DAX stumbles amid corporate problems
ALL is not well in corporate Germany. Be it Deutsche Bank or Lufthansa, Siemens or RWE, the missteps plaguing the country’s flagbearers have helped turn the DAX into Europe’s worst-performing benchmark index this quarter and a laggard compared with US gauges.
Some of the biggest companies in Europe’s economic powerhouse are in upheaval and finding themselves playing catchup as competitors adapt more quickly to disruptive technologies and new challengers.
Deutsche Bank
The problem: As European peers scale back fixed-income trading and other investment-bank activities, the bank that once boasted about making it through the financial crisis without state aid has pledged to gain market share as others retreat. The plan hasn’t quite worked out as regulatory demands to rein in risk are shaving profit margins and prompting shareholders to question the bank’s strategy.
The precedent: UBS Group. Deutsche Bank has appointed John Cryan to succeed Anshu Jain as co-chief executive and become sole chief executive next year as the bank prepares to carry out a strategic overhaul not unlike the one Cryan undertook about six years ago as finance chief at the bank’s Swiss rival.
Siemens
The problem: Europe’s largest engineering firm has frequently lagged the profitability of its biggest competitors. Chief executive Joe Kaeser’s response has been to shed fringe businesses such as home appliances with annual sales of about 11 billion (R150bn) and focus on energy generation and industrial processes. That bet has proven illtimed, with a slump in oil prices prompting even more job cuts.
The precedent: General Electri. Chief executive Jeff Immelt started shedding the entertainment, finance and home appliances arms four years ago as he seeks to focus the Fairfield, Connecticut- based company on its industrial business.
RWE
The problem: Germany’s largest power generator entered the market for renewables “possibly too late”, chief executive Peter Terium said last year.
In 2013, the firm reported its first annual loss since the Federal Republic was founded 66 years ago, and it still generates almost 40 percent of its power from lignite and about 23 percent from hard coal.
The precedent: Arguably German rival EON, although neither company has been quick to react to Germany’s energy shift, prompted by the Fukushima nuclear disaster in 2011. EON is splitting itself in two, spinning off fossil fuels to focus on renewables, and cut 26 000 jobs in the four years to 2014 as it sold assets for more than 20bn. The problem: Germany’s flagship airline underestimated the pressure on fares stemming from lowcost carriers’ expansion in Europe and is struggling to move short-haul traffic to its Germanwings unit.
Whether big names such as Ryanair or easyJet, or smaller players such as Norwegian Air Shuttle and Wizz, the price war is on.
The precedent: International Consolidated Airlines. The owner of British Airways gave up much of the European traffic that doesn’t feed its long-haul hub at London Heathrow and bought Spanish low-cost carrier Vueling to cover many shorthaul routes.
Adidas
The problem: The sporting-goods maker has haemmorhaged market share in recent years to arch-rival Nike as well as upstarts such as Under Armour. Chief executive Herbert Hainer unveiled a turnaround plan which pledged to shift spending to cities such as New York and Paris, while seeking to sponsor more big-name athletes. The precedent: Nike beat Adidas to the punch by targeting young urban customers with its sportswear and hiring some of the world’s biggest sports stars. The firm is moving more of its designers to Brooklyn to reclaim its urban cool.
Volkswagen
The problem: Europe’s biggest carmaker is close to becoming the world leader in terms of sales. Yet its very public leadership struggle this year shows that all is not well in Wolfsburg. – Bloomberg