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David Lockwood prepares to refocus business when he takes job in September

Babcock International on Wednesday signalled a fresh start under chairwoman Ruth Cairnie with the appointment of former Cobham head David Lockwood as chief executive to drive change at the UK defence contractor.

Mr Lockwood, who ran Cobham for three years before it was acquired by private equity group Advent in January, will replace Archie Bethel, a 16-year Babcock veteran, in September.

“He brings wide-ranging knowledge of the defence and aviation markets, as well as a wealth of experience in both technology and innovation,” said Ms Cairnie. “His skills and industry expertise will help ensure the delivery of our operational performance and strategic objectives.”

Babcock is one of the UK’s biggest defence contractors, providing maintenance and support for the UK’s nuclear submarines at Faslane, and was a member of the consortium that built new aircraft carriers. It owns Rosyth dockyard, one of the UK’s biggest naval yards.

However, the company has had a turbulent few years, with its shares plunging from more than £10 at the time of Mr Bethel’s arrival to 320p on Wednesday. In addition, its relationship with its main customer the Ministry of Defence has at times been difficult.

Mr Lockwood’s task would be to address these issues, said people close to the company.

The new Babcock chief is expected to launch a “fundamental strategic review” of the group’s businesses and performance. Appointed to Cobham in 2017 after a string of profit warnings, Mr Lockwood began refocusing the business, which eventually found a firmer financial footing and resolved a long-running dispute with Boeing, one of its main customers.

Mr Lockwood, who left Cobham after the Advent takeover, said he looked forward to “position Babcock for further success and future growth, and to make full use of technology and innovation to support customers in the UK and internationally”.

Under Mr Bethel, Babcock sold businesses to focus on its core markets of defence, aerial emergency services and civil nuclear.

Although last year the company suffered a sharp fall in profits as a slowdown in government spending weighed on its business, Babcock achieved its long-held ambition to break BAE Systems’ monopoly on UK naval shipbuilding when its consortium won the £1.25bn contract to build the Type 31 frigate.

At an investor summit last summer, Mr Bethel set new targets for medium-term growth and set out a strategy for accelerating international growth. He won praise for holding his previous guidance on growth.

The group moved out of the support services index and into the aerospace and defence category, helping to boost its shares although they remain substantially below the peaks of 2016.

“It has been an honour and a privilege to serve at Babcock, which makes a unique contribution to national security and to saving lives,” Mr Bethel said.

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Natixis subsidiary stands by so far unsuccessful bet against US Treasuries

Investors have pulled around €1bn out of poorly-performing H2O Asset Management funds this year, but the firm still believes some of its bets that soured during the pandemic will come good.

The London-based firm, once seen as a star of the European investment industry, told investors of the redemptions in June as part of a client presentation, a copy of which was reviewed by the Financial Times.

The withdrawals, coupled with losses of investments, have knocked assets at the subsidiary of French bank Natixis from more than €30bn at the end of last year to €22bn, making it one of the region’s biggest fund casualties from the crisis. H2O declined to comment.

In March the asset manager, which was founded by former Crédit Agricole traders Bruno Crastes and Vincent Chailley, warned clients of “surprisingly large losses”. A number of its funds are still down more than 30 per cent in 2020. The hardest hit, a global macro fund named Vivace, had dropped more than 60 per cent as of late June.

Among the trades that went wrong for H2O during the choppy markets of March were bets on Italian bonds, which sank as Rome grappled with a surge in coronavirus cases. The firm also lost money on bets against US Treasuries, which rallied strongly as investors sought a haven and as the US Federal Reserve slashed interest rates to try to cushion the economy from the effects of the pandemic.

However, H2O has been continuing to bet against Treasuries, according to the investor presentation, and believes prices could fall — pushing borrowing costs higher — quicker than the market expects.

Investors “expect zero-rates until well into 2023”, H2O said in the presentation. “But data will ultimately force [the Fed] to reverse with little warning . . . Stay short 5-7 year maturities in the US, Germany and the UK.”

The firm also continues to back Italian bonds, where it said a recovery has helped drive returns since mid-March.

But the firm has switched from a positive bet on the US dollar and is now eyeing gains in emerging market currencies because of the Fed’s loose monetary policy and an expected recovery in the global economy.

News of the redemptions comes at a difficult time for H2O. On Tuesday, the FT reported that the UK’s Financial Conduct Authority is probing the firm’s sale of illiquid bonds and stocks to Lars Windhorst, the controversial German financier. Last summer a separate FT investigation revealed that H2O’s open-ended funds held more than €1bn of hard-to-sell bonds linked to Mr Windhorst, who has a history of legal troubles. The firm suffered more than €8bn in investor redemptions in the weeks that followed.

Studio buys UK maker of Netflix hit as Japanese parent continues entertainment push

Sony Pictures Television has agreed to buy Eleven, the maker of the hit Netflix show Sex Education, as the studio builds up its stable of independent British producers with breakthrough streaming titles.

The deal to acquire Eleven for an unspecified sum will add to Sony’s family of two dozen production companies worldwide, which includes Left Bank Pictures, the London-based group behind The Crown, another Netflix success.

Founded in 2006 by Jamie Campbell and Joel Wilson, two documentary makers turned drama executives, Eleven shot to prominence after Sex Education was watched by more than 40m Netflix viewers in its first month.

The third series of the comedy drama, which revolves around a teenager and his sex-therapist mother, has been delayed by the coronavirus pandemic but shooting is scheduled to start in late August.

Eleven is also making horror series Red Rose for the BBC and White Stork, a political thriller starring Tom Hiddleston, for Netflix.

Wayne Garvie, president of international production at Sony Pictures Television, said Mr Campbell and Mr Wilson had built “one of the most exciting drama companies in the UK”. “Their ability to spot and develop new writing and acting talent, and their eye for a unique and compelling idea make them an irresistible pairing,” he said.

Financial terms for the deal were not disclosed but other acquisitions for UK drama producers have typically ranged in the low tens of millions of pounds. Given the context of coronavirus, which has shut down most high-end drama shoots around the world, Mr Garvie said the transaction showed “Sony’s underlying faith in the future success of British production”.

Under its chief executive Kenichiro Yoshida, Sony has spent more than $3.5bn in the past two years on beefing up content for its entertainment business, which generates more than half of its profits. In a shift from its traditional focus on making consumer electronics products, the Japanese group has recast itself as a supplier of global content for films, music and games.

Armed with $14bn in cash, Mr Yoshida’s biggest deal so far is the $2.3bn purchase of EMI Music Publishing in 2018, which transformed Sony into the world’s largest music publisher.

Sony Pictures Television also acquired Silvergate Media, the producer behind Netflix’s Hilda and Peter Rabbit animated series, for $195m in December, while Sony’s music unit spent a similar amount to buy a stake in Peanuts, the company behind characters Snoopy and Charlie Brown, in 2018.

Mr Campbell and Mr Wilson said the deal would provide crucial backing for the shows Eleven has in development. “No one in the world is better positioned than Sony to help us convert it,” said the founders.

As part of the deal, Sony will buy out Channel 4’s Indie Growth Fund, which took a 20 per cent stake in Eleven in 2014 as its first investment in a drama production company. Tom Manwaring of Helion Partners advised Eleven on the Sony transaction.

Sony’s Left Bank Pictures is in the unusual position of retaining rights to The Crown, which will eventually allow the royal saga written by Peter Morgan to be sold to another buyer. Typically, Netflix keeps all rights to original productions such as Sex Education.

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Cartier to Launch Pasha Watch With Star-Studded Cast

Rami Malek, Troye Sivan, Willow Smith, Maisie Williams and Jackson Wang feature in a film for the July 1 launch — first in China.

PARIS — Setting the bar for luxury in a coronavirus era, Cartier has called on a diverse cast of assured stars for this year’s blockbuster watch launch for the label — the new Pasha edition — that kicks off in China.

The Compagnie Financière Richemont-owned brand has assembled Rami Malek, Troye Sivan, Willow Smith, Maisie Williams and Jackson Wang for the campaign, which includes a movie with all five discussing creativity and achievement, as well as short films featuring each one, and images by photographer Craig McDean, all set to flood social channels starting July 1 in China. South Korea will be next, starting in mid-July, followed by a Sept. 4 launch elsewhere in the world. Given the star power backing the campaign, and the diversity of the group, it will be noticed from the get-go, predicted Arnaud Carrez, Cartier’s marketing and communications director.

“You will see that the buzz is going to increase during the summer starting in China. It will have a ripple effect, people will talk about it, given the five individuals — it will go viral everywhere around the world very soon,” predicted Carrez.

The campaign, which the executive described as “unexpected,” had been planned in advance, and the film was shot in New York in January.

“We’ve always been committed to engaging diverse people, talented people across various communities but I would say that this is a premiere for us to gather such a diverse and international group of individuals with strong individuality, people who are changemakers in their respective creative fields,” he continued.

In a statement describing the choice of ambassadors, Cartier said they represent a generation of talents who have “cultivated their own uniqueness.”

“Each one of them has very strong convictions, they are very committed, very engaged and I think what is also very important is they contribute to cultural, artistic and social changes, they are nonconformist,” noted Carrez, describing the individuals fronting the campaign.

Asked about the youthful age range of the campaign figures — most are in their 20s, though Smith is 19 and Malek is 39 — Carrez pointed to the house’s history of catering to a “multigenerational” audience.

“Some are very young, but it’s not so much about the age — we’ve always been keen to embrace diversity — when I say diversity it’s always multigenerational diversity, and I think it’s in relation with our creations that cater to a very diverse audience,” he said, ticking off collections with wide appeal, like the Love and Trinity jewelry lines or the Tank, Santos and Panthère watches.

“If you look at China, the share of Millennials is already very high and accounts for the bigger share of our sales, so we are already very engaged with these audiences,” he added.

China was already the main source of growth for luxury brands before the coronavirus struck, but the crisis has reinforced the country’s importance to the sector. One of the earlier markets to emerge from lockdowns, China’s digitally savvy consumers are serving as a crucial testing ground for important launches. And with international tourism on pause, famously high-spending Chinese travelers are restricted to making purchases on their home turf.

Cartier joined Tmall’s Luxury Platform in February, becoming the first hard luxury label to open a virtual selling space on Alibaba’s e-commerce platform.

The results have been “far above our expectations,” said Carrez, who noted the platform’s importance for gaining insight to use in other markets.

“I think it’s going to be a real test,” he said, referring to the launch of the Pasha edition in China.

Inspired by a model dating back to the early half of the 20th century, the Pasha watch was launched in 1985, followed by a steel version a decade later. The house has modernized the timepiece, which carries design elements contrasting square shapes with a circular dial with the time indicated with just four, prominent, Arabic numerals.

“This watch has always been a symbol of style and strength of character,” asserted Carrez.

The country’s consensual model of capitalism needs an overhaul in the wake of Wirecard’s implosion

Gears were seizing up and gaskets burning out long before the emergency stop on the autobahn. Now the consensual German model of business has suffered multiple mechanical failures. Wirecard, the payments group that bolstered German tech credentials, has imploded in fraud. Bayer is taking up to $11bn in charges mostly triggered by a disastrous US takeover. Once-proud conglomerates Siemens and Thyssenkrupp are shrinking. Volkswagen’s service life shortens each time Tesla’s outlook improves.

Worried engineers are peering under the hood. What has gone wrong? Germany has been Europe’s postwar economic motor. Technocratic and collaborative, German business fostered close links with workers, lenders and the state. The US model looked anarchic in comparison — warring bosses and entrepreneurs pumped up with equity and spoiling for a fight. But coronavirus has intensified the challenges facing manufacturing-focused Germany and the opportunities for the tech-led US.

Germany, can we talk? “Sure. I’m driving but I’m German so that’s second nature,” jokes an economist via his hands-free, “I don’t think there is any common thread between Wirecard and these other examples.” According to him, the worst accidents occur when German business adopts US ways. Wirecard had a two-tier board structure, like most German businesses. But its supervisory board was seemingly full of corporate yespersons, not vigilant workers as governance rules dictate. And the group was led by a bossy entrepreneur.

Kenneth Amaeshi, a professor of business at Edinburgh university, disagrees with such exceptionalism. He believes the Wirecard scandal puts German stakeholder capitalism “in the dock”. It points to a structural weakness of regulation, he says. He is right.

German financial regulator BaFin failed by restricting its oversight to Wirecard’s German banking arm. A German banker says: “BaFin isn’t in the same league as the [UK’s] Financial Conduct Authority, which impressed me when I was in London.” A banker who privately confesses an admiration for the FCA? Is that a first?

In the past, UK regulation has had a reputation for laissez-faire laziness. Germany’s regulatory lapses spring from another root: a love of consensus. This is the cause of the German model’s problems. Watchdogs assume CEOs must know what they are doing — after all, many have PhDs. Supervisory boards assume the same thing, so long as jobs are safe. When consensus has delivered huge economic dividends, people who ask tough questions can look like wreckers. That is why the German financial establishment turned on journalists and hedge funds who doubted Wirecard’s financial solidity.

Consensus is to blame for other woes. It suited Bayer’s bosses and workers to buy Monsanto for $63bn in cash in 2018 because this promised to make the chemicals group invulnerable to takeover. Engineers Siemens and Thyssenkrupp were permitted to muddle along as outdated conglomerates long after a wave of break-ups in the US and UK. VW perpetrated a diesel emissions testing scandal while dithering over electric vehicles thanks to fierce executives and a board crowded with trade unionists and political appointees.

Consensus has failed to foster German tech start-ups to rival the US giants. For that, you need disruptive mavericks financed with patient equity. The collapse of Wirecard has left SAP, a software group founded in 1972, as Germany’s only large quoted tech company.

The UK, of course, has none. Even so, German economists ponder whether Rheinischer Kapitalismus can be re-engineered, or is fit only for the crusher. “Germany is good at making incremental improvements,” says Allianz’s Katharina Utermöhl, “the question is whether stakeholders have the will to update the German model deeply”. They have done so before. In the noughties, Germany unpicked Deutschland AG, an incestuous network of crossholdings between banks and industry.

Corporate governance must be overhauled this time. Supervisory boards must shrink, meet more often and include more independent directors. Regulators must adopt the adversarial approach of US peers. Industrial giants should unbundle further to create a new tier of focused medium-sized businesses. Siemens’ 2018 flotation of Healthineers, a healthcare equipment unit, shows what can be done.

Germany’s biggest challenge is spurring investment in disruptive technology. Business has depended on debt finance from risk-averse investors. But there is no lack of equity, as Guntram Wolff of Bruegel, a think-tank, points out. It features as retained corporate earnings rather than footloose investment capital. This is reflected in total equity of some €1.2tn on the balance sheets of Germany’s top 100 quoted companies, according to S&P Global data. Tax breaks are needed to chivvy more of this capital into start-ups and electric vehicle development.

It would be a shame to waste two good crises — the meltdown of the German model plus coronavirus. Moreover, support is growing worldwide for stakeholder capitalism, in which social and environmental goals rank alongside profits. Germany just needs to reduce its emphasis on safe jobs for workers and well-networked managers. A little less consensus can make the German model roadworthy again.