Bosse tremors: Which corporate leaders have to tremble

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by Wolfgang Ehrensberger, Stephan Bauer and Sven Parplies, Euro am Sonntag

CBeing the head of a sporting goods company brings unusual advantages. Kasper Rorsted recognized this quickly: in the past, as CEO of Henkel, he often spoke to the owner family about the business at weekends. Now at Adidas he can instead attend the home games of FC Bayern, where Adidas is the outfitter and major shareholder.

Rorsted told this anecdote in February 2019 at the celebration of Finanzen Verlag, which honored Rorsted as “Entrepreneur of the Year”. As in football, the world can change quickly in business. Although Rorsted’s contract runs until 2026, his era at Adidas will end next year. The company reports that Rorsted will continue as CEO until a successor is appointed. Influential shareholders have apparently been pushing behind the scenes for some time. The intensity of the debate has recently increased, according to the analysts at RBC.

When Rorsted started in Herzogenaurach almost six years ago, he was celebrated among stockbrokers as an almost mythical figure. At Henkel, the Dane had demonstrated a special ability: Rorsted drove the margin up. The fact that he made few friends in the group was in the logic of the financial markets more of an honor than a handicap. After a little more than three years, he had doubled the share price of Adidas, clearly beating the DAX and narrowly beating his main rival Nike. Under Rorsted, Adidas has significantly expanded its digital capabilities and online sales have more than quintupled. In North America, Adidas has doubled its sales, emphasizes Thomas Rabe, Chairman of the Supervisory Board.

The pandemic ended this winning streak. Adidas hasn’t really gotten back on its feet since the Corona crash. While rivals Puma and Nike’s stocks rallied, Adidas kept bouncing back. Patience was exhausted with the sharp profit warning in July. China in particular, once the most important driver of growth, has become a problem. But one particular concern also seems to have come true: the performance-focused boss was unable to strike a balance between the greed of the financial markets and the sensitivity of a company dependent on artistic creativity.

Takes a lot of strength

Rorsted himself draws a positive balance: He is proud of what the team has achieved. But the boss also explains: Adidas’ business has been significantly affected by numerous external factors. “It took a lot of strength to cope with these external challenges. That’s why a new start in the coming year is right and important for the company and for me personally.”

The pandemic and the Ukraine war, with all their side effects, also demanded a lot of strength from the shareholders. Losses get on your nerves. In a world of rising prices, phases of weakness in individual securities are probably easier to forgive than in a broad stock market crisis. At the same time, difficult times show which managers are really worth their salary. “In view of the increasingly difficult economic environment, the air is getting thinner and thinner for some DAX group bosses,” observes Ingo Speich, an expert in corporate management at the fund company Deka.

The summer of 2022 will ensure an unusually large number of personal details at the management level of the German economy. Within a few weeks, three CEOs from the DAX were hit. A few days before Rorsted, the healthcare group Fresenius announced the early departure of Stephan Sturm. And by the end of July, Volkswagen’s supervisory board had already turned things around. In this case, even despite comparatively good numbers: From September, Porsche boss Oliver Blume will take over the post from Herbert Diess, who has messed things up with the influential Wolfsburg employee group in particular.

Who will be caught next in the DAX? The days of Werner Baumann, who maneuvered Bayer into severe turbulence with the takeover of Monsanto, are numbered. Baumann’s contract with the pharmaceutical and agricultural group runs until April 2024, after which he wants to retire.

At least two prominent managers are stricken: Allianz boss Oliver Bäte is criticized primarily for misconduct in asset management in the USA. Vonovia boss Rolf Buch got into trouble with the real estate group’s hasty entry into the Adler Group.

Unlike in football, changes in management in business are usually prepared in secret. Speich still sees a pattern: “It is striking that the current dismissals at Fresenius and Adidas come after two to four quarters of weak business figures, accompanied by significant share price losses.”

after the storm

The fact that Fresenius boss Stephan Sturm will only remain in office until the end of September also goes back to a day in February. Sturm had announced the presentation of the new strategy of Bad Homburg for the 2021 balance sheet presentation. There was wild speculation in advance: is Sturm splitting up the group? Does he raise values, do parts go public? “I like the structure of the healthcare group the way it is,” said the boss – and disappointed the capital market. In addition, there was persistently sluggish business, especially in the FMC dialysis division, whose patient numbers came under pressure during the pandemic. The share price collapsed.

The renewed profit warning at the end of July was probably the straw that broke the camel’s back for the supervisory board of the Bad Homburg healthcare group. The price fell sharply again and subsequently fell to a ten-year low. When Sturm took office in the summer of 2016, the Fresenius share was still one of the performance stars in the DAX and had delivered double-digit annual returns under predecessor Ulf Schneider. Under the storm, on the other hand, the paper developed into a permanent flop and lost on average, including dividends 13 percent per year. The DAX, on the other hand, always delivereddown five processesnt Plus.

The man who is supposed to make Fresenius fit again is Michael Sen. The previous head of the division with the highest margin, Fresenius Kabi, will take over at the beginning of October. Sen made a name for himself during his time as a Siemens board member with the preparation of the IPO of the medical technology division Healthineers and later as CFO of the utility Eon with the spin-off of the fossil business of the subsidiary Uniper and is considered to be extremely capital market affine.

Many investors are now relying on value-enhancing structural changes in Bad Homburg as well. Sen could sell the minority stake in the chronically ailing FMC, where the mother exercises full control. Before that, however, there should be an internal fitness program. The new boss Carla Kriwet, who replaces Rice Powell at the beginning of October at the top of the FMC, has to take care of it. Shares in the hospital subsidiary Helios could also come onto the market, possibly in an IPO. As her previous boss, Sen also knows the potential of the earnings pearl Kabi, whose generics business he should expand in the field of biosimilars, i.e. generics of biopharmaceuticals. However, larger acquisitions are hardly possible here either, for which the high level of debt of the group must first be reduced.

Of course, Sen will also be measured against one criterion in particular: the share price. To welcome the new boss on Monday, it increased by three and a half percent.

INVESTOR INFO

Adidas’ biggest problem is in China. Corona lockdowns and increased competition from local brands are slowing down the DAX group in its most important growth market. It’s not just there that a new boss has to get involved. Adidas also needs a breath of fresh air in product development. It is also important that a Rorsted successor is found quickly, as only the newcomer can make far-reaching decisions. We downgrade the stock to hold.

Most recently, the profits of the dialysis subsidiary FMC collapsed due to the sharp drop in patient numbers during the pandemic – the main reason for the profit warning at the end of July. The costs have to come down here. The generics subsidiary Kabi has high margins and high potential, it will probably remain the core of the group under the new boss Michael Sen. Sales and spin-offs are conceivable at FMC and the hospital subsidiary Helios, which creates imagination.

The potential of the car company is huge, but unfortunately Volkswagen keeps getting in its own way. The industry’s cyclical nature makes the stock vulnerable to a recession. The low valuation level of the assets listed in the DAX should limit the downside of the risks. A partial IPO of the VW brand Porsche this year would be an important signal that would also strengthen confidence in the new boss.

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Image sources: Julian Mezger for Finanzen Verlag, Pavel Ignatov / Shutterstock.com