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BusinessDay www.businessday.co.za Wednesday 11 May 2022
INTERNATIONAL BUSINESS CARMAKERS
China’s Geely buys stake in Renault Korea Norihiko Shirouzu and Heekyong Yang Beijing/Seoul China’s Geely Automobile will buy just more than a third of Renault’s Korea unit for about $200m, potentially helping it boost US exports, and freeing up funds for the French carmaker to invest in its electric business. Renault, which can assemble 300,000 vehicles a year in its factory in Busan, South Korea, is in the middle of a turnaround aimed at increasing margins and separating its electric vehicle (EV) business to catch up with rivals such as Tesla. The French firm’s move to sell the stake to Geely — which owns Volvo Cars and 9.7% of Daimler — follows an announcement by the two companies in January to develop hybrid vehicles for South Korea and abroad, produced at the Busan plant. For Geely, which typically grows its business through global partnerships, the deal goes beyond selling cars in South Korea and is a way for the Chinese carmaker to export cars made in South Korea to the US, a person close to the firm said. “It is an open door into the US,” said the person who declined to be named because the plans are confidential. The person said that while the details on the partnership had not yet been sorted completely, Geely might initially use the Busan plant to make electric robotaxis for Waymo, Alphabet’s self-driving unit with which it has a supply agreement.
“With the South Korea-US free trade agreement, Renault or Geely would not face tax burdens if they export vehicles manufactured in South Korea to the US,” said Song Sung-jae, an analyst at Hana Financial Investment. Song noted, however, that Geely would face higher manufacturing costs in South Korea, where labour costs are greater and the car market is dominated by local champions Hyundai Motor and Kia.
RENAULT OR GEELY WOULD NOT FACE TAX BURDENS IF THEY EXPORT VEHICLES MADE IN SOUTH KOREA TO THE US “For Chinese firms, building a successful track record in South Korea can help sell EVs in other emerging markets, as well as Europe and US, which the firms continue to knock the door of, but they are difficult markets,” said Kim Jin-woo, an analyst at Korea Investment & Securities. Renault owned 80% of the unit at the end of last year. The rest was owned by credit card company Samsung Card, which said in December it intended to sell its stake, but gave no details. Renault’s decision to sell 34.02% of Renault Korea Motors for $207m also comes weeks after media reports that the carmaker, top shareholder in Nissan Motor, may lower its stake in the Japanese firm. /Reuters
Disrupted supply chain may put a brake on momentum of Sony’s PlayStation
• Lower target stems from Covid-19 and lockdowns in China, says CFO Takashi Mochizuki Sony Group faces more challenges in its video game division as component shortages and supply chain disruption risks may hamper flagship PlayStation 5 hardware production. The Tokyo-based group said it sold 11.5-million units of the $500 device in the fiscal year to end-March and will aim to sell about 18-million units this financial year. Both figures are well behind initial targets of 14.8-million and 22.6-million units, respectively. In a conference call after earnings were announced, CFO Hiroki Totoki said the lower target for the current year stems from supply-chain complications because of the Covid-19 pandemic, including lockdowns in China. Shanghai, a key centre
for tech production, has largely been under lockdown since the beginning of April. The 18-million figure is “our best current estimate”, Totoki said. “A downside risk would be if there is a further worsening in the supply chain, including the potential widening of lockdowns in China.” Sony reported operating profit for the fourth financial quarter that fell short of analyst estimates and projected earnings for the current financial year that were also less than projected. The group said it would buy back up to ¥200bn of its shares, a move that could bolster the stock. The PlayStation 5 has suffered supply constraints from component shortages and logistics disruptions since the product’s release in November 2020.
Data from outside firms such as US-based NPD show Microsoft’s Xbox hardware began to outpace PlayStation in recent months. “It is a risk, given they have assumed China Covid-19 issues are resolved in three months,” said MST Financial senior analyst David Gibson. “No-one really knows what will happen in China.” Another concerning sign is the trend of user activity on the PlayStation platform, with both monthly active users and the number of PlayStation Plus subscription service users declining in the March quarter. Totoki said the company sees the numbers positively as they both remained high despite some weakening of stay-home entertainment demand. Analysts said the company should boost
the numbers this year to ensure the success of its gaming platform. “This year will be crucial. Sony can’t miss this chance to revitalise the PlayStation 5’s momentum,” said Morningstar Research analyst Kazunori Ito. Sony will roll out new online services for PlayStation users in June, including an option similar to Xbox’s Game Pass subscription offering. But, reactions by fans to the new service are not all positive, especially because Sony does not plan to add new games to the all-you-can-play list like the Xbox offers. Sony’s Totoki said the company does not plan to match Xbox on that front “for the sake of building a better brand image”. Sony’s share price has dropped 27% so far this year,
Production obstacles: Component shortages and supply chain disruption could hamper production of Sony’s flagship PlayStation 5 (PS5) video game. /Bloomberg about in line with the tech-heavy Nasdaq index. In the financial year that just ended, Sony benefited from its movie business, thanks largely to the success of the hit SpiderMan: No Way Home. Sales for the division surged more than 50% to ¥1.24-trillion, while operating income more than doubled to ¥217.4bn. While the Japanese currency has plummeted in recent weeks,
the weak yen is unlikely to give a substantial lift to Sony’s bottom line, even if the currency slips further against the dollar and euro, according to Bloomberg Intelligence analyst Masahiro Wakasugi. The company’s PlayStation and smartphone hardware units have significant costs in foreign currency, offsetting the upside for its image-sensor division, Wakasugi said. /Bloomberg
SUBJECT TO CLEARANCE
Merger will open the way for dating app Grindr to go public Echo Wang New York Gay dating app Grindr said on Monday it would go public through a merger with a blankcheque acquisition firm. The deal values it at $2.1bn and features Tiga Investments CEO Raymond Zage on both sides of the transaction. Grindr said its existing shareholders would own 78% of the company after the merger, which comes two years after
China’s Kunlun Tech Co divested it for $620m due to US national security concerns. While Grindr did not name its existing shareholders, Reuters reported previously that Zage had a 41% stake in the consortium that acquired Grindr. An informed source said on Monday that Zage continues to be an investor in Grindr. Tiga Acquisition, the Singapore-based special purpose acquisition company (Spac) that will merge with Grindr, is con-
trolled by Zage. Under the deal, Grindr gets $284m in cash from Tiga and up to $100m in a forward purchase agreement. Grindr and Tiga expect that their deal may need clearance from the committee on foreign investment in the US which scrutinises deals for potential national security risks, according to a copy of their merger agreement that was made public on Monday. The committee ordered Kunlun to sell Grindr in 2019 on con-
cern that the personal data of US users could be accessed or exploited by China’s government. It could not be learnt if the committee had a role in Grindr’s decision to explore a sale and merger with a Spac. A spokesperson for the US treasury department, which chairs the committee, did not respond to a request for comment. Grindr CEO Jeff Bonforte and COO Rick Marini will step down. A search for Bonforte’s replacement is under way,
according to an informed source. Bonforte and Marini were part of investment firm Catapult Capital that competed against Lu and Zage to buy Grindr before they clinched an agreement to work together. Atlanta Hawks co-owner Michael Gearon, another major shareholder who was part of the consortium that acquired Grindr two years ago, will continue to be invested in the company, the source said. Grindr said in an
investor presentation on Monday that it had 11-million monthly active users and that its revenue grew 30% last year. The deal values Grindr at 27 times its adjusted 2021 earnings before interest, taxes, depreciation and amortisation (ebitda) of $77m. By comparison, shares of dating app peers Match and Bumble are trading at 22 times and 25 times their 2021 ebitda, respectively, according to Refinitiv. /Reuters
INSIGHTS: MARSH
Need for resilience in digital supply chains Companies are •increasingly vulnerable to costly cyberattacks, writes Lynette Dicey
O
rganisations globally are investing in technologies that turn linear supply chains into more efficient integrated digital supply networks. Retailers, for example, are using advanced algorithms to anticipate product demand and creating digitally enhanced experiences to better serve customers. At the same time, smart factories are using technology, including digital thread-enabled product design, collaborative robot (cobot) supported assembly, and sensor- and AI-driven predictive maintenance to increase the efficiency of the entire manufacturing process. The complexity inherent in the modern environment is making it harder for business leaders to fully understand the risk to their organisation. While some companies have a good grasp of digital supply chain vulnerabilities linked to the software and technology vendors that supply their digital tools and are taking actions to address the associated risks in selecting and monitoring vendors, the risk is that they digitise physical assets and processes that were not understood as digital and introduce hardware and
Spiros Fatouros … keep pace. software without a full understanding of the associated exposure to cyber risk. The additional complexity brought about by increased digitisation, together with a fastevolving threat landscape, is making companies increasingly vulnerable to costly cyberattacks, says Spiros Fatouros, CEO of Marsh Africa. As risks evolve, he says, organisations may require new mitigation strategies. The challenge, however, is many businesses are still struggling to understand their own multifaceted digital supply chains, not to mention the myriad vendor relationships that support their operations and also contribute to increased complexity. Despite their essential nature, supply chains — including today’s digitally centric ones — are still largely managed within functional silos. Information technology (IT) and operational technology, for example, have historically been managed by different departments. Organisational silos lead to risk blind spots because as more operational devices are connected to the internet, they are becoming prone to cyber threats and
require increased protection. Many digitisation efforts, including manufacturing or supply chain planning, are run within functional departments. Disparate implementation teams may lack full visibility into end points and systems that are connected, leading to gaps in security protocol effectiveness. Fatouros points out that as the digital transformation accelerates and new cyber threats emerge, security and operations teams are challenged to manage alerts across thousands of devices and keep pace with communicating updates and managing new vulnerabilities. These organisational blind spots can lead to considerable exposures due to a lack of understanding of risks that exist outside of each department’s purview. Although risk managers tend to have more visibility across the organisation, this is often not deep enough to identify and understand their potential supply chain risks. As a result, changes and enhancements to the digital supply chain are frequently carried out without fully understanding how they can affect a business’ overall risk, and without ensuring the proper risk mitigation measures are put in place. Understanding digital supply chain risk is rarely a simple process. Not only does the constantly expanding attack surface lead to new risks, but malicious cyber actors are evolving their attack methods and looking for new threat vectors. In addition, new interdependencies across the surface area of the digital supply chain create vulnerabilities that can hamper transformation. While identifying and
mitigating supply chain risks may seem simple, Fatouros says in reality they require dialogue and collaboration, and a robust process to evaluate and measure risk in financial terms. Success often requires a dedicated team that has visibility across the organisation and is able to assess the dynamic cyber threat landscape associated with using new technologies, both independently and together. “This is not a one-and-done process,” he says. As technology continues to evolve and proliferate, the risk will outpace the knowledge and experience of many frontline workers, requiring that a dedicated team continuously monitors new risks and evaluates the risk profile, then applies the necessary security controls. Businesses need a forwardthinking approach to mitigating risks, driving preparedness and building resilience. While risk managers will have a central role in helping organisations identify, quantify, mitigate and respond to the risks within their supply chains, they will also need to understand the supply chain landscape and the threat vectors to be better able to identify emerging risks. The complexity of digital supply chains underscores the importance of risk professionals having visibility across the entire organisation. If collaboration is as crucial to understanding and tackling new risks as Fatouros claims, successfully mitigating these risks means risk professionals need to have a seat at the decision-making table to drive agility and design risk management processes that improve business resilience.
Building Resilience against Ransomware
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