#wokecorporation

2/3rds of Rugby Australia cash would disappear

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Rugby Australia’s (RA) CEO Raelene Castle says that the franchise can weather paying out Izzy Folau’s $10m claim. Although CM is not sure that paying out $10m + costs which would wipe out almost 2/3rds of the $18mn in cash on the balance sheet is something a CEO would think is worth boasting. What she needs to focus on is the declining operating performance.

Hopefully, Chairman Clyne will get his CEO to focus on NZ Rugby (NZR) as a benchmark.

RA took in approximately A$30m in licensing and sponsorship last year. NZR raked in A$65m. More than double for a country with one-fifth the population. Think about it. The advertising base is smaller yet the sponsors must see the returns as superior to do so.

Total revenues for RA sum to around A$110m. NZR takes in A$182m in 2018.

Matchday revenue for RA reached A$20m last year. NZR collected A$28m.

Total assets for RA sum to A$69m. NZR total assets are A$183m. Total equity for RA is A$27m vs NZR at $99m.

Perhaps understanding why the Wallabies franchise saw a 20% fall in revenues in 2018 is a bigger issue. Expenses fell 15% mainly due to slashing Super Rugby team costs in half and player costs by 33%. Without that, the company would have sunk deep in the red.

RA needs to focus on growth not cut itself into oblivion. When it prioritizes its customer base rather than put precious resources into virtue signaling and diversity programs the board wouldn’t need to park 2/3rds of the cash to cover up their catastrophic lack of judgment.

Nonetheless good to know Castle sleeps easy at the thought of losing such magnitudes.

Gillette – from toxic masculinity to transgender & morbid obesity

Gillette is free to advertise how it wishes. After the monster backlash against the toxic masculinity campaign which wiped 6% in value from the brand and caused a 22% fall in the following quarter’s profits, it is hard to see how the radical social justice warriors in the marketing department have not been fired. To shareholders, it was a massive fail. A YouGov poll of household grooming products before the campaign saw Gillette fall from 7th out of 45 brands to dead last after it. Yet the company has chosen to bet the house on more virtue signalling hoping it will eventually cut through to the masses. Get woke, go broke.

While there is absolutely nothing wrong with a transgender kid shaving for the first time, most will likely see this ad as nothing more than Gillette doubling down on the roulette wheel of “identity politics”. What point is Gillette trying to prove? The bulk of society is growing tired of being told how to think and what to say.

Yes, there are serious transgender issues in America. 130 transgender people have been murdered since 2013. It is a damning statistic. However, it is unlikely that anyone small minded enough to commit such a heinous crime will be swayed by a Gillette ad featuring a trans actor. Why does Gillette seek to force feed its version of socially acceptable behaviours on the 99.9% of its clientele that does not require it? It is patronising in the extreme. It is like attacking NRA members as murderers.

The only company in the world that can treat its customers with disdain is Ferrari. It wields so much power that it selects customers if they are deemed worthy of owning some of its limited edition offerings. Sadly Gillette is not Ferrari.

Gillette is rife with double standards. It has brazenly sponsored a Dutch racing car series with the brand embossed across the backsides of supermodels.

Chick-fil-A, on the other hand, was established on its Southern Baptist principles. It has never hijacked a social movement to boost sales.  That is why it has seen sales treble on a doubling of stores to become the third largest fast-food chain in America. It never rams its beliefs down the throats of others.

The toxic masculinity campaign should have been a big enough lesson for the marketing team to stay in its lane. The consumer spurned Gillette at the supermarket cash register. It would have been better coming out and apologizing and praising men for all the good things they do, like the Egard Watch company.

Virtually no customers will see that trans ad and think to buy Gillette razors out of a sense of moral guilt at the treatment of this minority. Consumers buy razors to groom – period. When will the company get it?

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It wasn’t so long ago that Gillette promoted a morbidly obese woman to push female shaving products. There is a difference between standing against fat-shaming and being realistic about the many chronic health issues and massive costs related to obesity.

The American Medical Association (AMA) wrote, “the nation’s obesity rate is approaching 40% after holding around 34–35% between 2005 and 2012, according to data in The State of Obesity: Better Policies for a Healthier America 2018. No state has had a statistically significant drop in its obesity rate in the past five years...the National Health and Nutrition Examination Survey (NHANES) showed that 39.6% of adults and 18.5% of children ages 2 to 19 in America have obesity, the State of Obesity report noted that “these are the highest rates ever documented“…the AMA is working to prevent and control chronic diseases, many of which are associated with obesity…”

We covered obesity in the previous post. Obesity increases the risk of developing type 2 diabetes, high blood pressure, heart disease, stroke, arthritis, sleep apnea, liver disease, kidney disease, gallbladder disease, and certain types of cancer yet Gillette wants to celebrate it as something to be proud of.

Corporations that pursue woke marketing risk alienating their customers. There is no upside to it. Consumers are not stupid and the more companies run campaigns that fly in the face of their intelligence, will only get a backlash at the point of sale.

Don’t forget that the toxic masculinity campaign had a 10:1 negative response ratio on the millions of views it had. One can be sure Gillette will try to massage a positive response on this latest campaign. Yet, like most polls, the most accurate measure is consumer response. If sales aren’t arrested, no matter how many positive clickbait statistics they can show their bosses internally, the sales and profit figures won’t lie. That is all that ultimately matters to P&G shareholders.

Go woke, go broke

Yet another example of why CM has cancelled his FT subscription. Where is the critical reporting? This article by Pilita Clark doesn’t critique the ridiculous movement by corporates to virtue signal but falls in line with the stupidity.

Maybe the best metaphor for the woke corporation is parsley. It often looks nice as a garnish but 99.9% of us push it to the side of the plate and leave it to be thrown away.

Corporate hypocrisy is everywhere.

Take Josh Bayliss, CEO of Virgin Group. He says,

“It’s definitely true that right now every one of us should think hard about whether or not we need to take a flight.”

Why doesn’t he close down the airlines in the portfolio? Instead of waiting for his customers to grow a conscience and do the right thing why not force their choice? The obvious answer is that it’s hypocritical.

Airlines operate on about 70% capacity load factor break even so if Virgin flights end up being half full he’ll only end up spewing more or less the same CO2 per flight and go out of business. British Airways, EasyJet and Ryanair will welcome Virgin’s virtue signaling. Go woke, go broke.

Qantas has the world’s largest carbon offset program yet only 2% of passengers elect to pay. That’s the extent of the belief in global warming.

Blackrock’s chief Larry Fink said his asset manager needs to do more than just make money yet it only backed 10% of the climate related shareholder proposals. Why? Supposedly because they would crush profits. All talk, little walk.

BP surprisingly helped prevent a carbon tax it openly launched support for. A fossil fuel company trying to undermine a carbon tax? Wow. Who’d a thunk?

UK shadow chancellor John McDonnell has said Labour would seek to delist companies from the London Stock Exchange that didn’t meet their climate change commitments. In order to meet that, will that mean a child daycare company will be burnt at the stake for not brainwashing kindergarten kids? Will there be a minimum pot plant to child ratio?

How would regulations impact the myriad of different businesses that would trigger being dumped from the LSE? What standard would be applied? CM is betting corporates jus need to “file” a governance statement on climate change which no one will read. As long as 100% of companies file, nothing will happen.

Pretty easy to avoid too. Companies could list on Nasdaq or the Singapore exchange to avoid the regulations and still raise capital. Did you think of that Mr McDonnell? No because it is all about being woke and there are plenty of alternatives to dodge stupid policy. Capital is global.

Pilita Clark closes her article by saying,

“Yet the climate debate is shifting and I am willing to bet that companies failing to match their green claims with solid action face far greater risks than they ever have before.”

Like much of the climate religion, few hard facts are ever presented except the date we are all supposed to die. Even then that is an ever-shifting goal post. We can be assured that when 2028 arrives all of a sudden we’ll have another 12 years to do something. A bit like the joke where a patient asks his doctor how long he has to live and is given an extension so he can pay his bill.

The ever-growing tide of the “woke” corporation is going to thwart ingenuity and entrepreneurship. It is corporate suicide to pander to this nonsense. It is not for companies to bang on about their wonderful commitments. Customers and shareholders can decide for themselves. Maybe if companies listened to both groups they would find profits go up. People are growing sick and tired of being told what to do. How to think.

The world is littered with corporate wokeness backfiring. The irony is much of it is self-inflicted. By trying to create false images of virtue, the results have been disastrous.

P&G had to write off billions from its Gillette brand for the toxic masculinity campaign. Before the campaign Gillette was ranked 7th out of 45 health and grooming brands. After, rock bottom.

There is almost a wave of corporate fear twisted by a minority of social activists like Sleeping Giants which create false narratives about public perceptions of evil companies. There is a flip side.

Chick-fil-A was established by Southern Baptists. They don’t ram their Christian beliefs at all in the restaurants. Activists tried to boycott the fast food outlet because one of the directors personally didn’t support same-sex marriage. Guess what, store numbers have doubled and revenues tripled over the last decade.

Chick-fil-A states it’s mission is, “To glorify God by being a faithful steward of all that is entrusted to us. To have a positive influence on all who come in contact with Chick-fil-A.”

Chick-fil-A is notable by its closure on Sundays, Thanksgiving and Christmas. So people are well aware ofthis corporate backing its religious beliefs.

There is a difference between founding a company on certain beliefs and concocting them to ride a wave of hijacking social movements. Customers are aware of the difference.

Virgin Group can wax lyrical about its concerns in trying to save the planet but the only woke thing would be to shut down. Pushing the guilt back on its customers shows how hypocritical the airline is.

To be honest it gets tiring waiting in corporate lobbies watching flat panel TVs advertising all of the wonderful community things they do. 99% of the transaction with any corporate will be driven by the ability to deliver goods and services, not supporting tree planting. It is not to diminish charity or good intentions, rather to cut back on acting as though they’re angels to avoid being put on an imaginary naughty step that doesn’t exist.

Perhaps CM should recommend a portfolio of non-compliant ESG companies. When the market sells off, all the passive money in ESG compliant names should well underperform those that don’t. Perhaps an asset manager should establish an ETF with a basket of companies that just provide product or service rather than garnish it with lashings of corporate virtue. Here is betting it would be a contrarian winner.

Castle tackles inclusivity with exclusivity

The board of Rugby Australia (RA) has capitulated at the altar of political correctness. CEO Raelene Castle unconvincingly announced the reasons why Israel Folau’s contract has been terminated. This is a board that acted on external activism. It buckled. Castle squirmed around the question of whether sponsors had applied pressure or not. What Folau said was unnecessary but how is it other players can get arrested and get away with a written warning?

Ultimately, RA will feel the wrath at the ticket office from already disgruntled paying fans. Attendance continues to slide. RA losses are expected for 2019 following the losses in 2017. The 2018 profit was merely due to an exceptional item. Perhaps Folau’s termination will help plug the hole in the P&L. No wonder losses are being made, given the pitiful performances led by a man with the worst record of any Wallabies coach. Why is he still there?

Australia will be lucky to make it beyond the quarterfinals at the Rugby World Cup in Japan this year. Yet the CEO and board tolerate his woeful record. CM has long argued Michael Cheika can’t unite that team. His record proves it. His team rally behind him publicly but their faces tell a different story.

Castle is out of her depth. She might have cried inclusiveness but there was no conviction in the press conference. Inclusiveness, to many of those on the left, is limited to whatever they prescribe. Stray from the party line and get excluded. Her eyes said it all in the press conference – she is definitely no crisis manager.

Folau, on the other hand, didn’t accept a $1m buy off to walk away so RA could wash their hands of the matter. He stuck and continues to stick to his faith. Hopefully, he takes it all the way to the High Court to leave RA with more egg on its face.

Let’s be clear. Folau hasn’t called for violence against homosexuals. Yet why is it just that group that is singled out as victims? CM ticked a few boxes on his tweet. Surely CM’s right to feeling oppressed is just as valid on the faux outrage scale. Where are the drunkards, adulterers and fornicators calling for his head? Nowhere. With good reason. Because 99.9% of people probably rolled their eyes at the tweet and moved on.

Look at RA’s Male Champions of Change (MCC) program. This is the focus of RA and it is not rugby. RA’s website openly states the following,

MCC works with influential leaders and encourages them to take action towards gender equality. 

Rugby Australia is a proud supporter of MCC and our Chief Executive Raelene Castle has recently been appointed as a Special Advisor on the MCC Sport program. 

This program aims to enhance the involvement of women in all aspects of sport and works with key stakeholders to achieve pay equity.

What on earth could have possessed RA to hire an activist as CEO? Castle also promotes on the RA website:

I have seen the challenges first hand and I have a personal passion to ensure that the gender equality discussion is at the forefront across all aspects of our society.

Quite frankly 99% of her customers couldn’t care less about RA’s stance on gender equality nor the group’s wish to drive it across society. They want to see good rugby. They d not see it as RA’s job to tell them how to behave. RA is answering questions nobody is asking.  If female coaches are better than the males, no male rugby supporter will care if the team is quite literally putting scores on the board. No one needs or wants RA’s activism which also extends to male domestic violence. How about female domestic violence against men? Take a look at the stats. Let’s just beat up on toxic masculinity because it is easier.

Where was the board when Wallabies flanker David Pocock encouraged school kids to join the climate strike or retweeted posts mocking climate skeptics? Is his climate activism ranked above Folau’s quoting of a religious text? Did RA do anything when Pocock was arrested for chaining himself to an excavator for 10 hours at the Maules Creek mine? He was charged with “trespass, remaining on enclosed land without lawful excuse and hindering the working of mining equipment.” Raelene Castle wasn’t CEO at the time but Cameron Clyne, Paul McLean and Ann Sherry were and still are board members. Where is the balance in sanctions handed out?

Let’s not forget the double standards of Pocock. He can find it in his heart to play for a team that is sponsored by Qantas which emits more carbon dioxide per passenger-kilometre than any other airline operating across the Pacific, according to an analysis by the International Council on Clean Transportation. Oh, the irony that he also happily played for a team that was sponsored by gas-guzzling Land Rover SUVs. Nary a peep from the climate activist when it lines his pockets.

What will the other devout Christian Pacific Islanders do? Will they leave the Wallabies en masse? They’re good enough to find homes in other sides. The Japanese would welcome them.

If the RA board think they’ve reached a moral high ground in this decision they’re seriously mistaken. Trying to pay him off was the first big mistake because his faith trumped their expediency. They thought he was all bluster, just like the players who threatened to boycott the team if he remained. Folau wasn’t for sale.

CM has repeatedly said that Folau’s remarks in a public forum were unnecessary but defends his right to say them.

Castle’s decision is a perfect representation of the growing trend of allowing virtue signaling to infect a board which will spectacularly backfire. This is no different to Gillette, Colgate and other brands trying to do moral preening. People want the product. Start throwing lashings of political correctness and watch customers desert them. Footy Show anyone? Trying to be a ‘woke’ corporate is the closest thing to sleepwalking off a cliff.

STAY IN YOUR LANE!!!

Since when did the Australian Prudential Regulatory Authority (APRA) become an axe on climate change? Next thing we will see is 16yo Greta Thunberg, of school climate strike fame, adorning APRA releases and annual reports. APRA should stay in its lane as the only disaster on the horizon will be self inflicted.

In the AFR today, it was reported that the financial services sector regulator said, “there is no excuse for inaction on climate change, warning there is a high degree of certainty that financial risks will materialize as a result of a warming climate.”

APRA noted that only 1 in 5 companies are meeting voluntary climate risk disclosure targets which are set out by the Task Force in Climate-related Financial Disclosures, a private sector body chaired by none other than global warming alarmist Michael Bloomberg.

What in the world is APRA doing trying to implement guidelines put forward by a body backed by an agenda? Has APRA considered the wealth of literature debunking global warming? The plethora of scandals that have befallen the UNIPCC, NOAA and even our own Bureau of Meteorology! Has it considered the dozens of dud predictions made by the IPCC? The UN climate science body has publicly climbed down from so many alarmist claims, citing no evidence or extremely low confidence. Can APRA put hrs numbers on what global warming might do?

To be honest, APRA should stay in its lane. It follows on from the lunacy spread by the Reserve Bank of Australia (RBA) on the same topic. The only “high degree of financial risk” will come from their own terrible stewardship of the financial sector.

As CM wrote late last year Australian banks are in a terrible position financially. CM believes there is a high risk that some of Australia’s major banks will end up all or part nationalized when the property market bursts. To quote some excerpts:

In the late 1980s at the peak of the property bubble, the Imperial Palace in Tokyo was worth the equivalent to the entire state of California. Greater Tokyo was worth more than the whole United States. The Japanese used to joke that they had bought up so much of Hawaii that it had effectively become the 48th prefecture of Japan. Japanese nationwide property prices quadrupled in the space of a decade. At the height of the frenzy, Japanese real estate related lending comprised around 41.2% (A$2.5 trillion) of all loans outstanding. N.B. Australian bank mortgage loan books have swelled to 63% (A$1.7 trillion) of total loans

From the peak in 1991/2 property prices over the next two decades fell 75-80%. Banks were decimated.

In the following two decades, 181 Japanese banks, trust banks and credit unions went bust and the rest were either injected with public funds, forced into mergers or nationalized. The unravelling of asset prices was swift and sudden but the process to deal with it took decades because banks were reluctant to repossess properties for fear of having to mark the other properties (assets) on their balance sheets to current market values. Paying mere fractions of the loan were enough to justify not calling the debt bad. If banks were forced to reflect the truth of their financial health rather than use accounting trickery to keep the loans valued at the inflated levels the loans were made against they would quickly become insolvent. By the end of the crisis, disposal of non-performing loans (NPLs) among all financial institutions exceeded 90 trillion yen (A$1.1 trillion), or 17% of Japanese GDP at the time.

In 2018, Australia’s GDP is likely to be around A$1.75 trillion. Our total lending by the banks is approximately $2.64 trillion which is 150% of GDP. At the height of the Japanese bubble, total bank lending as a whole only reached 106%. Mortgages alone in Australia are near as makes no difference 100% of GDP...

…In Westpac’s full-year 2018 balance sheet, the company claims around A$710 billion in assets as “loans”. Of that amount, according to the latest APRA data, A$411 billion of lending is ‘real estate’ related. Total equity for the bank is A$64.6 billion. So equity as a percentage of property loans is just shy of 16%. If Australia had a nationwide property collapse (we have not had one for three decades) then it is possible that the banks would face significant headwinds.

What that basically says is if Westpac suffered a 16% decline in the value of its entire property loan book then it would at least on paper appear in negative equity, or liabilities would be larger than assets. Recall in 2009 that BoA had over 16% of its residential loan portfolio which went bad.

We ought to be extremely worried if our financial regulators are devoting any time to this utter nonsense. It is highly doubtful that APRA could gain any meaningful insights on climate change even if there was 100% compliance with Bloomberg’s diocese. Utterly embarrassing.

Gillette value cut by P&G

CM was at Woolworths this morning and noted Gillette products still deeply discounted. Schick products still at the standard price. Of note it is interesting to see that parent P&G, in its 3Q 2019 earnings release overnight, wrote:

“The most significant assumptions utilized in the determination of the estimated fair values of Shave Care reporting unit and the Gillette indefinite-lived intangible asset are the net sales and earnings growth rates (including residual growth rates) and discount rate. The residual growth rate represents the expected rate at which the reporting unit and Gillette brand are expected to grow beyond the shorter-term business planning period. The residual growth rate utilized in our fair value estimates is consistent with the reporting unit and brand operating plans, and approximates expected long term category market growth rates. The residual growth rate is dependent on overall market growth rates, the competitive environment, inflation, relative currency exchange rates and business activities that impact market share.

Is the last sentence related to ridiculous campaigns that attacked toxic masculinity? Did the YouGov poll conducted afterwards set off warning lights inside P&G headquarters? Before the campaign Gillette was ranked 7th out of 42 personal care brands. After it aired, it ranked dead last.

P&G went on to say, “While management can and has implemented strategies to address these events, changes in operating plans or adverse changes in the future could reduce the underlying cash flows used to estimate fair values and could result in a decline in fair value that would trigger future impairment charges of the reporting unit’s goodwill and indefinite-lived intangibles.

In either a positive or negative 25bp change scenario in the discount rate, an impairment cut of 6% has been factored.

A look under P&G’s “Grooming” division in these results and it becomes clear that revenues have plunged 8.1% and operating profits slashed 22%. For the 9 month period, it is 6.1% and 12.7% respectively. So it can be deduced that the Gillette toxic masculinity campaign has accelerated the demise. Only proves that customers don’t want politics attached to their products.

Noone needs ‘woke’ corporations. Why do corporations feel the need to become paragons of virtue? Just stick to the products and leave us to decide for ourselves on societal values. In Gillette’s case, attempts to correct customer behaviour have been a resounding failure. Oh, to imagine the excuse making inside the marketing department.