mostly valued on revenues. Now it will be on operating profits and how they integrate costs into their model. So we will be more selective with the companies we choose,” said Fiona Frick, chief executive of Swiss asset manager Unigestion.

“How are they going to react to a world that is becoming less global [with] more onshoring? You have to be much more careful which companies you invest in,” she added.

For investors, being able to assess the impact of economic shifts across supply chains has been essential to valuing companies this year, whether from spiralling energy costs or changing production patterns.

“We’ve got a large number of analysts around the world who are able to make informed decisions on companies in China and Taiwan, and other parts of the world who are producing goods, services and equipment for companies in the US or in Europe,” said Thomson.

“That is incredibly valuable insight in understanding the challenges that companies are faced with . . . so deglobalisation, yes, [is a factor] but this is still a global investment management industry.”