Financial Times UK - 18.09.2019

W e d n e s d a y 1 8 S e p t e m b e r 2 0 1 9 A F I N A N C I A L T I M E S 1 7

COMPANIES

JA M I E S M Y T H— SYDNEY

BHP Billitonchief executiveAndrew
Mackenzie’s pay fell by almost a quar-
ter last year, after the death of an
employee in a coal mining accident and
a train derailment cost him a large por-
tion of his short-term bonus.

The Scottish geologist, who has led the
world’s biggest mining company since
2013, had a base salary of $1.7m, the
same as the year before, and a short-
term bonus worth $1.3m in the 2019
financial year, down just over $1m from
2018.
That took Mr Mackenzie’s total pay
last year under UK accounting rules to
$3.5m, including pensions and other
benefits, down from $4.6m a year ear-
lier.
BHP said in its 2019 annual report
published yesterday that the death of an
employee at its Saraji mine in the Aus-
tralian state of Queensland was the
main reason for the reduction in Mr

Mackenzie’s short-term bonus. The

Anglo-Australian group said it was una-

ble to determine the cause of the acci-

dent, which resulted in the death of a

49-year-old operator when his bull-

dozer rolled over.

According to BHP, this was the first

time in more than 15 years that it had

failed to identify the cause of a fatal

accident.

Mr Mackenzie said there had been a

slight rise in total recordable injury fre-

quency to 4.7 per million hours worked

in the year that ended June 30, but that

the number of events with the potential

to cause a fatality was reduced by 7 per

cent. “This result is positive, but there

is more we can and will do,” he said.

Mr Mackenzie’s short-term bonus was

also affected by production problems

linked to a train derailment at BHP’s

Western Australian iron ore division as

well as equipment failures at its Olym-

pic Dam in South Australia and Escond-

ida mines in Chile.

Including share-based payments

under the long-term bonus scheme, as

required under Australian accounting

rules, Mr Mackenzie’s total remunera-

tion fell to $7.9m last year, from $8.1m a

year earlier.

However, the annual report showed

he received no long-term bonus

payment in the financial year that

ended in June 2019 as BHP’s total share-

holder returns — including share price

appreciation and dividends — lagged

behind those of peers.

The more than 200,000 shares that

Mr Mackenzie was awarded five years

ago under a long-term incentive pro-

gramme all lapsed without paying out.

Mining

BHP chief ’s pay curbed by death of worker

K A N A I N AG A K I— TOKYO

Sonyhas rejected calls by the activist
investorDaniel Loebto spin off its image
sensor business, the “crown jewel” that
suppliesApple,Google,Huaweiand
Samsungwith smartphone camera
parts.
Kenichiro Yoshida, Sony’s chief exec-
utive, said in an interview yesterday
that Sony’s image technology would be a
“vital element” in the company’s future.

The unit accounted for 10 per cent of

first-quarter revenue and Sony sees

demand growing for image sensors in

products from the new iPhone 11 to

smart devices and self-driving cars.

Third Point, Daniel Loeb’s hedge

fund, said in June it had built a $1.5bn

stake in Sony and urged the company in

a public letter to abandon its conglom-

erate model, focus on gaming, music

and films, spin off its image sensor busi-

ness and sell its stakes inSony Financial,

M3,OlympusandSpotify.

The proposals were a stark reversal

from Mr Loeb’s 2013 campaign when he

unsuccessfully demanded a partial

spin-off of its film and music business.

Last month, Sony announced the sale

ofits stake in medical equipment maker

Olympus and Mr Yoshida said the first

Third Point campaign had triggered a

restructuring that eventually led to a

management shake-up in its Hollywood

business.

Sony’s share price has risen 36 per

cent since Third Point’s interest was first

reported in April, on hopes that it would

divest some of its holdings. Sony

announced its decision to keep the

image sensor business after the market

closed.

But the company said yesterday it

would keep its stake in Sony Financial,

which it said had contributed “substan-

tially” to its profits.

The board pointed to a study showing

the high costs of spinning off the unit,

including an increase in patent licensing

fees and added hurdles to recruiting tal-

ent. In a seven-page letter yesterday

Sony said it “appreciated Third Point’s

strong interest” and it would “proac-

tively evaluate” its business portfolio.

Mr Yoshida also said he was aware of

the market frustration with what inves-

tors perceived as a discount to Sony’s

share price due to the complexity of its

sprawling businesses, which range from

consumer electronics and PlayStation

games to films, music and financial

services.

“I believe it is a big challenge for me to

create value for the company over the

longer term and for those measures to

be understood by our shareholders,” Mr

Yoshida said.

Goldman Sachs and Lazard offered

financial advice to Sony, while

Nishimura & Asahi provided legal

counsel.

Technology

Sony spurns calls to sell ‘crown jewel’

Group says image sensor

unit is vital to its future

after pressure from Loeb

J O H N R E E D— HANOI

Outside a former Nokia phone factory in
the north Vietnamese province of Bac
Ninh, a freshly-posted sign advertises
jobs for “hardworking, dynamic” work-
ers over 16 years old.
The plant, which was bought by Tai-
wan’sFoxconnin 2016, may soon start
makingGoogle’s Pixel phones, accord-
ing to local officials and to a report by
Nikkei, as the Silicon Valley company
looks for an alternative to manufactur-
ing in China.
If the investment materialises, it will
be a huge windfall both for Bac Ninh, to
the east of Hanoi, whereSamsungalso
has a smartphone manufacturing base,
and for Vietnam, which is emerging as
one of the main havens from the trade
war between the US and China.
“Under our policy of welcoming for-
eign investment, we welcome Google to
come to Vietnam,” said Nguyen Huu
Quat, the province’s deputy general sec-
retary. He said the company had not yet
finished planning the finer details of the
operation, including its location. Google
declined to comment.
The magnitude of the shift from China
to Vietnam is hard to measure, in part
because multinationals are keeping
their moves discreet to avoid upsetting
delicate government and supplier rela-
tionships in China.
But Vietnam’s trade numbers, not
least its record $39.5bn surplus with the
US last year, suggest a realignment is
under way, as do anecdotes from com-
panies, consultants and suppliers in
Hanoi and Ho Chi Minh City.
Applerecently began trial production
ofits AirPods in Vietnam, according to
Nikkei.AmazonandHome Depotare
among retailersthat have stepped up
sourcing in Vietnam, according to Vu
Ngoc Khiem, country director for Glo-
bal Sources, a consultancy that links glo-
bal suppliers to buyers.
But trade experts said Vietnam was
limited in how quickly it could lure
manufacturing orders from China.
“Global supply chains are compli-
cated,” said Adam Sitkoff, executive
director of the American Chamber of
Commerce in Hanoi. “There are a lot of
players and a lot of workers involved,
and you can’t just pick up and move
from one day to the next because of tar-
iffs.”
Bac Ninh, a densely settled region of
factories, malls, chain restaurants,

profit to their buyers to compete

directly with Vietnam, and claim their

tax back.”

Vietnamese workers also have a repu-

tation for being more restive than their

Chinese counterparts. While the coun-

try’s trade unions are Communist party

controlled, Vietnam saw a spike of wild-

cat strikes in recent years, which

reached nearly 1,000 in 2011.

Since then, the number has gone

down to about 300 a year, according to

government statistics. Vietnam’s recent

accession to the trans-Pacific CPTPP

trading group and signing of a free trade

agreement with the EU will require it to

begin allowing independent trade

unions, although their potential impact

is unclear.

Business leaders said that while the

notion of Vietnam replacing China was

unrealistic, it was now among the main

countries manufacturers were choosing

as part of a “China plus one” strategy —

trade war or not.

“Nobody has what China has, no

country in south-east Asia,” said Mr

Sitkoff. “But Vietnam can get some of

it.”

Additional reporting by Pham Hai Chung

in Hanoi

L E O L E W I S , G E O R G E H A M M O N D

A N D H E N N Y S E N D E R— HONG KONG

China’s largest investment bank

ordered a subsidiary to review its ten-

ancy of premises owned bySwire

Group, intensifying pressure on the

Hong Kong group as tension with Bei-

jing grips the financial hub.

State-ownedCitic Securitieshad told

CLSA, a brokerage, to seek a move

from its offices in One Pacific Place, the

property that bears the Swire name,

people with direct knowledge of the sit-

uation said.

The order from Citic comes after pres-

sure was applied to Swire’s other hold-

ings, including Hong Kong airline

Cathay Pacific.

Hong Kong has been racked by three

months of pro-democracy protests,

prompting businesses in the territory to

monitor their relationship with Beijing

closely, amid fears that a wrong step or

inopportune comment might lead

China to hammer their operations.

Swire has been among the companies

hardest hit in the protests in Hong

Kong, which have flared over the past

three months.

An employee at Cathay Pacific was

arrested during demonstrations in

July, according to people with knowl-

edge of the situation. The carrier has

been criticised by Beijing over its

handling of the protests, with the

country’s aviation regulator accusing it

of not acting quickly enough to disci-

pline staff who participated in or sup-

ported the demonstrations.

Officials at the regulator told Swire

executives that the airline’s top manage-

ment were “not patriots”.

Two of Cathay’s senior executives

resigned after the criticism.John Slosar,

the non-executive chairman, quit a few

weeks later.

CLSA said that the company was not

moving out of its current offices but was

renegotiating its lease at One Pacific

Place, whose other tenants include

DeloitteandMoody’s.

Multiple CLSA employees have told

the Financial Times that they have been

advised to avoid flying on Cathay.

The order to the brokerage to review

its tenancy of a Swire property had

dashed hopes that the fallout from the

group’s run-in with Beijing would be

limited to its airline, said one person

close to the situation.

Swire — one of the last of Hong Kong’s

hongs, or British trading houses

founded in the 19th century — has seen

its shares slide almost 20 per cent to

HK$76.25 since the arrest of the Cathay

Pacific employee in July.

Swire Properties declined to com-

ment. Citic did not respond to a request

for comment.

Commercial rents in Hong Kong have

slumped as 15 consecutive weeks of pro-

tests have sown uncertainty among cor-

porate tenants and hit retail sales.

AfterPrada, the Italian fashion house,

opted to vacate its Hong Kong store last

month, its landlordEarly Light Group

told the South China Morning Post that

it was willing to cut rents 44 per cent for

the next tenant.

Additional reporting by Don Weinland

Financials

China parent

leans on CLSA

to move out of

Swire-owned

HK premises

Technology.Manufacturing

Vietnam gains ground in shift from China

Google and Apple are among

those betting on the country as

groups seek trade war haven

the government speaks of levelling the

playing field so that Vietnamese compa-

nies can compete.

But Vietnam’s manufacturing work-

force is only about the same size as that

of China’s Guangdong province, and it

cannot draw on migrant workers from a

bigger hinterland.

The smaller scale means that manu-

facturers must dig deep, and work hard,

to find local suppliers, workers, and

managers.

Vietnam ranks 55th on the World

Bank’s Global Competitiveness Index,

which assesses infrastructure, labour

market efficiency, and education among

other factors, compared with 27 for

China.

While roads are good in the north

around Hanoi, they are less so around

Ho Chi Minh City, the business capital.

The city’s Tan Son Nhat International

airport, in the midst of an upgrade, can

be congested and unpleasant.

And while Vietnam’s wages are lower

on average, China’s factories sometimes

have higher productivity, and often the

support of local or even national govern-

ment. “Chinese manufacturers get tax

support from their government,” said

Mr Khiem. “They can even sell for zero

housing for migrant workers, and other

ex-urban sprawl, is the country’s small-

est province but has attracted $18.2bn

of foreign investment in recent years

from Samsung,CanonandNokia,

according to Mr Quat.

It is all about location, officials say.

Bac Ninh is a 40-minute drive from

Hanoi, half an hour from Noi Bai airport

— from where Samsung exports its

phones — two hours from the port of

Quang Ninh, and an hour and a half

from the Chinese border.

Provincial officials offered Samsung

land in the Yen Phong industrial park

and successfully lobbied the central

government for generous tax breaks for

both Samsung’s initial factory built in

2009 and an expansion from 2015 that

helped make the South Korean com-

pany Vietnam’s biggest exporter.

VSIP, the industrial park where the

Nokia factory sits, is served by a six-lane

roadway and is replete with both work-

ing factories and available office space,

suggesting a region and a country open

for business. Samsung buses in some of

its workers from several other prov-

inces, and has hostels for them on site.

Hanoi has pulled out so many stops

for foreign investors in recent years that

Prime location:

workers leave

the Samsung

factory in Bac

Ninh, which is

half an hour

from Noi Bai

airport and

two hours from

the port of

Quang Ninh

Linh Luong Thai/Bloomberg

‘There are a

lot of players

and workers

involved,

and you

can’t just

pick up and

move...

because of

tariffs’

Sony said it appreciated

Third Point’s interest and

it would ‘proactively

evaluate’ its portfolio

S O N G J U N G - A— SEOUL

LG Displayis set to cut jobs as the sec-

ond-largest flat panel maker struggles

to compete with China rivals and to

turn a profit from its investments in

organic light-emitting diode tech.

The Korean group, a supplier toApple,

yesterday unveiled a voluntary redun-

dancy programme for domestic produc-

tion workers.

That followed results last month

showing its net loss widened to

Won550bn ($462m) in the second quar-

ter due to lower prices for liquid crystal

display panels.

The news, rare for an LG group unit,

came a day after the company replaced

its chief executive at an emergency

board meeting.

LG Display is attempting a turnround

as it grapples with challenges including

a slowdown in China, the Sino-US trade

war and Japan’s curbs on exports of tech

parts and materials to South Korea.

The company said on Monday that

chief executiveHan Sang-beomhad

stepped down over the worsening

performance, to be replaced byChung

Ho-young, president of affiliate

LG Chem.

LG Display “is losing ground to Chi-

nese rivals in the LCD sector while its

expansion into smaller-size OLED pan-

els has not turned profitable yet”, said

C.W. Chung, head of research at Nomura

in Seoul.

“It will be difficult to turn round the

company any time soon for structural

reasons.”

It was unclear how many of the com-

pany’s 23,000 workers at domestic pro-

duction lines might take up the redun-

dancy offer and how much the company

could save from the plan. It has 59,

employees.

Analysts said the timing was unusual,

coming after the iPhone launch last

week that would bolster demand for

panels. They believed LG was shipping

OLED panels for the new iPhone from

the third quarter.

Mr Chung said that was unlikely to be

a big help for LG Display, with smart-

phone sales slowing. Shipments fell 4.

per cent to 1.4bn units last year, accord-

ing to researcher IDC.

LG Display dominates the large-size

OLED TV panel market, and is acceler-

ating its shift from LCD to next-genera-

tion OLED in the face of oversupply

from China LCD makers.

The group has invested more than

Won5tn since early 2018 in production

of small-size OLED screens to steal a

march on bigger rivalSamsung Display,

according to Shinhan Investment.

That had yet to contribute to earn-

ings, and had increased net borrowings

from Won2.2tn at the end of 2017 to

Won8.9tn in June this year, said analyst

So Hyun-chul at Shinhan.

He estimated that LG Display was fac-

ing an operating loss for this year of

Won1.33tn.

Technology

LG Display unveils domestic job cuts scheme

Andrew

Mackenzie’s base

salary of $1.7m was

unchanged but his

short-term bonus

fell to $1.3m

Citic Securities has told

the brokerage to seek a

move from its offices

in One Pacific Place

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