Asian growth slower and profits elusory, says new EY/HBR Analytic Services report

BY Fraser Tennant

Opportunities for companies in the Asia-Pacific region to grow are fewer and profits more elusive, according to a new report by EY and Harvard Business Review (HBR) Analytic Services.

In ‘Asia: Time to Refocus’, EY/HBR Analytic Services note that despite Asia having been a major source of growth for multinationals and private equity firms for 20 years, expected profits have not materialised and the current outlook is that the land-grabbing strategies of old are no longer sustainable.

Moreover, the Asia-Pacific companies that once relied upon an almost unlimitless potential for growth but that are now struggling to adapt their products and value propositions, are being advised to adopt a ‘depth-over-breadth’ capital strategy in order to re-engage with the region’s complex business environment. 

“Asia today is not the Asia of 20 years ago, or 10 years ago, or even five years ago," said Vikram Chakravarty, EY’s Asia-Pacific capital transformation and operational transaction services leader. “It continues to grow faster than most developed economies, but more slowly than it did in the past.

“It remains a region of great opportunity, but also one where profitability remains elusive for those unwilling to invest the resources necessary to tailor their offerings and business models to its individual markets.”

The challenge for companies in the region, says Chakravarty, is for them to identify how and where they should be focusing their capital and other resources, and also where they should be taking a step back.

To do this, the EY/HBR Analytic Services report advises companies looking to transition to a new capital strategy in Asia to: (i) conduct a portfolio review; (ii) launch a large-scale cost-cutting initiative to improve profitability; (iii) right-size their go-to-market models; (iv) reorganise to emphasise country over category; (v) plan a path to exit, and limit losses, where market leadership and profitability are not realistic; and (vi) double down in priority countries by undertaking transformative deals — big-bang M&A transactions and partnerships — to boost market share quickly.

Chakravarty concluded: “Companies that have yet to see Asia’s promise cascade to the bottom line must determine where they have a path to profitability and focus their attention there. Depth, not breadth, will win the day.”

Report: ‘Asia: Time to Refocus’

Abbott to sell medical optics unit for $4.325bn

BY Richard Summerfield

Abbott Laboratories has announced plans to divest its ophthalmic unit, Abbott Medical Optics, to Johnson & Johnson in an all cash deal worth $4.325bn.

The transaction is expected to close in the first quarter of 2017 and is subject to customary closing conditions, including regulatory approvals, the companies confirmed in a statement.

“We've been actively and strategically shaping our portfolio, which has recently focused on developing leadership positions in cardiovascular devices and expanding diagnostics," said Miles D. White, chairman and chief executive of Abbott. "Our vision care business will be well-positioned for continued success and advancement with Johnson & Johnson, and I'd like to thank our employees for building a successful business."

Abbott Medical Optics produces lasers and other equipment used for cataract surgeries and laser vision correction procedures, and also makes eye drops and cleaners for contact lenses. The division posted sales of $1.1bn last year.

The acquisition of Abbott Medical Optics will provide a significant boost to Johnson & Johnson’s cataract business. At present the company is the number two global business in cataract surgeries. As a result of the deal, Johnson & Johnson will boast an $8bn global market which, according to data from the company, is growing at a rate of 5 percent a year.

"Eye health is one of the largest, fastest growing and most underserved segments in health care today," said Ashley McEvoy, company group chairman responsible for Johnson & Johnson's Vision Care Companies. "With the acquisition of Abbott Medical Optics' strong and differentiated surgical ophthalmic portfolio, coupled with our world-leading ACUVUE contact lens business, we will become a more broad-based leader in vision care. Importantly, with this acquisition we will enter cataract surgery – one of the most commonly performed surgeries and the number one cause of preventable blindness."

Abbott acquired the unit in 2009 for around $2.8bn when it was known as Advanced Medical Optics. However, Abbott moved to divest the business after deciding to refocus on heart devices and expanding diagnostics.

News: Abbott to sell its eye care business to J&J for about $4.33 billion

Digital revolution underway in Africa, claims new report

BY Fraser Tennant

Africa is in the midst of a digital revolution with growing affordability, accessibility and untapped demand driving advances across the continent, according to a new PwC report released this week.

The report – ‘Disrupting Africa: Riding the wave of the digital revolution’ – highlights a number of ways in which businesses, disruptors and policymakers can embrace new technology, while providing the infrastructure and capacity needed to ensure digital disruption is genuinely transformational in realising the continent’s economic potential.

PwC also notes that making products and services easier to access will unlock technology for Africa’s ‘global emerging middle’ market (characterised as "sitting just below the conventional middle class in income terms, but with aspirations for quality, high performing products that are in sync with higher segments") of more than two billion consumers.

PwC estimates that this emerging middle market will make up $6 trillion of the global market by 2021.

However, although the report states that digital disruption should support economic growth in Africa, this assertion comes with a caveat: that the reach and benefits of growth need to be more evenly spread across the continent.

“Technological disruption is transforming markets and societies across Africa in ways that wouldn’t have been possible even five years ago,” said Joel Segal, chair of PwC’s Africa business group. “This opens up huge and largely untapped commercial potential for domestic and international businesses. From the demographic dividend of a young and rapidly expanding population, to the fastest growing middle class of any continent – Africa has the potential to become a new powerhouse of production and consumption in the twenty first century, just as Asia was able to do in the late twentieth century.”

Moreover, asserts the report, businesses and policymakers can utilise technological advances to break down physical barriers, improving local knowledge, infrastructure and access remote communities. One example of this is the development of surveyor drones to help clients monitor infrastructure, manage construction sites and carry out insurance assessments.

“By broadening their outlook, businesses can dramatically increase their pool of potential customers, as well as giving a large proportion of Africa’s population access to products and services that would have been beyond their reach before," concludes Mr Segal.

Report: Disrupting Africa: Riding the wave of the digital revolution

Crop giant springs from $36bn Agrium/PotashCorp merger

BY Fraser Tennant

In an agreement that it is said will result in a world-class integrated global supplier of crop units, Agrium Inc and Potash Corporation of Saskatchewan Inc have announced that they are to merge in a deal with an enterprise value of $36bn.

This merger of equals between Agrium, the largest crop nutrient company in the world, and Potash, the third largest natural resource company in Canada, will, following the close of the transaction, see Potash shareholders own approximately 52 percent of the new company, while Agrium shareholders will own approximately 48 percent on a fully diluted basis. 

The new company – with 20,000 employees and operations and investments in 18 countries – will combine low-cost, world-class potash and high-quality nitrogen and phosphate production assets with a premier agricultural retail network to forge an integrated crop inputs platform.

“Our merger creates a new premier Canadian-headquartered company that reflects our shared commitment to creating value and unlocking growth potential for shareholders”, said Jochen Tilk, president and chief executive of Potash. “The integrated platform established through our combination will greatly benefit customers and suppliers, and support even greater career development opportunities for employees.”

Mr Tilk, part of a proven team that reflects the strengths and capabilities of both companies, will serve as the new entities’ executive chairman, while Chuck Magro, currently Agrium’s chief executive , will retain that role in the new set up. Both will report to the new board of directors.

“This is a transformational merger that creates benefits and growth opportunities that neither company could achieve alone," said Mr Magro.  “Combining our complementary assets will enable us to serve our customers more efficiently, deliver significant operating synergies and improve our cash flows to provide capital returns and invest in growth.”

The name of the new company, which will have its registered head office in Saskatoon, with Canadian corporate offices in both Calgary and Saskatoon, will be announced prior to the closing of the transaction.

Mr Tilk concluded: “Our workforce and the communities in which we operate are critical to both PotashCorp and Agrium, and we intend to carry forward best practices from both companies in corporate social responsibility, including commitments to employees, operating communities and the environment.”

News: Agrium and Potash Corp. to Merge, Creating Fertilizer Giant

PM Tsipras seeks “positive completion” of Greece bailout programme

BY Fraser Tennant

Greek prime minister Alexis Tsipras has called for the completion of a review of his country’s bailout programme so that the nation can begin the major task of restoring its struggling economy.  

Mr Tsipras’s call, made during a visit to Thessaloniki where he set out the economic priorities of the Syriza government, followed hot on the heels of a second review of Greece’s bailout programme on 9 September, which found that the Greek government needs to do more to release €2.8bn of funding ($3.1bn).

Specifically, eurozone ministers observed that requested Greek economic reforms had failed to materialise, announcing that of the 15 requirements laid down by EU officials last year as a prerequisite for the receipt of financial aid, only 2 of the 15 conditions had thus far been fulfilled by the Greek government.  

Eurozone finance ministers had stated that all 15 of the conditions are required to be met before Greece can be considered in the frame for debt relief talks – something prime minister Tsipras sees as essential. And despite the failure to meet the requirements that would unlock the tranche of funding, Greek finance minister Euclid Tsakalotos has urged his EU counterparts to reach a decision on short-term and medium-term debt relief for Greece by the end of the year.  

Recognising that debt relief is a crucial issue not only for Greece but for Europe and the entire eurozone, and one that affects big markets and economies such as Italy, France and Spain, Dimitris Papadimoulis, vice president of the European Parliament and head of the Syriza party delegation, said: “From the creditors’ side, mid and long-term measures of debt relief have to be concrete, based on what was agreed on May 2016 [the first tranche of funding] with the so-called 'roadmap' on the Greek public debt – the conclusion of specific measures by the end of December 2016.

“In the same context, it is vital for the creditors to acknowledge the need for realistic primary surpluses after 2019, meaning 2.5 percent for 2019 and 2 percent for 2020. Lowering primary surplus targets can facilitate and improve government’s economic policy mix, reach sustainable levels of growth and ameliorate burden-sharing of taxes among the social groups.”   

Overall, the second review of Greece’s bailout programme sent a clear message that it needs to be completed as soon as possible so that enough time is left for the Greek government to implement further reforms, oversee a steady return to growth, combat unemployment and reinstate social justice in all levels of public life.

On a positive note, prime minister Tsipras told his audience in Thessaloniki that Greece was “turning the corner” and that despite creditors making things more difficult, the country would see economic growth of 2.7 percent in 2017.

News: Greece’s Tsipras Calls for Prompt Completion of Bailout Review