14 ★ FINANCIAL TIMES Wednesday19 February 2020
COMPANIES
SA M J O N E S— ZURICH
When an activist investor pressed
SwissfundhouseGAMtocutcostsradi-
cally and slash hundreds of jobs three
yearsago,theymetwithnosuccess.
But with the departure of a star asset
managerfollowing a scandalin 2018, a
precipitous decline in assets under man-
agement and a change in leadership, the
Zurich-headquartered group has been
forced to rethink.
Under new chief executivePeter
Sanderson, now six months into his job,
GAM is pursuing exactly the kind of
aggressive cost-cuttingrecommended
byRBR Capitalin 2017 in an attempt to
resuscitate itself.
RBR no longer holds a stake but GAM
is under fresh scrutiny from two new
activists agitating for change.Bluebell
Capital Partners, a London-based group
whose stake size has not been disclosed,
has called for GAM to be broken up.
Meanwhile, Prague-basedKrupa Global
Investors, which holds 3 per cent of
GAM’s shares,is calling for the entire
company to find a buyer.
Both activists declined to comment.
Tomorrow GAM will report dismal
results for 2019. A profit warning issued
last month — itsthird in two years— laid
bare the scale of the challenge, with the
group expecting an underlying profit of
just SFr10m ($10.2m), down 92 per cent
from a year earlier.
Assets under management are fore-
cast to have remained stable at
SFr132bn, but within this a significant
shift has occurred from the company’s
higher-margin actively managed
funds business to its private labelling
division, which provides services and
administration for other, smaller fund
managers who lack the scale to do this
themselves.
Mr Sanderson, a former executive at
BlackRock, hasmade it clear thatdeep
job cutswill be necessary. A memoran-
dum to staff last month put them on
notice that discussions about redundan-
cies would be starting soon. The num-
bers involved — as many as 350 people,
according to one executive at the com-
pany — are strikingly similar to those
proposed by RBR, which said it could
find SFr51.8m in savings a year by losing
353 staff.
Others says the cuts willbe nowhere
near so steep. A senior executive famil-
iar with thecompany’s plans said a
“more realistic” figure would be in the
“low hundreds”. GAM had 863 staff at
the end of June according to its half-year
report.
The group is also streamlining its IT
and administration processes with the
aim of making additional savings.
However, some analysts areunper-
suaded that the measureswill suffice.
“What they have announced so far is
not enough to reach any satisfactory
position, unless you have crazy assump-
tions on further growth,” said Andreas
Venditti, an analyst at Vontobel.
But controlling costs is only half
the challenge. Many active managers
such as GAM are facing an existential
crisis as asset owners switch tocheaper,
passive funds with US operators
BlackRock,VanguardandState Street
Global Investors making inroads in
Europe.
“[Organic growth] is something
which would take eight years or more of
to get to a level of reasonable profitabil-
ity,” said Daniel Regli, analyst at Octa-
vian partners, and a former GAM
employee, who suggested “a merger or
takeover would be the most rational
solution in the short term”.
Joining forces has proved a popular
option among other active managers
this year.
On MondayJupiter Fund Manage-
ment announced it was acquiring
Merian Global Investorsin a£419m deal
whileyesterday US asset managerFran-
klin Templetonsaid it was to buy rival
Legg Masonfor $6.5bn including debt.
So far, GAM has been publicly averse
to the idea of a sale although it has
attracted attention as a target.
However the chief executive of one
large private bank, which said it had
considered GAM as an acquisition, said
the business had very little of value.
“Why would you buy the whole thing?
You take the [portfolio manager] teams
you want,” he said.
Last November,Vincent Taupin, chief
executive ofEdmond de Rothschildtold
the Financial Timesthat the bank had
looked closely at GAM but decided
against it, even with the group’s
depressed share price. The stock has
lost more than 80 per cent of its value
over thepast two years.
GAM declined to comment ahead of
its results.
Mr Venditti said investors tomorrow
would be looking closely at an indica-
tion of flows and GAM’s outlook for
“That was missing in the January
profit warning,” hesaid. “At least as
important for the share price and the
sustainability of this business is the
question of when they can return to sus-
tainable net inflows.”
Financials
GAM chief pursues aggressive cost cuts as activists Bluebell and Krupa raise pressure
N E I L H U M E— NATURAL RESOURCES
EDITOR
Glencore’s billionaire chief has taken a
swipe atBP, dismissing the oil major’s
plan to cut its greenhouse gas emissions
to net zero by 2050 as “wishy-washy”.
Co m m e n t i n g o n B P ’s re c e n t
announcement,Ivan Glasenbergsaid
2050 was a “long way” off and Glencore
preferred to be “precise and factual”
when talking about measures to reduce
its carbon footprint.
“Let’s talk about what we are actually
doing,” said Mr Glasenberg. “2050 is a
long way to go, and we don’t want to
come out with wishy-washy ideas.”
His remarks came as the miner and
commodities trader, which is also the
world’s biggest exporter of thermal coal,
forecast a 30 per cent reduction in its
absolute Scope 3 emissions — including
those produced by its customers — over
the next 15 years.
Mr Glasenberg said he expected the
“depletion” of the company’s coal
resource base in Colombia and, to a
lesser extent, South Africa and Aus-
tralia, to contribute to this reduction, as
well as significant investment in so-
called “future facing” metals such as
copper and cobalt.
“By 2035 we will not have any produc-
tion in Colombia,” Mr Glasenberg said.
In response to Mr Glasenberg’s com-
ments, BP said: “Last week we set out
our low carbon ambition for BP — to be a
net zero company by 2050 or sooner
and to help the world to get there. We
were clear that this is our long-term
ambition and that we will give more
detail on our near-term plans and strat-
egy in September.”
Glencore has already promised to cap
its annualcoal production at 150m
tonnesand if mines in Colombia and
South Africa are allowed to deplete, out-
put is likely to fall to around 100m
tonnes by 2035. The group already has
lower Scope 3 emissions than many of
its mining rivals such asBHPandRio
Tinto.
“Longer term, the ‘green’ [metal] por-
tion of Glencore’s portfolio will see a
growing share, something that will be
harder to achieve for peers,” said Tyler
Broda, analyst at RBC Capital Markets.
Mr Glasenberg added thatmore lead-
ership changeswereon the way as the
company worked on bringing through a
fourth generation of leaders. Today only
a handful of executives from the time of
Glencore’s 2011 flotation are still at the
company. These include Mr Glasenberg,
head of coal trading Tor Peterson, and
Daniel Maté, who leads its zinc business.
“As I have said, once the new genera-
tion is in place and ready to move on, it
will also be time for me to move on,” said
Mr Glasenberg, addinghis successor
would be an internal appointment.
Glencore shares closed down 4.5 per
cent at 236.5p
Additional reporting by Anjli Raval
See Lex
Mining
Glencore chief dismisses BP’s net zero goals
Largest thermal coal
exporter dubs oil group’s
2050 target ‘wishy-washy’
ST E P H A N I E F I N D L AY— NEW DELHI
All eyes are on Vodafone’s Indian joint
venture to see if it can stave off collapse
following a Supreme Court ruling that it
must pay $7bn in retroactive levies and
penalties by March 17.
The verdict has leftVodafone Ideain a
precarious position. The cash-strapped
company saidthat it hadpaidRs25bn
($350m) in dues and would pay a fur-
ther $140m by the end of the week.
That gave the country’s second-big-
gest mobile carrier some breathing
room, said Neil Shah, an analyst at
Counterpoint Research, but“they aren’t
out of the woods yet”.
Here arekey questions about the dis-
pute that is pressing the company and
the wider Indian telecoms sector.
What is the conflict about?
The dispute dates back to 1999, when
New Delhi introduced a revenue-shar-
ing model that required companies to
share with the government a percentage
of their adjusted gross revenue (AGR).
The companies and government disa-
greed over what should be calculated as
AGR. New Delhi argued that all reve-
nues from the business, even non-
telecoms services, should be included.
A legal battle kicked off in 2003 and
raged for more than a decade but in
Octoberlast year the Supreme Court
overturned a lower-court ruling and
agreed with the government’s expansive
definition. Under the new definition,
Indian telecoms companies in operation
since 2003must pay approximately
$13bn in historic levies and penalties.
The country’s top court last week
rejected a petition from the telecoms
groups to defer payment, berating them
for not settling dues sooner.Within
hours the government reinforced the
Supreme Court decision with a notice
ordering the telecoms companies to pay
up immediately.
Which companies does it affect?
The ruling applies to all telecoms com-
panies operating in India since thesaga
started. Manyhave gone bankrupt or
consolidated, leaving three big players
—Bharti Airtel, Vodafone Idea andReli-
ance Jio— as well as state-runBSNL. As
the oldest operators, Bharti Airtel and
Vodafone Idea have to pay the bulk of
the fees: $3bn and $7bn respectively.
But under the new interpretation of
AGR, any company that has held a tele-
coms licence since the court case
started, even if it is not a mobile opera-
tor, is also liable to pay dues to the
government. That includes evenOil
India, India’s second-largest national
end “tax terrorism” and the dispute has
become a symbol of New Delhi’s indif-
ference to foreign investment.
The AGR ruling added to a long line of
other retrospective tax cases that have
causednightmaresfor multinational
companies. Vodafone Idea is still fight-
ing a $2bn case linked to its acquisition
of Hutchison Telecom in 2009.
A shutdown of Vodafone Idea could
result in billions of dollars’ worth of
defaulted debt and thousands of job
losses, with banks and the government
taking the biggest hit.State Bank of
India,ICICI BankandPunjab National
Bankare part of a group with sizeable
exposure to Vodafone Idea, said finan-
cial services company IIFL in a recent
note.
“Ironically, the government, despite
winning the suit, could see the biggest
impact through deferred spectrum debt
default,” said Motilal Oswal Financial
Services, adding that “a default of such a
large scale could increase India’s fiscal
deficit by ~40 bps”.
K A N A I N AG A K I— TOKYO
Nissan’s chief executive has told
shareholders he will step down if he
fails toimprove the company’sper-
formance, as thecarmaker signalled
cuts to executive pay and deeper US
restructuringmoves.
The pledge came as thenewbossfaced a
two-and-a-half-hour grilling from
shareholdersover a collapse in vehicle
sales, dividends andthe sharesin ayear
that followed the ousting offormer
chairmanCarlos Ghosnin2018.
“You can fire me immediately” if
the management teamwas unable to
steer the companyeffectively and stem
a hit to earnings,Makoto Uchidasaid at
an extraordinary shareholders’ meeting
in Yokohamayesterday. “I’m taking
over these tough circumstances with
strong determination.”
The EGM to appoint Mr Uchida and
three other directors to Nissan’s board
came days after the carmaker issued its
second profit warning in three months
following itsbiggest quarterly lossin a
decade. Shares havedropped more than
25 per cent this year after Nissan dis-
closed it would forgo the payment of its
year-end dividend, which would also
deal a blowto the worsening cash posi-
tion at its alliance partnerRenault.
Questions fromshareholders centred
on executive remuneration and retire-
ment packages for departing directors
includingHiroto Saikawa, who stepped
down as chief executive last yearafter
disclosures of overpaid compensation.
The retirement packages have been a
source of fresh infighting after the new
compensation committee proposed
granting full performance-based pay-
outs for threeex-executives — excluding
Mr Saikawa — despite a collapse in Nis-
san’s profits and share price, according
to people close tomanagement.
Yesterday Mr Uchida signalled that
cuts in executive pay would be included
when heannounced a broad range of
new cost-cutting and other turnround
measures in May.
“We will complete our cost cuts in
North America and carry forward with-
out setting any taboos,” Mr Uchida said,
responding to a question on why the
group’s fortunes in the US were not
improving despite cutting back on car
sales incentives there.
Keiko Ihara, head of the compensa-
tion committee,said the retirement
packages for departing executives
would take into account the current
state of earnings.
With shareholder approval secured
for the new management team, Mr Uch-
ida’s focus will turn to fixing Nissan’s
performance and its alliance with
Renault, which nearly broke down fol-
lowing Mr Ghosn’s arrest.
Shareholders voiced scepticism about
the carmaker’s ability to outrun the
internal turmoil.
“Nissan’s image and share price seem
to decline every time the company is
covered in the media related to Mr
Ghosn. What is the management going
to do about it?” one shareholder asked.
Automobiles
Nissan signals
pay cuts and
deeper US
restructuring
India Alarm bells ring for Vodafone Idea after tax ruling
Because it is only three years old Jio
owed only $2m in retrospective dues, an
amount it has already paid.
The price war heaped pressure on
Bharti Airtel and Vodafone Idea, which
were already weighed down by India’s
costly spectrum fees. Bharti Airtel had
made provision for the ruling and was
able recently to raise funds. On Febru-
ary 17, the companysaidit had paid
$1.4bn towards its AGR dues.
But Vodafone Idea, saddled with
about $14bn in net debt, has warned
that the ruling threatens its survival.
Vodafone Group and local partnerAdi-
tya Birla Grouphave in effect ruled out a
fresh infusion of capital, leaving the
company with few options.
What are the wider implications?
In 2016,Vodafone Groupinjected more
than $7bn into its Indian entity, one of
the country’s largest foreign direct
investments. The retrospective tax
demand has cast serious doubt on Prime
Minister Narendra Modi’s promise to
exploration and production company,
which holdsa “national long-distance
service licence” to establish a system for
managing its pipelines.
Oil India said it leased spare band-
width capacity to other telecoms opera-
tors for cumulative revenue of $200k.
However, the government is seeking
payment on total reported revenue,
including sales of crude oil, a sum that
amounts to $6.7bn, nearly double the
company’s net worth.
Oil India and the other affected non-
telecoms groups are expected to peti-
tion the Telecom Disputes Settlement
and Appellate Tribunal over the issue.
Whatis the impact so far?
The ruling has dealt a blow to a sector
bruised by a price war with upstart Reli-
ance Jio, a mobile network launched in
2016 backed by Asia’s richest man,
Mukesh Ambani.
Jio has grown rapidly by offering free
calls and data packages at prices that
made India’s fees some of the cheapest.
Vodafone Idea,
saddled with
about $14bn in
net debt, has
warned that the
Supreme Court’s
move threatens
its survival— Rupak
De Chowdhuri/Reuters
Shutdown
of Vodafone
Idea could
result in
billions of
dollars
worth of
defaulted
debt and
thousands
of job losses
Chief executive
Peter Sanderson
has made it clear
deep job cuts will
be needed at the
Swiss fund house‘I’m taking over these
tough circumstances with
strong determination’
Makoto Uchida, chief executive
Financial
FEBRUARY 19 2020 Section:Companies Time: 18/2/2020-18:44 User:alistair.fraser Page Name:CONEWS3, Part,Page,Edition:USA, 14 , 1