CRISIS? WHAT CRISIS?
European corporate executives cant escape the
C word. They have been grappling with the fallout
from the euro zones debt problems for more than two
years, watching in bewilderment as the seemingly containable
problems of Greece spread across the 17-nation bloc, tipping
much of the area into recession and threatening the very
existence of the single currency itself. But leading companies
arent dwelling on the debt crisis. Many of them exited
weak businesses and clamped down on expenses well before
trouble hit, as similar but earlier woes in the U.S. put them
on alert. Now, having gleaned what value they could from
improving margins, they are gearing up for greater top-line
Everybodys focused on whats going to
happen to Greece today and to Spain and Italy tomorrow, even
though European businesses, on the whole particularly
the larger global players are in pretty good
shape, says Bart van Ark, chief economist at the
Conference Board, a New Yorkbased business membership and
research group. Theyve got the cost structure in
order, and now theyre asking, How can we grow
organically within this global economy?
The answer, for many European concerns, lies with
innovation. These companies are intensifying efforts to develop
new products or improve existing ones to generate growth.
Consider Henkel, the German maker of consumer products ranging
from laundry detergent to superglue. The company generates
about one third of its sales from products launched in the past
three to five years. That fresh lineup helped Henkel to post a
5.9 percent increase in organic sales, which exclude the impact
of currency moves and acquisitions or divestments, to
15.6 billion ($20.7 billion) last year.
We consider volatility the new normal in our
markets, CEO Kasper Rorsted tells Institutional
Investor. We need to constantly adapt.
Companies are also looking to increase their exposure to
dynamic emerging-markets economies and reduce their
reliance on the sluggish European market. The U.K.-based mobile
telephone operator Vodafone Group, long one of the
industrys most global players, with a presence in more
than 30 countries across five continents, now boasts
250 million customers in emerging markets, almost twice
the number it had only two years ago. The company has been
investing heavily in new network capacity, especially for data,
to fuel that growth. Vodafone has set aside
£8 billion ($12.8 billion) to fund further
acquisitions of spectrum capacity and related ventures with
that in mind, says Vittorio Colao, the groups chief
executive. Emerging markets are a significant source of
value creation as our customer base continues to expand,
he says. Operations in Africa and Asia now represent 20 percent
of Vodafones market value, Colao estimates.
Acquisitions are also coming back into favor for companies
that are in a position to make deals. Unilever, the Anglo-Dutch
consumer products giant, spent $3.7 billion last year to
buy Alberto-Culver Co., the U.S. maker of brands such as
Nexxus and Noxzema, to bolster its fast-growing personal
care products division. Were into buying
again, says CFO Jean-Marc Huët, although our
main story is still organic growth.
Above all, companies need to be flexible to respond to
changing market conditions. Thats certainly the case at
European Aeronautic Defence and Space Co., the parent of
aircraft maker Airbus. Worried about the French groups
reliance on the civil aviation market, EADS in 2008 began
targeting defense activities for growth, with the aim of
reducing Airbuss relative size within the group to 50
percent of revenue by 2020. The financial crisis, however, has
hit military budgets hard, while commercial airlines have been
quick to rebound. As a result, EADS executives are considering
abandoning or modifying that 2020 target, says outgoing CFO
Hans Peter Ring. What we discovered was, Airbus was less
cyclical after the financial crisis than anyone thought,
At a time when growth is at a greater premium than ever,
investors appreciate such initiatives. All of these executives
win top billing within their industries
in the 2012 All-Europe Executive Team,
Institutional Investors exclusive annual ranking
of the best European CEOs, CFOs, investor relations
professionals and IR teams. II surveyed 825 buy-side
and 1,470 sell-side analysts from nearly 600 firms and asked
them to vote for the best executives in their sectors.
EADS and ASML Holding, a Dutch maker of equipment for
producing semiconductors, top this years ranking. Their
CEOs, CFOs, IR professionals and IR teams each win first-place
honors from both buy- and sell-side analysts. Trailing only
slightly behind, U.K. media giant Pearson and metals and mining
company Xstrata of Switzerland come in first place in seven
categories. British American Tobacco (BAT), French luxury group
LVMH Moët Hennessy Louis Vuitton and German software
provider SAP tie for fifth place by claiming first in six
ADAPTING TO VOLATILITY IS NO EASY TASK. IT requires
continual efforts to strengthen product and service offerings,
spur innovation and inculcate a more entrepreneurial culture
than is characteristic of many big European companies.
What they are struggling with is integrating
innovation into the fabric of their companies, says the
Conference Boards van Ark. The goal is to have the
whole company think in an innovative way, rather than narrow
that down to an R&D department.
Many companies are leveraging new technology to improve
their products and services. Vodafone, for instance, is working
with Google to enable customers to pay for new applications via
their phone bills without having to click through a series of
prompts and checks. In February, Vodafone announced a
partnership with Visa the largest of its kind to
enable consumers worldwide to pay for goods and services using
their mobile phones instead of coins and banknotes. Says Colao,
who is ranked top CEO in the Telecommunications Services sector
by both buy-side and sell-side analysts: The mobile
Internet is Vodafones main growth engine, fueled by the
increasing penetration of innovative smartphones and
Pearson, the London-based media conglomerate that owns
Financial Times Group, publishing house Penguin Group and a
host of educational imprints and learning programs, has also
been riding the tech wave.
For a long time now, weve believed that
everything we do would go digital, says Robin Freestone,
CFO at Pearson. We invested quite a lot before the market
was there. Some of that probably didnt make us a return,
but what it did do was change the culture of the company.
In 2011, $3 billion of Pearsons total
$9.3 billion in revenue came from digital products, though
Freestone says the digital share is still not high enough.
The buy side names Pearson CEO Marjorie Scardino tops in the
Media sector, and both the sell side and the buy side said that
CFO Freestone also deserves top honors. Investor relations
professional Simon Mays-Smith is the best in the business,
both groups say, and the two sides also agree Pearsons
overall IR is the sectors best.
The Financial Times was one of the first newspapers to
tackle the Internet, launching FT.com in 1995. (We had
paying subscribers from the start, Freestone says.
We never thought that giving stuff away for free was a
good idea.) Penguin introduced its first electronic book
in 1998. Last year e-books generated 12 percent of the
publishers revenue, up from 6 percent in 2010.
This lessens the blow that Europes sovereign-debt
crisis has roundly delivered to Pearson. Much of the
conglomerates revenue comes from the public sector, and
governments across the continent are squeezing education
budgets. The percentage of the companys revenue
originating in Europe has fallen from 26 percent in 2006 to 24
percent in 2011, and will likely continue to shrink.
We dont want to be so heavily weighted in the
highly leveraged markets of the world, Freestone says.
Were saying, This content is good enough to
work in Asia-Pacific and Latin America.
Traditionally, most governments have believed that the way to
educate their children is very specific to their population,
but we believe that great products and education travel the
Pearson has spent some $800 million in the past two
years to acquire educational testing and tutoring businesses in
Brazil, China and India. In July 2010 the company bought the
learning systems division of Brazils Sistema Educacional
Brasileiro for $497 million. Last year Pearson paid
$127 million for a controlling stake in Indias
TutorVista, an online tutoring business that connects Indian
instructors with students in North America, and
$155 million to acquire Global Education and Technology
Group, a provider of test preparation for students in China who
are learning English.
Business software maker SAP is coming off the best year in
its 40-year history, with software revenue growth of 25 percent
in 2011, says co-CEO William McDermott, who along with fellow
chief executive James Hagemann Snabe is voted best in the
Technology/Software segment by both buy-side and sell-side
analysts. McDermott attributes much of SAPs success
last year to new or improved products. New innovations
are invigorating our core applications business, he says.
One of the products SAP introduced in 2011 was SAP HANA
(high-performance analytic appliance), a database platform
that combines in-memory software and SAP-approved
hardware and allows users to tap into high-speed analytics
capabilities. SAP also unveiled a number of applications for
HANA over the course of the year, including a new mobile app
called the SAP Electronic Medical Record, which allows doctors
to access lab results, images and other aspects of
patients medical records while moving through hospital
wards. The company is expanding its reach into Brazil, China,
India, the Middle East, North Africa and Russia.