MISSION INTANGIBLE

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MISSION:INTANGIBLE, the blog of the Intangible Asset Finance Society, offers critical comments on intangible asset, corporate reputation, and finance; supplemented by quantitative reputation metrics. Intangible assets include business processes, patents, trademarks; reputations for ethics and integrity; quality, safety, sustainability, security, and resilience; and comprise 70% of the average company's value. MISSION:INTANGIBLE is a registered trademark of the Intangible Asset Finance Society.

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Carnival Corp: Hidden value or fool's gold?

C. HUYGENS - Wednesday, March 26, 2014
Huygens has reflected in the past on the travails of Carnival Corp (CCL), the vacation experience company that at times has provided passengers with more than they bargained for. This week, the Consensiv blog picks up a discussion at Motley Fool in which is is observed that the stock price for CCL, while apparently a bargain, may also reflect outsized operating expenses, future liabilities, and ongoing adverse publicity.

Carnival does offer a dividend yield of 2.50%, which is more generous than Royal Caribbean at 1.90%, but considering the other factors — PR challenges and lack of efficiency — that shouldn’t be enough to lead investors in Carnival’s direction.


The key message from Motley Fool's discussion, notes Jonathan Salem Baskin, a reputation controls expert, is that different stakeholders will potentially view the reputational value of CCL differently. Equity investors speak through stock price, which is the most transparent to all outsiders; other stakeholders speak through more opaque channels that create or reduce revenue, increase or reduce expenses and operational efficiencies, etc.

The myriad "valuations" diverge most during and after shocks; over time, they converge. In between the two, there are arbitrage opportunities. Such opportunities are exploited in the RepuStars Variety and RepuStars SPX equity strategies whose weekly returns are posted on this blog.

Read more.

Carnival Corp: Sinking (stinking) reputation

C. HUYGENS - Friday, October 04, 2013
It takes years to build a reputation, and often, years to realize its been destroyed. Two years ago, Carnival Corporation's (CCL) Costa Concordia ran aground with loss of life. In February of this year, a ship in the parent company's portfolio lost power and drifted in the Gulf of Mexico for a few days. The rescue by by the US Navy and Coast Guard made for excellent TV fodder.

The Steel City Re reputation metrics at the time suggested that things were going south. Reputation was sinking in an industry where delayed maintenance and other cost saving strategies were widely generating headline risk. Reputation metrics being forward-looking indicators, it is not surprising that this past week brought "surprisingly" bad economic news.

Carnival Corp reported that bookings were down and projected that 2013 revenues will drop even lower than an already-reduced forecast. Read more.

Carnival Corp: Executive shore leave

C. HUYGENS - Thursday, June 27, 2013
Carnival Corporation, the vacation experience company, as been having a bad run of shows. Eighteen months ago, a ship in its Costa Crociere family ran aground with loss of life. Last week, that company's President, Gianni Onorato, left the company with immediate effect to "pursue a new career direction."

In February of this year, a ship in the parent company's portfolio lost power and drifted in the Gulf of Mexico for a few days. The rescue by by the US Navy and Coast Guard made for excellent TV fodder.

Passengers from both the Costa Concordia and the Carnival Triumph are unlikely to recommend the product to their friends, and the proof is that bookings for this year have fallen behind 2012 levels, even as its cruise fares have moved lower in a bid to win back wary travelers. Bloomberg reported that "Some three-night Carnival cruises are selling from prices as low as $209. Five nights? Those have sold for as little as $249. A seven-night Caribbean cruise in August? Yours for $369, if you don’t mind an interior cabin. In April, as Carnival desperately sought to restore sales from the Triumph debacle, some four-night cruises from Miami were being sold for a mere $149."

This week, Carnival's CEO and Chairman surrendered his operating executive title. Director Arnold Donald, a longtime Monsanto executive and Carnival board member, will take over as chief executive from Micky Arison, who will remain board chairman. Compared to the fate of most CEOs who've had to walk the plank after operational failures and subsequent reputational crises, it's not a bad outcome.

Turning to the Steel City Re reputational value metrics, updated since our last visit of Carnival Corp (CCL) in January 2012, the company's CRR, a measure of its relative Reputational Premium, is hanging on the the top quartile in its peer group of 39 companies in the Hotels/Resorts/Cruise Lines sector. How so? Well, it's all relative. As Bloomberg reported, the entire industry is having issues this year.

It’s been a choppy few months for cruise ship operators. Memorial University of Newfoundland professor Ross Klein, who studies the industry and is the publisher of CruiseJunkie.com, collected reports of 31 incidents on cruise ships in the first three months of 2013, finding more ships run aground and more propulsion problems than in all of 2012. (To be fair, there were far fewer collisions; Klein’s data are self-reported by cruisers.)


The rash of incidents helps explain why the median sector reputational value volatility, Current RVM volatility in the chart below or Consensus Trend, was hovering around 5% for the better part of this year. 7% is a threshold value for major market capitalization movements.



Carnival Corp: Rogue in the pilot house

C. HUYGENS - Saturday, January 21, 2012
Francesco Schettino, captain of Costa Concordia, the Carnival Corporation (NYSE:CCL) ship that ran aground last week, is the latest rogue to abuse his station of authority and damage the reputation of his parent firm by triggering a business process control failure. Micky Arison, chief executive of Carnival Corporation, admitted that the Costa Concordia’s grounding and capsizing had “called into question” the company’s safety and emergency response procedures and practices.

The Steel City Re Corporate Reputation Index metrics for Carnival Corp dropped from the 81st percentile among nearly 7000 firms measured, to the 43rd, and from the 39th percentile among the S&P500 constituent members to the 8th. It also lost nearly $3B in enterprise value, or about 10% of its market capitalization. This is more than the median cost of a major reputational event which is 7% of market cap according to Steel City Re's research.

As the post mortem examination is already disclosing, Captain Schettino’s deviation from the approved navigational plan was not the first. Deviations in processes that result in operational disasters and reputational losses are rarely one-offs. Rather, as investigators are now finding, prior deviations were not observed, or if observed, did not trigger processes to mitigate future deviations. And that is but one of many lessons for operational executives who may have been lulled into thinking that rogues only reside on Wall Street.

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