Showing posts with label CEO. Show all posts
Showing posts with label CEO. Show all posts

Saturday, April 20, 2013

International

Inflation in China
A trade-off between inflation and growth is always difficult to manage for countries and so is China finding it to its discomfiture. Inflation in China soared to new heights, reaching 4.5% in January, the highest in the last three months. Food inflation also witnessed a sharp spike, settling at 10.5%, from the earlier 9.1%. High consumer prices are threatening to derail growth in China. Rising inflation also offers a challenge for policy makers in China who have so far been liberal with the purse strings because of heady growth untrammelled by fears of any creepy inflation. But the recent spike in the inflation breaks several months of easing prices after inflation hit a three-year high of 6.5% in July last. A possible reason being cited for the rise in inflation is the New Year, which sees a lot of consumer activity and shopping. But the rise in the consumer price index, a key indicator for measuring inflation, is surprising since despite factoring the festive season in the calculations, inflation for January was projected at 4.1% by several international experts. What is more startling is that in the same period, imports sank 15.3% y-o-y, while exports saw a decline of 0.5% only. The change in these figures indicates faltering domestic demand, which can be a red signal for the future. The drop in exports left China with a trade surplus of $27.3 billion in January, its biggest in six months.

Sony’s ratings
The changing of the guard at Sony, with Kazuo Hirai set to take over as new CEO in April, has failed to impress the market. Standard and Poor’s has lowered its assessment of Sony’s long-term credit worthiness from A- to BBB+, citing poor earnings, price erosion and falling demand as the main reasons. Stiff competition from Korean and Chinese entities also pose a severe threat to the profitability of the Japanese electronics powerhouse. S&P added that Sony’s rating could see a further downfall if it did not see any recovery in earnings within the next six to 12 months. S&P said that a major blame for the current apathetic situation of Sony rests on its strategy of aggressive expansion despite strong competition, massive erosion of prices and its high cost structure as compared with overseas competitors.

Not a good time for arcelormittal
The year 2011 wasn’t good for the world’s largest steel maker, which made a net loss of $1 billion in the Oct.-Dec quarter. The losses are attributed to large tax payout, downward revaluation of fixed assets and restructuring charges. The company has had to cope with deferred tax payment of $ 0.9 billion, a further $0.2 billion on the cost incurred on downward revaluation of fixed assets and another $0.2 billion spent on restructuring associated with its asset optimisation plans. Profit for the full year 2011 was dragged down 22.43% to $2.2 billion vis-a-vis $2.9 billion for 2010 while EBITDA for quarter (Oct.-Dec. 2011) was down by 7.5% to $1.7 billion.


Source : IIPM Editorial, 2013.
An Initiative of IIPM, Malay Chaudhuri
For More IIPM Info, Visit below mentioned IIPM articles
 
Posted by IIPM : Global B School in India at 10:35 AM
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Friday, April 12, 2013

Caught in The Wrong Job?

Merck Today stands at a Juncture where it Requires a Major Overhaul in its Strategic Outlook. Does Kenneth C. Frazier (its current CEO) have what it takes to Guide a Pharma Giant in times of Patent Expiry?

What if you happen to be the recently appointed CEO of a pharma giant in an era of patent expiry & dwindling healthcare policies? And what if, the blockbusters, which generate a quarter of your company’s revenues, are unfortunately poised to go off patent in the next two years? That’s exactly what Kenneth C. Frazier has been struggling since he took over as President & CEO of Merck & Co. from Richard T. Clark on January 1, 2011.

Although facing increased competition, patent losses, and a pipeline of late-stage drugs with poor chances of approval over the last few years, Merck had greatly improved its long-term outlook by acquiring Schering-Plough (for $49 billion in March 2009), but then the challenges remain for Frazier. Raison d’être: Still reeling from the patent loss on its hypertension drugs Cozaar & Hyzaar in early 2010, Merck faces the loss of its next top drug Singulair (for respiratory ailments) in terms of revenue generation in 2012. Considering Singulair represents over 10% of the combined sales of Merck & Schering, the blow will certainly make a big dent on the drugmaker’s topline. Further, Merck faces some remaining legal risk with Vioxx (its popular painkiller). While the majority of plaintiffs participated in the $4.85 billion settlement (in 2008), a few holdouts could ring up additional settlements and significantly hurt Merck’s net profit, which has already witnessed a significant fall, from $12.89 billion in 2009 to $861 million in 2010 (a pathetic 93% drop).

No doubt, indicating a shift in strategy, Frazier, on February 3, 2011, had announced an investment of $8.5 billion in R&D for 2011, but considering that Merck’s efforts to develop a reliable late-stage pipeline have yielded questionable results during the last couple of years, is it really a good bet? “Not really,” feel several critics. By doing so, Frazier has not only compromised the company’s EPS forecast for 2013, but has also offended the Wall Street, which responded back by cutting Merck’s stock price by 2-5% (from the date of announcement). Interestingly, around the same time, Merck’s competitor Pfizer had slashed its R&D budget to $6.5-7 billion from the earlier $8-8.5 billion. And investors awarded the move as the drug giant’s stock price increased by 5-7%.

Such market reaction can perhaps be decoded by expounding upon how this business is evolving. In 2010, the top 10 pharma outfits shelled out a total of $67.41 billion on R&D. In fact, according to statistics compiled by the Tufts Centre for the Study of Drug Development, spending to develop new drugs has been constantly growing over the years. But, what the data also reveals is that after the mid 1990s, new drug approvals have been falling steadily (only 16% win regulatory approval) and research pending has almost doubled in the last one year. This certainly explains the reason for the fall in Merk’s stock price.

If the issue still isn’t clear, then a little flashback might settle the remaining dust. In January 2011, Merck shutdown a study on Vorapaxar and took a $1.7 billion write-down on the drug (a blood thinner which was expected to bring in sales of upto $5 billion). Later in March, it shelved another blood thinner because competitors were way ahead of the development cycle. Further, the 8,000 patient trial of a Staph vaccine was also suspended soon after. All this clearly indicates that Frazier should now be rethinking his strategy. Even if he plans to invest heavily in R&D, it should be focused on a few drugs & executed in a better manner – if not it will continue to fail.
 

Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
 
For More IIPM Info, Visit below mentioned IIPM articles
 
Posted by IIPM : Global B School in India at 2:10 PM
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Monday, January 28, 2013

BUFFET NAMES POTENTIAL SUCCESSOR

Surely, every person even slightly informed about the world’s richest man knows that succession planning has always been questioned critically when it comes to Buffett. Realising that he himself goes against many imperative corporate governance policies (separation of ownership from management, for one), Buffett too cleverly chooses to keep the beach bikini on, revealing much frivolous skin, but hiding the most essential parts. “There are four potential successors to me within the company, but I would never discuss their names,” is what he gloatingly told Daily Telegraph some years back, “I have got this letter which actually goes out the day I die. And it says: Yesterday, I died. That’s bad news for me, but it’s not bad news for you, the shareholders of Berkshire...” Yeah, right Warren! And we all can then go meet up with Monica Belluci!

But for argument’s sake, let’s move to the realm of logic. At present, Ajit heads Berkshire’s Reinsurance business, which is only the ‘third-largest’ amongst Buffett’s insurance empire – indeed a small fragment of the vast Berkshire empire. And if you considered that insurance segment contributes to more than 50% of Berkshire’s annual revenues in 2008, we would rather have Tony Nicely, CEO of GEICO (Berkshire’s largest insurance player) or Joseph Brandon’s successor at General Re (the second largest in the segment) as the more ‘logical’ choice. As far as leadership and manpower count is concerned, Ajit only has 31 people in his company. For records, that is just a negligible 0.01% of the total count of manpower at Berkshire Hathaway! Can a person with that little ‘leadership’ experience head a group with more than 300,000 people?

Alright, if we play to the grandstand – as Warren has mastered over the years – and simply choose Ajit because “Warren has mentioned him in his letter,” then allow the blundering me to inform you, Warren does that ever year. Not counting this time, Buffett had flattered Ajit 5 times in the past 13 years (in his annual letters to his shareholders)! And if I go by the same logic, then the world would have had 21 prospective Berkshire CEOs since 1995. Wonder how? Besides praising Jain 5 times, the grandiose Buffett has praised Tony Nicely (CEO, GEICO) 9 times, Kevin Clayton (CEO, Clayton Homes) 2 times, Richard Santulli (CEO, NetJets) 3 times, Joseph Brandon (Former CEO, General Re) 2 times! If efficient succession planning policy was to be decided on the count, all is lost.


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles.
Posted by IIPM : Global B School in India at 3:03 PM
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Wednesday, December 12, 2012

Missing the Ambani touch?

The venture was flawed from the beginning in more ways than one

The Indian retail sector has grown at a stupendous rate and is touted to touch $450 billion by 2015 (as per McKinsey). At that rate, it is not surprising how major business houses have made inroads into the sector. But the chequered journey of Mukesh Ambani’s Reliance Retail in this sector merits analysis.

It was the winter of 2006 when Ambani announced the arrival of his Rs.250 billion retail gamble – Reliance Fresh convenience stores in India. Reliance Fresh had to face the wrath of all be it middlemen, small retailers or politicians. The company had to shut down shops across the country amidst vehement protests. Gibson Vedamani, ex-CEO, Retailers’ Association of India points, “Reliance Fresh failed because it was too aggressive with its strategies and wanted to capture the entire market without leaving any space for the middlemen and local retailers.” The company planned a number of formats viz. hypermarkets, supermarkets, convenience stores & specialty stores. This attracted unwanted media attention & got them into trouble.

With the looming spectre of economic slowdown, Reliance has had to cut down severely on its expansions. It merged the management of its hypermarkets, supermarkets and convenience stores last year to save on administrative, man-power and operational costs. However, the biggest blow came earlier this year, when Ambani, after deferring the launch of its wholesale market, finally scrapped its cash & carry (C&C) model and showed the door to the entire team of 36 professionals headed by Harsh Bahadur (erstwhile CEO of Metro AG’s C&C business in India).


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri

For More IIPM Info, Visit below mentioned IIPM articles.

Posted by IIPM : Global B School in India at 2:32 PM
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Saturday, December 8, 2012

Thank you John, for being gone!

John Mulcahy got Suncorp into a mess that’ll take some time to clean...

March 2, 2009, marked the last day in office for the chief architect of the much-discussed ‘failed’ A$7.9 billion Promina acquisition – John Mulcahy, former MD & CEO, Suncorp-Metway. His exit was rather a forced one, voted out of office by the shareholders, soon after the successful completion of capital raising activity worth a huge A$900 million! Bidding adieu to Mulcahy, another John in the story, John Story, Chairman, Suncorp (that’s his name, we’re serious!) asserts, “John has made an outstanding contribution, building a far more diversified and resilient business than existed when he joined six years ago.” Considering the rising bad debts (pegged at A$335 million), declining profits (net profit for H2, 2008, was A$258 million, down by 32.8% YoY), share price fall (which stood at A$4.50 as on March 2, 2009; 38% down from its last traded price), we don’t really agree with that ‘single dry line of praise’!


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri

For More IIPM Info, Visit below mentioned IIPM articles.

Posted by IIPM : Global B School in India at 10:12 AM
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Saturday, October 27, 2012

Why one bird in hand is better!

k. m. birla is at a crossroads – to combine or not to combine is the question. neha saraiya states the raison d’être behind the best possible option...

Imagine a young CEO, who happily acquires a 51% stake in L&T’s cement division (named as Ultratech) for a whopping Rs.22 billion and then soon after sends a letter to his board of management warning them about the bumpy road ahead... That is Kumara Mangalam Birla, a man who had apprehensions about the problems that the massive year-2004 acquisition would cause to the company in the long run. Even as many woke up with the hangover from that deal, there was another major announcement from Grasim Industries on June 11, 2009 – a further purchase of 11.5% stake in L&T Cement! Surprisingly, all went well and in fact much better than expected... That was five years back.

It’s 2009, and the 42 year-old Birla is faced with another question – should he combine his brainchild Grasim Cement with the foster child Ultratech? The move to merge the entities will definitely make the duo, the largest player in India’s cement industry, with an annual combined production capacity of 42 million tonnes, overtaking others in its ilk, which includes biggies like ACC, Gujrat Ambuja, et al. But what if structural issues actually creep into this process of consolidation? Before answering that, taking a look at the company’s performance during FY2008-09 becomes important. The company which has a host of businesses under its umbrella (including Viscose Staple Fabric – VSF, cement, chemicals, textiles, iron ore, et al) recorded a net profit of Rs.21.87 billion, with top line collections of Rs.18.04 billion.

So, while the bottom line fell by 5% as compared to the previous year, what makes Birla happy is the fact that revenues of his main cement business grew by a double-digit 13% y-o-y, touching 20 million tonnes in capacity. Of course, the infrastructure development thrust given by the Indian government helped, but the question stands – are the other eggs in his basket worrying Birla? Admits Adesh Gupta, Group Exec. President and CFO, Grasim Industries in an exclusive conversation with B&E, “Despite higher energy cost and the economic slowdown, cement business maintained its operating profit in FY’09.


Source : IIPM Editorial, 2012.

For More IIPM Info, Visit below mentioned IIPM articles.
 
IIPM : The B-School with a Human Face
Posted by IIPM : Global B School in India at 11:44 AM
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Friday, October 12, 2012

PROFILE: KENNETH D. LEWIS, CHAIRMAN & CEO, BOFA

You can curse him a million times for emptying your pockets; you can praise him a billon for saving other companies... Call him a ‘hero’; call him the ‘Don Quixote’ who led The Bank of America!

Born in Meridian, Mississippi, Lewis has tried hands at many jobs since the age of 12, including the ones at steel mills and filling stations, and even direct-selling (of green cards). He earned a Bachelor’s degree (Finance) in 1969 from Georgia State University and holds an executive programme degree from Stanford. He split with his first wife in 1978 and two years later, his ‘present’ became his ex-boss’ ex-secretary, Donna. Today, they have two children & two grandchildren. He started his journey with BofA (then called North Carolina National Bank) in 1969 as an analyst. He steadily rose up the ranks and 30 years later, he became the COO. He won the crown of CEO in April 2001 (replacing Hugh McColl), and Chairman in 2005. Now that was quite an upward glide for Lewis; his corporate performace graph sadly, following the opposite direction. Imagine this: in 2003, BofA was the world’s 4th-most-profitable company. It slipped to 12th in 2007 and 23rd in 2008. What worst; its expected negative performance this year will see it being booted out of the profit-makers list!

And though his ‘trust-me’ act of purchasing up to 400,000 BofA shares as “an outstanding long-term investment”, is an effort on his part to infuse confidence in his company’s investors, one truth stands – he should have worked towards achieving ‘shareholder wealth maximisation’ and not ‘bailout package maximisation’. Lewis perhaps forgot that the bourses don’t reward well ‘brave CEOs, on the lookout for quick glory’ (yes, he should have left it to the government and Fed!). Perhaps, even he was left pondering over what to choose – shareholder wealth or the bravery award for financial rescue (and obviously, he made the wrong choice)!


Source : IIPM Editorial, 2012. An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles.

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