Carlos Ghosn reorg: Renault-Nissan Alliance base in Amsterdam

It was interesting to read in the Nikkei that Carlos Ghosn is planning a reorg at Nissan, he will step down as Nissan CEO, allowing for Saikawa-san to take the reins.  Ghosn will focus on the inter-Alliance strategy and collaboration, under the aegis of Renault-Nissan BV in Amsterdam which will control group strategy and planning.

Amsterdam seems very likely to pick up more Japan-related business post-Brexit.  At a recent client meeting, the CEO of a Japanese firm explained how rents are 1/3 of London, English language is prevalent, and a new rail-line is soon to connect the financial district with the Eurostar line.  Moreover, expats moving to Amsterdam receive a 30% personal tax reduction for 5 years.  BTMU announced a significant move of staff to Amsterdam, surely other banks and companies will follow.

My (quite clumsy) attempt at translating the article is below

Ghosn to ring the changes with a group resturcturing

証券部 星正道

Carlos Ghosn is to step down as CEO for Nissan.  We are arriving at a once-in-a-century period of reform and innovation, such as self-driving technology and electrification.  With the onset of the Trump administration, the ‘goldmine’ North America market will see significant change in business environment. For the Renault-Nissan Alliance to take top position will require embarking on group restructuring.

[Ghosn will devote himself to the operation of the Nissan Alliance, aiming for further evolution in collaboration.]

 The press release announcing the change in Nissan CEO included a passage explaining the true intention of the change in personnel;  “To expand the Alliance and focus on operations, and concentrate upon maximising opportunities for partner companies.”  Renault Nissan BV, registered in Amsterdam, the Netherlands, is to be the Alliance Head Office.  Ghosn will continue to control the command centre function of the Alliance.  The location of stage where activity takes place will change.

Ghosn is chairperson of the ‘Alliance Board’ of Renault-Nissan BV, covering co-operation and governance. Topics of discussion cover progress in medium term business planning, product planning, joint use of products and engines, and strategic investment: this is the place where group strategy is decided.  Takaki Nakanishi of Nakanishi Auto Industry Research pointed out that “Whilst Ghosn will remain as Renault and Renault-Nissan BV CEO, and as Chairman of Nissan, there will be no short-term change in the running of Nissan.

The factor providing this push to focus on Group operations seems to be the sense of danger towards the auto industry, which is being attacked by seismic changes. One epicentre of such change is America.  President Trump has declared that the North American Free Trade Agreement (NAFTA) will be re-examined. The Republican Party in the House of Representatives are examining a ‘Border Tax Adjustment’ proposal to implement greater customs duties.

According to Nakanishi Auto Industry Research, of Nissan’s US sales up to March 2017, only 55% were locally manufactured.  If the policy of the President and Lower-House Republicans were to be realised,  there would be a dual impact on commerce and the tax system.  According to the same source, if the Border Tax Adjustment were to be 20%, this would reduce Nissan’s consolidated net profit by 54% during FYE18/3.

Increasing local production cannot happen overnight.  Nissan have strengthened a purchasing strategy dependent upon Total Delivery Cost (TdC).  This is not just procurement of parts, but covers increasing cost competitiveness  co-ordination of production and flow of goods for both companies.  A system of procuring from the most cost-effective regions has already been established. New investment in the US may lead to the risk of over-production in the future.

This is why effective use of Group assets are so important.  For investment looking at the future electrification of cars, joint local production with Mitsubishi Motor Corp, who are emphasising Plug-in Hybrid (PHV) technology, seems optimal.  There are also large benefits from a purchasing perspective.  With MMC, 2016 group unit sales were 9,96m- approaching the scale of Toyota Motor Corp.

Ghosn commented that “Scale is resilience. Applied with wisdom and discipline, scale provides increased resilience for an operation.” Effectively combined with Group investment, the benefits of scale can be drawn out – for individual companies this is linked to improved valuation and decreased risk.

This is also a step considering France, the mother country of Renault.  For France, facing its Presidential election in April, an issue rising to prominence is how to handle the governmental holding shares in Renault, given the need to reduce the financial deficit. Upon the advent of a new administration, there is a possiblity that 20% of Renault holding shares may be sold.  Rival Peugeot is investigating the possible purchase of Opel, part of General Motors.  It has started an expansion strategy.  Mr Ghosn is under the glare of Government and public opinion, and must raise the presence of the Renault-Nissan Alliance.

On 23 Feb, Nissan’s shares dropped 1% on the previous day (JPY6.5), closing at JPY1112.  According to Nakanishi, the market is measuring the meaning of Ghosn’s change of CEO, but the entrusted successor is co-CEO Saikawa Hiroto.

It can be said that this is not a youthful rejuvenation, rather someone who for many years has undergone hardship and collaborated in Nissan’s reform; certainly a colleague who can be trusted.   Ghosn is also placing deep trust in Mashiko Osamu, CEO of Mitsubishi Motors.  Having set about the reorganisation plan, he can take the ideal position.  There is no doubt they are gearing up towards progress.


SoftBank to sell Sprint?

Softbank Group are undergoing huge change at the moment, with the GBP25bln acquisition of ARM, announcement of the Vision Growth Fund and USD3.5bln acquisition of Fortress Investment Group.  Given this, the Nikkei wonders if Sprint may be sold.

I’m not great at translating articles, but had a go with this one as below.

Sprint disposal to continue? SoftBank at the crossroads

SoftBank Group is at the crossroads with its American mobile telephony business.  Profitability has recovered at Sprint, the major US Mobile company acquired in 2013, but not as quickly as its two major competitors, Verizon Communications and AT&T.  The Trump administration has promoted the liberalisation of regulation in the telecommunication industry, and may embark upon an industry reorganisation.  It’s being asked if this will be next.

[Sprint is reconciled to 4th place in the US telecoms industry.  1st is Verizon Communications, 2nd is AT&T, 3rd T-Mobile, 4th Sprint]


On 17 Feb Reuters reported that in relation to the US business of SoftBank, Sprint is considering to transfer its operating rights to 3rd placed T-Mobile. At present, bids are being tendered for radio bandwidth; operators are not allowed to make direct contact, though the prohibition will stop after the bidding process is completed in April.  The process is beginning to sell Sprint to Deutsche Telecom, the parent company of T-Mobile.

Sprints’ results (2016 April to December) show operating profit of USD1.3bln (c. JPY147bln).  With an estimate of USD2bln for the full year, yoy improvement of 4.3x is forecast due to cost reductions and network improvements.  Profitability has improved: upon Softbank purchasing the company in 2013, in the same period the company posted a USD1.9bln loss.

Despite this, the observation that Sprint may be sold arises from a harsh view that can  be taken due to the lack of business growth.

US telecom market share has been floundering since Sprint dropped to 4th place below T-Mobile in 2015.  Top 2 have picked up customer numbers via a recent price offensive; and within this war of attrition have offered ‘unlimited use’ plans for the first time in 6 years.

If SoftBank were to dispose of Sprint, this would mark a withdrawal from the US telecoms market.  Sources within Softbank claim that the Sprint sale is not under consideration.   Telecoms Infrastructure would be a key weapon in developing business related to the Internet of Things [IoT] in the US.

In fact, Softbank tried to sell Sprint at the end of 2014.  The initial plan to buy T-Mobile as a set failed due to resistance by US authorities.  At that time, the internal view turned towards withdrawing via a sale.  After this, CEO Masayoshi Son took a unilateral executive decision to keep Sprint.

In 2016 Son reiterated bullish statements such as “Sprint was shackled, but now can turn back on the offensive”, and “Sprint on its own can reach the scale to be a global leader”.

In which case, how can Sprint grow?  After the inauguration of the Trump administration, Son remarked that he was ‘openly investigating’ options.  Multiple choices available included reorganisation with an industry competitor.  Within the US, merger with a cable TV or broadcasting firm could also be considered a powerful step forward.

SoftBank and the Saudi Arabian govt sovereign wealth fund will create an investment fund with ample capital of around JPY10 tln (USD100bln).  Will the US business overcome the wall of pressure to return to growth, or will the group not wait for growth and withdraw to explore other opportunities?  A lot of attention will be paid to Son’s choice.

Bridgestone: results boosted by Americas operations

Here is an English translation of this article in the Nikkei: ブリヂストン、今期営業益1%増 値上げ浸透 米州で稼ぐ .  At a time when Toshiba/Westinghouse is dominating the news,  Bridgestone-Firestone seem one of the success stories of Japanese-US cross-cultural M&A activity. Geographic diversification is helping business growth during the current strong JPY environment (despite negative translation impact on results).

On 17th (Feb) Bridgestone announced an adjustment to forecast consolidated operating  income to end-Dec 2017, to increase 1% yoy to JPY452bln (c. USD4bln).  Whilst the price of rubber, the core raw material for tyres, has been increasing, price of manufactured goods has also increased.  As the main source of revenues, the Americas (USA, Central & South Americas) accounted for over half of operating profits for the first time.  Key focus will be the extent  to which the company can pull away from their French rival Michelin.  

Turnover is set to increase 9% to JPY3.63trillion (USD32.2bln)  net profit to JPY280bln (USD2.48bln).  The last time profit increased was 3 years ago.

The move to fundamental increase in price of natural rubber since September 2016 held back operating profit to its rise of 1%.  Also considering the effect of cheaper oil in the previous term, this causes a drop in current quarter profit to JPY137bln (USD1.2bln).

However, Bridgestone expressed confidence in their forecast profit increase.  On the 17th Executive Vice President Akihiro Eto stressed that “Now is the time to make use of Brand strength.”  An environment of steady price rises can be achieved using brand strength and technical innovation such as the ‘Run-Flat’ tyre which can keep running event in the event of a puncture,  and high-mileage tyres.  Unit sales are also forecast to increase.  As such operating profit will be boosted JPY166bln (USD1.47bln),   counteracting the negative impact of high raw-material costs. 

“Results are hauled up by the Americas business” was the view of Morgan Stanley MUFG securities analyst Shinji Kaito, “Bridgestone’s strength is their in-house sales channel”, as indicated by their c. 2200 direct sales offices in the USA.   It is difficult for a volume retailer to be on the receiving end of price pressure, close adherence to regional service needs and reasonable sales pricing are contributing to profits.

Operating profit for the Americas region is expected to increase 18% to JPY2390bln (USD1.2bln), reaching over 50% of the global total for the first time.  This contrasts with the 9% drop in Japanese domestic operating profit.  The Bridgestone North Carolina factory is to recieve USD1.8bln (c. JPY203bln) in additional investment.

The focus is to pull away from the global #2 Michelin of France.  Bridgestone have surpassed in Net Profit and Market Capitalisation,  and a previously worse Net dividend rate is now 40% higher.  On the 17th, the company announced its first share buy-back since 2005.  The buy-back will be as much as JPY150bln (USD1.3bln), 6.4% of outstanding shares.

Michelin’s turnover trails that of Bridgestone by around JPY1 tln (USD8.9bln), but in terms of profitability  the operating profit of Michelin is 12.9%, compared to 13.5% of Bridgestone.  Michelin’s revenue base is strong from Europe to Asia and Africa.