10 ★ FINANCIAL TIMES Tuesday20 August 2019The US bond market may have started
to exhibit age spots. Global economic
growth looks tired. But try telling that
to Asia’s legion of skincare devotees.
The region’s seemingly insatiable
demand for pricey toners, face masks
and creams has plumped up Estée
Lauder’s latest results. The 9 per cent
rise in sales and an adjusted profit gain
of 5 per cent in the fourth quarter both
topped expectations.
Guidance for the current fiscal year
was also well above consensus.
Full-year operating margins climbed
for the fourth year running to a record
17.6 per cent.
Cosmetics can be a recession-proof
business. While consumers may put off
big-ticket purchases during a
downturn, they will still treat
themselves to a $25 lipstick, or even
$350 face creams.
But not all beauty companies are
created equal.
While Estée Lauder and French rival
L’Oréalhave the financial muscle to
develop new products, build digital
strategies and fund acquisitions, others
have struggled. Revlon, a mass-market
staple, is putting itself up for sale. Coty
has taken a near $4bn writedown so far
this year on its $12.5bn acquisition of
Procter & Gamble’s beauty brands
from three years ago.
Estée Lauder benefits from having a
diversified product portfolio and a
balanced geographical exposure. This
has not gone unnoticed. The stock
jumped more than 9 per cent yesterday
to a new record high, extending year-
to-date gains to more than 50 per cent.
At 31 times forward earnings, Estée
Lauder shares look expensive.
The wider S&P consumer staples
index is trading at about 20 times. A
bet on Estée Lauder now is a bet that
the growth momentum can continue.
Estée Lauder said that its forecast
has already factored in risks from
Brexit, trade tensions and the Hong
Kong protests. This, plus a record ofEstée Lauder:
blemish freeproviding conservative outlooks,
suggest its shares can retain their
sheen.Japan’s convenience stores are
legendary for their ubiquity. Retailers
such as FamilyMart,Lawsonand
7-Elevenalso offer a wide variety of
goods. But profits have stagnated.
FamilyMart took a different tack last
year by buying a 5 per cent stake in
discount retailer Don Quijote’s holding
company Pan Pacific International.
Late last week it agreed to buy a
further 10 per cent stake, lifting the
share price a tenth yesterday. Its movesFamilyMart Uny:
quixotic charmshighlight why ultra-low price inflation
may never disappear in Japan.
The two groups have grown closer.
Don Quijote is known for jumble sale-
like retail experiences. Pan Pacific
acquired some of FamilyMart’s poorly
performing low-end Uny department
stores back in 2017 and began turning
them round. Customer traffic at six
stores converted so far had leapt 75 per
cent by late last year, CLSA says.
Expect more discounting. Last year,
Japanese trading house Itochuraised
its FamilyMart holding from 40 to just
over 50 per cent. Shareholders liked
the idea of a big trading house buying
control, especially given Itochu’s
expertise in domestic distribution.
FamilyMart’s shares rose 70 per cent
last year, leaving them on an expensive
price to forward earnings multiple of40 times by year end, twice that of
rivals. Its share price has since reversed
a lot of those gains.
Gross profit margins at the
convenience store groups, and even
Pan Pacific, have stagnated in recent
years. So growth by acquisition is
important. And yet more discounters
appear. Food wholesaler Kobe Bussan
has turned its skills to retailing. With a
limited shelf of goods and plenty of
private brands, Kobe Bussan offers
prices reportedly 30-70 per cent below
domestic supermarkets. Its market
value has doubled over one year.
Decades of intense competition over
the purses of the Japanese has resulted
in just more deflationary pressure in
shop retailing. FamilyMart’s links with
Itochu and Don Quijote ensure that
process will continue.PoorTumblr. Once a fast-growing
microblogging site full of special
interest groups and in-jokes worthy of
a $1.1bn bet from Yahoo. Now a
shrinking platform sold to WordPress
owner Automattic, reportedly for a
tiny fraction of that price.
Tumblr has been shunted from
owner to owner like an unwanted pet.
When Yahoo bought the site in 2013 it
was supposed to be part of a
rehabilitation master plan. Instead,
Tumblr went largely ignored as bigger
problems took hold. After missing
Yahoo-set advertising targets in 2016,
Tumblr was written down by $230m in
one quarter and $482m the next. By
the time Verizon Mediablended Yahoo
and AOLin a $10bn deal, no one
seemed particularly interested in what
Tumblr had to offer.
Tumblr reports blog numbers rather
than user numbers — which should
raise red flags — but web analytics firm
SimilarWeb reckons Tumblr monthly
visits have dropped 40 per cent since
2016 to 380m, making it one of the
smaller social media sites.
Tumblr’s downfall has been poor
content moderation and advertising
competition, the same issues that face
every social network. Revenue comes
largely from adverts, alongside fees for
blog designs. Tumblr’s niche interest
groups could be a good stomping
ground for targeted advertisers but
falling user numbers are uninspiring.
Advertisers preferred Googleand
Facebook.
Automattic, which also owns
journalism site Longreadsalongside
WordPress, is a good owner for the
platform. Existing overlaps between
sites can be expanded. Plus chief
executiveMatt Mullenwegsays that he
is interested in experimenting with
new advertising products and sources
of revenue. Ecommerce looks overly
hopeful given the scale of competition.
But subscriptions could work. Like
messaging service Slack, WordPress
provides a free model that can be
upgraded for an annual charge. Tumblr
fans may be persuaded to do the same.Tumblr:
blogging’s on the wallInfrastructure investment is hot. So
hot, indeed, that more than a little
refreshment is needed.
Maybe that explains why CK Asset,
billionaire Hong Kong tycoon
Li Ka-shing’s investment vehicle, has
chosen to buy out the Suffolk-based UK
brewerGreene King.
Most likely, it is the pubs, and the
real estate under them, that appeals. It
announced a tender offer for the
company late yesterday afternoon at
850p per share, a substantial 43 per
cent premium to the three-month
average price.
The offer values all of Greene King at
£4.6bn, including net debt.
If that looks a little frothy, it is a bit.
Recent transactions forEI Group(the
old Enterprise Inns) andPunch
Tavernshave had lower premiums, of
38 and 40 per cent respectively.
Understandably, Greene King’s board
recommended the deal to
shareholders.
There are reasons to do so. For one,
the offer is all cash. For another, any
financing will remain withCK Asset
and not be injected into Greene King in
order to leaven the returns on capital
or suck out a hefty dividend.
That is good news, given that Greene
King’s net debt to ebitda is already
high, at four times. There will be no
change to management nor to the
group’s brand and strategy.
This is a real estate deal, not about
beer. Beer consumption in the UK has
fallen over the past 15 years.
CK Asset has some form on these
types of property deal.
In late-2016 the Hong Kong group
bought 136 pubs from Greene King and
leased them back to the group.
It must have found those returns
refreshing, as it has come back for
another round; this time, a much
bigger one.
According to its calculations, based
on the rental returns from all the
estate, CK Asset says that Greene King
has an equity worth of £2.7bn. A
valuation of just over half the pub
estate in Greene King’s most recent
bond prospectus suggests that number
has merit.
This deal perhaps gives some
indication of just how heady the
market is for UK infrastructure assets,Greene King/CK Asset:
not pint-sizedrather than how interesting beer
companies are. Borrowing costs are
exceptionally cheap, and beer gets
dearer all the time.
That seems unlikely to change at
Greene King’s pubs any time soon.CROSSWORD
No. 16,250 Set by GURNEY
JOTTER PAD
ACROSS
1 Far from happy, famous person’s
going round one part of
building (10)
6 Former PM’s eastern retreat (4)
9 Current relevance of oil city apt
to be misrepresented (10)
10 Serious error imprisoning addict
(4)
12 Urgency about rental
agreement? Information here
(5,7)
15 Change of mind in relation to
notes (5-4)
17 Time to enter band’s store (5)
18 Instrument is returned to sailor
(5)
19 Old soldier, one thinking about
Koestler regularly (9)
20 Good view here of dial division
with water temperature (8,4)
24 Bollard, not exactly unique (4)
25 Land worker, about fifty, by
railway making remark (10)
26 Cutting tact with introduction of
rocket for Charlie (4)
27 Missive to sweetheart with zero
character? (4,6)
DOWN
1 Fruit of romantic appointment?
(4)
2 Towel, say, from Women’s
Institute? Extremely probable
(4)
3 Crisis with Turkey potentially
source of danger (8,4)4 Expression of regret about
ultimately deficient book (5)
5 Re-enter US after moving? They
might (9)
7 Somehow drag praise out of
him? Quite the opposite (10)
8 Complaint about elaborate ruse
by quiet swimmer (5,5)
11 Not half timely, spot friend,
talented, in Paris building (6,6)
13 Mother, initially awfully rigorous,
securing hotel in city (10)
14 Gold-digger on outside’s yen
to be included in frontier’s new
arrangement (5-5)
16 Host’s endless fuss about
hostile American native (9)
21 Some blush a deep colour (5)
22 Numerical fact in beginning
that’s not right (4)
23 Philosopher’s arguments you
embrace readily at outset (4)(1',1* 6+$'('
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Solution 16,Lex on the web
For notes on today’s breaking
stories go towww.ft.com/lexTwitter:@FTLexIncreasingly, top executives think
carefully about their weight for
health reasons. UK boards are
helping them shed some pounds. Pay
for bosses of Britain’s largest public
companies fell more than a tenth to
£3.4m on average last year, a
five-year low, says Deloitte.
Shrinking remuneration has come
with a rising trend in C-suite
turnover. The FTSE 100 lost some of
the best-paid executives during 2018,
suggesting that the pay decline will
continue.Martin Sorrellleft WPPand
Jeff Fairburnleft housebuilder
Persimmonamid controversy over a
bonus perceived as coming from state
subsidies.Rakesh Kapoorretires this
year from Reckitt Benckiser.
So, is the era of big payouts forchief executives ending? Probably not.
It has, however, become harder for
incoming bosses to push up their pay
rates. Hostility towards career
managers reaping outsized rewards is
reflected in the dissent at shareholder
meetings. Stricter corporate
governance standards introduced in
2014 have driven the changes.
Boards are also tightening standards.
Only 5 per cent of companies run more
than one long-term incentive plan,
compared with about half five years
ago. That makes determining total pay
easier. Governance committees and
boards can also now veto incentive
payouts deemed out of sync with a
group’s wider performance. A tenth of
FTSE 100 boards did so last year.
While a third of these chiefexecutives received no increase in
base pay last year, pensions were also
in the spotlight.
HSBCexecutives had their
contributions reduced to 10 per cent
of base pay earlier this year, below
the maximum of 16 per cent for their
subordinates.
Previously, HSBC executives
received up to a third of base pay.
They included chiefJohn Flintwho
recently announced his departure.
Overall, 16 FTSE CEOs departed
last year, close to the record of 17 in
2007 and 2013, according to
investment advisers AJ Bell.
Increasingly, companies are also
promoting from within.
That, too, helps trim C-suite wage
waist lines.FT graphic Sources: Deloitte; AJ Bell; Robert Half * All values medianFTSE CEO changes
NumberAverage
- FTSE CEOs promoted internally
Per cent FTSE CEO pay*
Base salary (m)
Other (m) Annual bonus payout
( of maximum)FTSE 100 CEO pay: change management
Pay for chief executives at Britain’s largest public companies fell to a five-year low last year. Shareholder
pressure has curbed bonus and incentive payments. It is harder for incomers to bump up remuneration.
The downward trend should continue with the departure of some of the highest-paid executives.
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