The Wall Street Journal - 02.08.2019

B10| Friday, August 2, 2019 THE WALL STREET JOURNAL.

Fitbit’s smartwatch business

is running low on power in the

battle for arm space with rivals

AppleInc. andSamsung Elec-

tronicsCo.

Shares of the fitness-wear-

ables maker fell 21% Thursday,

its second-worst decline in a

single day since it started trad-

ing in 2015. That knocked its

market cap below $1 billion af-

ter executives lowered guidance

for the year, citing disappoint-

ing watch sales due in part to

fierce competition.

Fitbit launched a

new smartwatch, the

Versa Lite, earlier

this year and sold

it at a lower

price than its

other models. But

Chief Executive

James Park told

analysts on an

earnings call late

Wednesday that

sales were tepid, as

consumers were will-

ing to pay higher prices

for smartwatches that have

additional features. Fitbit’s rev-

enue from smartwatches fell

27% in the second quarter,

while the average selling price

of all of its devices declined

19%, crimping margins.

launches, and plans to shift to

an annual product-launch cycle

in an effort to make sales more

steady and predictable.

Investors don’t appear con-

vinced of the company’s quick

recovery. Shares are down 24%

since the end of June, extend-

ing its decline so far this year

to 33%. Apple is up 32%, while

Samsung has risen nearly 17%.

Fit-

bit’s dis-

appointing

product

launch coin-

cided with a pe-

riod of strong

growth for the wearables

market. Global shipments of

wearable devices hit nearly 50

million in the first quarter, up

55% from a year earlier, accord-

ing to International Data Corp.

Apple controls 26% of the

wearables market, according to

IDC’s data, whileHuaweiand

Samsung account for 10% and

9%, respectively. Fitbit’s market

share stood at 6%, down from

9% at the end of last year.

Mr. Park says Fitbit won’t be

caught flat-footed again, prom-

ising the company is re-evalu-

ating its pricing and promo-

tional strategy for future

BYMICHAELWURSTHORN

Tough Competition Leaves Fitbit Winded

The fitness-products company’s stock fell 21% as the debut of its

new smartwatch disappointed. A Fitbit Local event in Washington.

FROM TOP: TASOS KATOPODIS/GETTY IMAGES FOR FITBIT; FITBIT

SYDNEY—Rio Tinto PLC

said it would pay a special div-

idend and raise its midyear

payout, even as its first-half

net profit fell because of a

write-down of the value of a

major copper investment in

Mongolia.

Rio Tinto said it would pay

a $1 billion special dividend

and raise its interim dividend

to$1.51asharefrom$1.27a

share a year ago, continuing a

cash windfall for mining inves-

tors as the price of iron ore

surges to its highest in more

than five years.

The world’s second-biggest

mining company by market

value on Thursday reported a

12% rise in its first-half under-

lying earnings to $4.93 billion,

missing the $5.16 billion me-

dian forecast of seven analysts

polled by The Wall Street

Journal. It was the miner’s

highest first-half earnings

since 2014.

“It is a very strong set of

results,” Chief Executive Jean-

Sébastien Jacques said, adding

that profit margins were at

their highest in a decade.

However, net profit fell 6%

to $4.13 billion after the com-

pany wrote down its invest-

ment in the Oyu Tolgoi copper

deposit in Mongolia by $800

million. Rio Tinto said last

month it will take longer and

cost more to finish building an

underground mine at Oyu Tol-

goi after early engineering

work pointed to a heightened

risk of rockfalls.

“Right now we have a lot of

uncertainty about the project,”

Chief Financial Officer Jakob

Stausholm told The Wall

Street Journal.

The Oyu Tolgoi operation—

one of the few big mine devel-

opments globally—will be the

world’s third-largest copper

mine once it is completed, ac-

cording to the company’s pro-

jections.

Miners have become much

more focused on investor re-

turns after several deals

clinched at the top of the last

mining cycle were much less

profitable than hoped. Some

investors are pressing compa-

nies to explain how they will

grow production as reserves of

copper to iron ore get used up.

Last month, Anglo Ameri-

can PLC said it would buy back

$1 billion in stock and raised

its interim dividend by 27% as

it reported a jump in half-year

earnings. Rivals including BHP

Group Ltd. are also expected

to report bumper profits and

returns this month.

Cash flows have been bol-

stered by a boom in the global

iron-ore market, as exports

from the major hubs of Brazil

and Australia have faced dis-

ruptions and China’s steel pro-

duction surged to fresh re-

cords.

The price of iron ore has

jumped by more than 60%

since the start of 2019.

Rio Tinto said its net debt

totaled $4.86 billion at the end

of June, down from $12.9 bil-

lion three years ago.

Still, the Anglo-Australian

miner hasn’t been able to capi-

talize fully on the increase in

iron-ore prices after produc-

tion was hurt by bad weather

in Australia’s arid Pilbara re-

gion, which accounts for 60%

of the world’s iron ore traded

by sea. Mr. Jacques said the

company was struggling to

maintain premium iron-ore

grades for its customers after

running its mines hard in re-

cent years, and delaying some

new investments.

“We have operational is-

sues, but this is mining,” he

said.

Mr. Jacques was upbeat

about the global outlook, de-

spite U.S.-China trade frictions

remaining unresolved. Beijing

is responding to a slowdown

in its economy with stimulus

measures and that should

buoy demand for iron ore and

other commodities, he said.

BYRHIANNONHOYLE

Rio Tinto Rains Cash on Investors

BANKING & FINANCE

stable returns and provide re-

silience in downturns. But its

shares have fallen 19% in a

year, and an activist share-

holder, Sherborne Investors,

has asked for a strategic re-

view.

The decline in share price

has accelerated last month as

worries have risen over a po-

tential no-deal Brexit. The

bank is one of the U.K.’s larg-

est lenders to companies and

households. Mr. Staley on

Thursday said the bank is “to-

tally prepared” for a no-deal

exit from the European Union.

On Thursday, shares rose

1%, supported by a rise in the

bank’s first-half dividend to 3

pence from 2.5 pence.

Net profit in the second

quarter fell to £1.03 billion

($1.25 billion) from £1.28 bil-

lion, reflecting a rise in bad

loans and higher operating

costs from a year earlier.

But the bank said it is on

track to make a 9% return on

tangible equity for the year, a

performance pledge by Mr.

Staley.

Bad loans rose 70% in the

quarter, at £480 million from

£283 million, while operating

costs rose 6% to £3.5 billion.

Barclays said the rise in im-

paired loans was because

there wasn’t a repeat of last

year’s stronger conditions in

the period, which included the

release of earlier provisions.

In Barclays’s international

division, which includes its

corporate and investment

banking, revenue rose 5%,

mainly because of a gain from

selling shares in a business it

partially owned. Without that

extra boost, revenue in its

markets business fell 5%.

Banking fees fell 1%.

Mr. Staley said the bank

will cut costs below a previous

targeted range, to less than

£13.6 billion for the full year.

The bank has been leaving

jobs unfilled when employees

depart as one cost-saving

measure.

Finance Director Tushar

Morzaria said the 3,000 job

cuts, which represent about

3.6% of the bank’s 83,500 em-

ployees at the end of 2018,

have been “across the board”

and not concentrated in one

area.

New York-based Sherborne,

headed by Edward Bramson,

called for Barclays to move

capital away from its invest-

ment bank earlier this year.

After Mr. Bramson lost a

shareholder vote for a board

seat in May, he said his firm

would give the bank “a quarter

or two” and see what happens

before mounting any fresh

campaign for change.

BarclaysPLC said it cut

3,000 jobs in the second quar-

ter and plans to reduce costs

further as net profit slid 19%,

hurt by weaker business con-

ditions.

Chief Executive Jes Staley

is trying to convince investors

that the bank’s strategic mix

of consumer, business and in-

vestment banking can produce

BYMARGOTPATRICK

Barclays Cuts 3,000 Jobs as Profit Slips

Bank battles rising

bad loans, declining

stock price, activist

shareholder

Chief Executive Jes Staley

PETER NICHOLLS/REUTERS

half to £441 million, as its in-

dex business flourished. Reve-

nue at LSE’s smaller and tradi-

tional capital-markets

business rose 5%, but that

partly reflected a one-time ac-

counting benefit. Revenue

from equities trading fell 16%,

while the fixed-income and re-

lated trading businesses

dropped 4%.

Overall, the LSE said after-

tax profit fell to £265 million

from £283 million a year ear-

lier, but adjusted profit rose

11% to £533 million. Revenue

was up 7% at £1.02 billion.

By acquiring Refinitiv, the

exchange operator will gain

access to a variety of data and

analytical tools such as the

Eikon financial-data terminal

and other products that are

used by more than 40,000 cus-

tomers, including brokerage

firms, institutional investors,

governments and corpora-

tions. Refinitiv also operates

Tradeweb, FXAll and Matching

platforms, among others, that

handle on average daily trad-

ing volume of over $400 bil-

lion in foreign exchange and

$500 billion in fixed income.

Mr. Schwimmer and Martin

Brand, who oversees Black-

stone’s investments in finan-

cial institutions, led much of

the deal negotiations, benefit-

ing from their existing rela-

tionship. At Goldman Sachs,

Mr. Schwimmer helped advise

Mr. Brand on the sale of finan-

cial data firm Ipreo ahead of

accepting the LSE job.

The talks—code-named

project Africa among the par-

ties—were also enabled by a

roughly 42% surge in LSE’s

stock price over the past

seven months before the deal’s

initial disclosure. That gain

lowered the exchange opera-

tor’s funding costs. During the

negotiations, the LSE was

identified as Leopard, Black-

stone as Buffalo, Refinitiv as

Rhino and Thomson Reuters

as Tiger, according to a person

familiar with the matter.

The LSE estimates it would

ultimately generate annual

cost savings of more than

£350 million from eliminating

overlapping data centers,

properties and corporate func-

tions, the exchange said.

Meanwhile, the enlarged LSE,

with combined revenue of

more than £6 billion, will be

able to access Refinitiv’s

strength in areas such as trad-

ing foreign exchange and fixed

income and servicing custom-

ers in the U.S. wealth manage-

ment sector.

The deal represents a quick

and profitable turnaround for

Blackstone. The buyout firm,

together with partners Canada

Pension Plan Investment

Board and Singapore’s GIC

Pte., acquired 55% of Refinitiv

last year from Thomson Reu-

ters Corp., which retained a

45% stake. Blackstone valued

that transaction at $20 billion,

including debt.

Under Thursday’s deal, LSE

shareholders would own 63%

of the enlarged company.

Blackstone and Thomson Reu-

ters would hold a 37% stake

but with voting rights capped

at 30%.

In the job a year to the day,

London Stock Exchange

GroupPLC Chief Executive Da-

vid Schwimmer has wasted lit-

tle time putting his stamp on

the European exchange opera-

tor.

The veteran Goldman Sachs

Group Inc. banker is a key ar-

chitect behind the LSE’s $14.5

billion deal confirmed Thurs-

day to acquire financial-infor-

mation and terminal business

Refinitiv HoldingsLtd. from a

Blackstone Group Inc.-led

consortium. The stock deal

marks the exchange operator’s

largest acquisition after its

$2.7 billion purchase of Frank

Russell Co. in 2014. The LSE

disclosed the talks Saturday.

Mr. Schwimmer, an Ameri-

can, joined the LSE last Au-

gust. He succeeded Xavier Ro-

let, who left in November 2017

after a battle over manage-

ment succession at the more

than 300-year-old exchange.

Since last summer, Mr.

Schwimmer has kept a rela-

tively low profile, reviewing

and better integrating the op-

erations, an effort that in-

cluded a trip last August to Sri

Lanka, where the LSE operates

a technology business.

But the Refinitiv deal sup-

ports expectations that he

would make acquisitions a pri-

ority in his new role as a sea-

soned investment banker with

experience working in the ex-

change space. At Goldman, Mr.

Schwimmer was identified as

one of the architects of the

2005 merger between New

York Exchange and Archipel-

ago Group.

“It’s totally not surprising;

he’s a deal maker,” said one

person who has met the ex-

banker.

The LSE, with a market

value of about £24.46 billion

($29.63 billion), is paying

about $14.5 billion for Refini-

tiv’s equity and is assuming

about $12.5 billion in debt, for

a total enterprise value of $27

billion. It also faces a lengthy

regulatory review by authori-

ties and the prospect of new

competition.

Bloomberg LP’s data termi-

nal competes against Refini-

tiv’s Eikon product and com-

mands a market-leading 32.6%

share based on revenue, ac-

cording to Burton-Taylor In-

ternational Consulting, a TP

ICAP PLC company. The Eikon

platform has a 20.7% market

share. Other competitors in-

clude Dow Jones & Co., the

owner of The Wall Street

Journal.

Despite those challenges,

the LSE believes the big bet is

worth taking.

Last fall, shortly after arriv-

ing at the LSE, Mr. Schwim-

mer identified three key goals

to grow the LSE: expand glob-

ally, become more diversified

by asset class and bolster its

data analytics business.

The deal addresses “all of

those ambitions...in one step,”

Mr. Schwimmer said Thursday.

In European trading, LSE’s

stock was up 6.5%.

U.S. and European exchange

operators are betting on

boosting revenue from data

that is used to develop new fi-

nancial products and more ac-

curately value assets to help

offset the pressure on fees

from more mature businesses

such as providing stock-trad-

ing services.

LSE said Thursday that its

existing data operations in-

creased revenue 4% in the first

BYBENDUMMETT

London Exchange

CEO Swings Deal,

Betting on Growth

The mining company wrote down its investment in the Oyu Tolgoi copper deposit in Mongolia by $800 million.

TAYLOR WEIDMAN/BLOOMBERG NEWS

The Goldman

veteran steered the

$14.5 billion

Refinitiv purchase.

wsj_20190802_b010_p2jw214000_0_b01000_1________xa2019.crop.pdf 1 02-Aug-19 06:10:33