10 ★ FINANCIAL TIMES Tuesday 27 August 2019Many worry that robots take human
jobs. Some that have already done so
find themselves unemployed. Chinese
factory activity slowed for the third
month in a row in July. With no
recovery in sight, rough times are
ahead for the automation industry.
For more than a decade, manufac-
turing exports were China’s growth
driver. Suppliers of robots, including
Japan’s Fanuc, were beneficiaries of the
boom. Robots became such an integral
part of production lines that robot
makers’ earnings become an indicator
of China’s economic health.
Since then, a global slowdown has
left China with idle robots. Shrinking
demand for cars has some plants
running at one-tenth of capacity. The
latest 10 per cent US tariff on $300bn
of additional Chinese goods will worsen
this. Some manufacturers have moved
production to countries such as
Vietnam to avoid tariffs. Capital
investment in China has suffered.
China used to contribute one-fifth of
Fanuc’s total revenues. Second-quarter
operating income fell 48 per cent to
¥28.5bn ($268m) due to declining
demand. Fanuc gets more than 80 per
cent of its revenues from robots and
software. Operating profit margins
have halved from more than 40 per
cent four years ago. Operating profit is
set to fall more than a third this year.
Robot-maker shares have tracked
order demand from global automakers.
Shares of Fanuc, which are down 17 per
cent in a year, used to trade at a
premium of more than double the
broader market. At the current
valuation of 34 times forward earnings,
plummeting orders still do not seem
fully priced in.
Fanuc used to fall back on orders
from Japan in tough times. But a
slowdown in capital spending there has
curbed orders. With China’s slowing
growth adding to concerns of a global
recession, demand for robot labour will
remain weak. Not so much “I’ll beFanuc/manufacturing:
the terminated robotback” — Arnold Schwarzenegger’s
catchphrase inThe Terminator— as “I’ll
be sacked”.Two-fifths of people would rather save
their pet dogs than the life of a
stranger, a US poll has shown. Strong
emotional bonds with our furry friends
is one reason the pet industry offers
reliable earnings during times of
economic malaise. That is helping
revive the fortunes of the UK’s Pets at
Home. Its shares have more than
doubled since the start of the year.
Pets decided to cut prices a few years
ago to combat online competitors. ThePets at Home:
clawbackplan is working. Like-for-like sales
were up by 8 per cent in the three
months to July. Pets is also
restructuring its veterinary services
business, closing unprofitable
surgeries. But this will weigh on profits
only in the short term, making
expensive-looking shares attractive.
Pets is streamlining its in-store
veterinary businesses to take
advantage of growing demand for pet
healthcare. Veterinary-related weekly
spending by households has risen by
75 per cent over the past three years,
according to the UK’s Office for
National Statistics. Demand for Pets at
Home’s veterinary services is expected
to continue growing at 5 per cent a
year, say analysts at Citi.
The company has also just finished
operating on 55 low-profitabilitysurgeries marked for attention. These
were being run as joint ventures with
veterinarians. The company has closed
30 and bought out the remaining 25 to
run itself. To promote growth at newly
established surgeries, the company is
also lowering the fees it charges the
vets with which it works. The plan will
knock profits by about £50m in total.
Those costs, along with the price
reductions in retailing operations, will
keep gross margins flat over the next
few years. These fell 4 percentage
points last year to 48.6 per cent.
The shares, trading on a multiple of
17 times next year’s earnings, are below
the 2014 listing price. But earnings are
likely to rise quickly once new vet
investments begin to mature. Dog-
loving investors should consider
throwing Pets at Home a bone.BlackBerry boss John Chenhas spent
six years telling anyone who will listen
that he has a simple plan to repair
BlackBerry’s revenue decline:
messaging apps. Never mind that
teenagers long ago replaced
BlackBerry’s Instant Messenger with
the likes of WhatsApp and S nap,
BlackBerry thinks it can sell a
communications security system to
grown-ups instead. Less cool but
hopefully more sustainable.
Other bright ideas include reducing
the workforce and digging out old
patents in the hopes of asking other,
more successful companies such as
Facebook to pay for BlackBerry
technology. Licensing revenue, which
includes intellectual property and
makes up almost a third of the
company’s total, rose more than 14 per
cent in the latest quarter. Yet this is
likely to have more to do with handsets
than IP, in spite of BlackBerry’s
attempt to leave smartphones behind
in 2016. Handsets such as the new
bright red KEY2 are designed and sold
by third parties that license the brand.
BlackBerry’s share price is down
almost a third over the past year. The
heady days of 2008, when its handsets
were the best-selling in the world and
its market value was $85bn, are gone.
Instead, it wants to become a security
and enterprise software group while
still making money from licences. Last
year it bought machine-learning
specialist Cylance for $1.4bn. The
company, which anticipates security
breaches, reported annual revenue
growth almost doubling last year.
Yet Cylance contributed just $32m to
group revenue of $247m in the last
quarter. Selling more security services
is taking time. At the end of last year
BlackBerry signed a deal with Nasa to
encrypt texts and phone calls. But
safety-focused organisations such as
banks or governments are naturally
more cautious about signing on.
BlackBerry’s plan to replace handsets
with cyber security services would
be a good one, if it was not quite so
slow.BlackBerry:
delayed receptionDigital technology depends on
electricity for energy. National Grid,
the UK transmission network, has a
duty to ensure everyone has constant
supply, assuming sufficient generation.
It is now under investigation by energy
watchdog Ofgem following a severe
lightning strike on the network just
north of London on August 9. The
incident, which caused a million homes
and businesses to lose power, resulted
in another digital system taking over:
finger-pointing. Who is to blame?
Probably not National Grid.
Energy has become a political
battlefield in the UK. The opposition
Labour party, if given the power, has
promised to nationalise utilities such as
National Grid. Government must
decide how much more redundant
capacity is necessary to stop this kind
of accident. National Grid is required to
ensure extra capacity equal to the
largest generator on the system at that
time. On that day it was 1 gigawatt, less
than the 1.38GW of generation that was
lost. Asking more generation plants to
remain on “just in case” sounds a good
idea but would cost more money. Or
perhaps National Grid should build
more interconnector cables to
continental Europe. Who will pay for
that, customers, taxpayers or utilities?
Most likely, customers will, through
tariffs or taxes, as some form of
insurance. If the stock market has
concerns about National Grid’s
culpability, there is scant evidence of it.
Its share price has held steady this
month. Indeed, National Grid shares
have far outpaced both the FTSE
Utilities index and the All-Share index.
A healthy 5.5 per cent dividend yield
and steady, regulated earnings help.
Any discussion about requiring
National Grid to prepare better for the
next once-in-a-decade event — the last
serious blackout was in 2008 — comes
at a time when Ofgem is deciding on
price controls for 2021-26. Most expect
a cut to the allowed return on its
electricity regulated-asset base which
should reduce its profitability.
That risk has already taken its toll on
National Grid shares. They have
declined 30 per cent from a peak three
years ago. Even so, its valuation at 15
times forward earnings is at a premium
to other UK-listed utilities.National Grid/UK
energy: dark materialAny finger-pointing at National Grid
has so far made little impression. Do
not expect that to change. Its shares
will be well-supported so long as Mr
Corbyn’s chances of gaining power
remain slim.CROSSWORD
No. 16,256 Set by CRUX
JOTTER PAD
ACROSS
1 A minor embarrassment for
the French? (6,8)
10 A bit of colour in season,
commonly blue (5)
11 Even foreign degrees give
honours (9)
12 Finally spotted more unusual
woodpecker, say (7)
13 The number left outside could
be infinite (7)
14 Saw a danger for high-wire act- turning round (5)
16 Sally taking unknown dog in
back row (9)
19 Compass direction to observe,
it’s said, off Alaska (6,3)
20 What a wrongful death would
be, no doubt (5)
22 He has spread out in the west
(7)
25 A foreign famille in disgrace
(3,4)
27 A doctor needs superior sharp
blade here, possibly (9)
28 Some notes Putin returned
cause trouble (5)
29 Safety precautions for
smokers in bed? (8,6)
DOWN
2 Not a bean, being idle perhaps
(3-6)
3 Topside of meat cooked with
one (1-4)
4 State involved in unfair rents
for publicans (9)
5 Irene’s new name (and
gender!) (5)
6 One of those elements are
rather strange (4,5)
7 Famous uprising without the
French marshal’s staff (5)
8 Poles in mix-up with a foreign
letter (7)
9 Tick means a good grade (6)
15 Just 50% of course (4,5)
17 “Licorice sticks” much
appreciated by Goodman (9)
18 On the way in, trains not
usually on time (2,7)
19 Shaw’s major article on public
houses (7)
21 They are on the same score, à
l’italienne (6)
23 Article upset Robert Clive, for
instance (5)
24 Star performer at 12 (5)
26 Parasites maintained by public
expense – I’m just one! (5)=2',$& $&&,'( 17
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Solution 16,Wind speeds in KPH Scale:
x = 55.
y = 50.HIGHHIGHHIGHLOWLOWLOWOCCLUDED FRONT LINEWARM FRONT LINECOLD FRONT LINEISOBAR BRUSH FRONT SYMBOLSPRESSURE LABELS1040 10401030 103010201020102010201010101010101010100010001000990 990980 980970 970960 960950 950940 940xxNAMExxMalta Sun 31
Manila Thunder 28
Miami Thunder 32
Milan Sun 31
Montreal Fair 25
Moscow Fair 21
Mumbai Cloudy 31
Munich Sun 28
Naples Sun 31
New York Fair 23
Nice Sun 29
Nicosia Sun 37
Oslo Sun 23
Paris Sun 30
Prague Fair 28
Reykjavik Rain 12
Riga Sun 26
Rio Fair 25
Rome Sun 29
San Francisco Sun 25
Singapore Thunder 30
Stockholm Sun 27
Strasbourg Sun 33
Sydney Shower 15
Tokyo Cloudy 28
Toronto Rain 22
Vancouver Sun 23
Vienna Thunder 28
Warsaw Sun 28
Washington Cloudy 26
Zagreb Fair 30
Zurich Sun 27Amsterdam Sun 26
Ankara Sun 28
Athens Sun 32
Bahrain Sun 40
Barcelona Thunder 27
Beijing Sun 35
Belfast Fair 19
Belgrade Sun 34
Berlin Sun 30
Brussels Sun 32
Budapest Fair 31
Cairo Sun 36
Cardiff Fair 21
Chicago Fair 27
Cologne Sun 33
Copenhagen Sun 27
Delhi Fair 36
Doha Sun 40
Dubai Sun 42
Dublin Fair 19
Edinburgh Fair 21
Frankfurt Sun 32
Geneva Fair 29
Hamburg Thunder 29
Helsinki Sun 21
Hong Kong Sun 33
Istanbul Sun 31
Lisbon Sun 30
London Sun 27
Los Angeles Sun 27
Luxembourg Sun 28
Madrid Fair 32Today’s temperaturesForecasts by
Wind speed
in KPH840
16192027(^3032)
36
31
30
32
30
28
26
23
21
21
21
27
32
29
31
29
31
27
29
30 28
31
32
(^2832)
37
28
33
Lex on the web
For notes on today’s breaking
stories go towww.ft.com/lex
Twitter:@FTLex
Nobody wears a luxury watch to tell
the time, puff their makers. Swiss
mechanical timepieces are bought for
aesthetic qualities, not functionality.
That explains why they have
survived the rise of the smartwatch.
The latest threat is protests in
Hong Kong, the Swiss industry’s
biggest export market. Share prices
of Richemont, which owns Cartier,
and Swatch Group have fallen around
1 0 per cent since latest results
revealed the first scars. Watchmakers
of Switzerland’s Jura region need not
hang up their tools, however.
Hong Kong accounts for 14 per cent
of Swiss watch exports. Protests deter
tourists and shoppers. Exports there
fell 6 per cent in the first seven
months of this year. But sales were
displaced, not lost. Sales to mainland
China were up 14 per cent in the same
period.
Back in 2014 and 2015, shares in
Swatch and Richemont fell after
previous Hong Kong protests. That
episode also coincided with a Beijing
corruption clampdown, which stopped
the “gifting” of luxury watches. Their
share prices swiftly recovered.
Swatch, whose brands include
Omega and Longines as well as the
eponymous plastic watches, trades at
14 times forward earnings, a fifth
below the five-year average.
Richemont trades on a multiple of
nearly 23, in line with its historic
average. It is less exposed to the greater
China region, which accounts for 22 per
cent of sales versus 36 per cent at
Swatch. Richemont also relies more
on faster growing jewellery markets.
Worries about the future of watch
sales will rightly curb investor
enthusiasm, however. The US, which
pioneered smart watches, is bleeping
an alert. Swiss watch exports there
remain below 2014 levels, although
reliance on struggling department
stores is also a factor.
Increasingly, luxury spending is
about Instagramable experiences.
Wearing a nice watch is not one of
those. But it is the only jewellery
many men will wear. Mobile phone
photos are ephemeral; Swiss
watchmakers argue their devices are
about lasting craftsmanship and
precision engineering, even if you
don’t look at the hands.
FT graphic Sources: Refinitiv; Federation of the Swiss Watch Industry
Swiss watchmakers’ shares fall following escalation
of Hong Kong street protests
Share prices, rebased
Richemont
Swatch Group
Rise in sales to China lessens impact
of demand dip from Hong Kong
China is of growing importance
to Swiss watchmakers
Share of annual sales, by country ()
Umbrella
movement
street protests
in Hong Kong
Sep-Dec 2014 Escalation of protests
against extradition bill
Hong Kong
USA
China
(Jan-Jul)
-
-
-
Hong Kong China
Dierence in Swiss watch exports, Jan-Jul
vs , in value terms (Swiss francs, millions)
Swatch Group/Richemont: watch strapped
Shares in Cartier-owner Richemont and fellow Swiss watchmaker Swatch Group have been pummelled by
protests in Hong Kong. Sales in the territory, which remains the biggest destination for Swiss watch exports,
are down. But that decline has been offset by a rise in sales to China.
AUGUST 27 2019 Section:FrontBack Time: 26/8/2019 - 18: 21 User: jeremy.wright Page Name: 1BACK, Part,Page,Edition: EUR, 10, 1
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