News As We Read- 14th May'13

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Following made the Headlines:

India:

• Tata Steel Bites Bullet with $1.6b Goodwill Hit: Tata Group flagship Tata Steel has announced a $1.6-billion goodwill impairment charge for the loss of value of Tata Steel Europe (TSE), formerly Corus, and other overseas assets in Thailand and South Africa in the wake of a slump in demand across major overseas markets, particularly Europe. The final figures will be part of the annual numbers due on May 23, when the company announces its Q4 and annual results. "The impairment is primarily due to a weaker macroeconomic and market environment in Europe where the apparent steel demand has fallen significantly in 2012-13 by almost 8%, which in aggregate results is almost 30% since the emergence of the global financial crisis in 2007. The above underlying condition is expected to continue over the near and medium term and has led to the downward revision of cashflow expectations underlying the valuation of the European business," Tata Steel said in a late evening statement. According to its 2011-12 annual report, Tata Steel’s consolidated goodwill stood at 17, 354 crore ($3.2 billion) and a lion’s share of that was on account of the $13-billion Corus acquisition in 2006. In effect, therefore, Tata Steel has written off half of its goodwill accrued. Earlier this month, Tata Steel’s Thai subsidiary, in which the company has a 70% stake, took a $120-million write-off. The move was widely seen as a precursor to a much larger write-off in Europe. A goodwill loss occurs when the purchase price is higher than the net asset value of the acquired entity. Monday’s move is not just a financial decision but a strategic and managerial one, say analysts, enabling Tata Sons Chairman Cyrus Mistry to sell some Corus assets.

• Alchemist ‘Group’ Cos Under Lens for Fund-Raising: Three Alchemist ‘group’ companies are under the corporate affairs ministry’s scanner for their fund-raising activities, which allegedly ranged from accepting deposits against fictitious property certificates to issuing preference shares to investors without the regulator’s approval. KD Singh, the entrepreneur-turned-politician, is the chairman emeritus of the Alchemist Group, which according to its website is a 10,000-crore conglomerate with a wide range of business interests varying from hospitality to pharmaceuticals to real estate. Singh is a Trinamool Congress Rajya Sabha MP from Jharkhand, and is reputed to be close to West Bengal Chief Minister Mamata Banerjee. None of the three companies under investigation — Alchemist Infra Realty, Alchemist Holdings and Alchemist Capital — is named in the group’s website, but the corporate affairs ministry during the course of its investigations discovered advertisements and pamphlets for the deposit-taking schemes that explicitly stated that Alchemist Infra Realty was a part of the Alchemist Group. Alchemist Capital’s filings with the Registrar of Companies (RoC) names Singh as a shareholder. RoC Delhi, which was probing Alchemist Infra Realty’s books, discovered that in 2009-10, the development charges and the advance against land collected by the company stood at 1,087 crore in comparison to the actual land holding of 43 crore. “It clearly shows that the company is having no land assets and is simply collecting funds from the public on false promises, giving fictitious certificates on the basis of non-existing land and shall not be in a position to deliver the said property to the depositors,” RoC Delhi had written to the ministry on August 24, 2012.  According to the RoC’s investigation, a number of complaints were filed against the company by various people.

• PE Fund accuses Catmoss promoters of cooking books: Promoters of embattled kidswear brand Catmoss are now accused of siphoning off funds, and private equity investor SAIF Partners has approached the Delhi High Court to restrain them from such activities, selling company assets and destroying its books. In a petition filed before the court, SAIF Partners, which holds 49 per cent stake in Catmoss, has also accused company promoters including its MD Ashwani Chawla of fraudulently raising money without the PE firm's necessary consent and alleged that they are doctoring the kidswear retailer's books and fudging the minutes of meetings. ET reviewed the court documents.  In 2011, another kidswear retailer, Lilliput Kidswear, was dragged to the court by US-based PE firms Bain Capital and TPG Capital over alleged accounting fraud. Late last year, SAIF Partners told accounting firm KPMG to carry out a limited auditing of Catmoss Retail following allegations that the management mishandled Rs 100 crore it received from the PE firm and another Rs 100 crore raised through bank loans.

• Vatika Buys Back Stake Held by Goldman: Goldman Sachs has exited 600-crore entity level investment in Delhi-based real estate firm Vatika group after staying invested for over five years, with the Vatika promoters buying back Goldman’s stake in the company. “A settlement has been reached between the two and the exit will be in two parts — a part in cash and another as stake in a project of Vatika,” said a banker close to the transaction, who did not wish to be named. The global bank had invested in Vatika at the peak of India’s real estate cycle in 2007 along with Wachovia Bank and Baer Capital Partners. The three had invested 1,000 crore in the company and were to get an exit through an IPO by the end of 2010. Wachovia exited Vatika last year. Another person in the know of the transaction said that Goldman Sachs is redeeming the equity at par, but could make a profit later on from the project level stake that it is getting from Vatika now. Vatika had initially planned an IPO in 2009 but it did not materialise as the market tanked after the fall of Lehman Brothers. The company tried to tap the public markets once again in 2010 to raise around Rs 1,000 crore, just like some others such as Emaar MGF, but the IPO did not go through. When contacted, Gautam Bhalla, managing director of Vatika, declined to comment on the transaction. Goldman Sachs also did not respond to an email sent by ET. Vatika has housing projects in Gurgaon, Delhi and Jaipur and also develops commercial office and retail spaces in Gurgaon. The company also has a hospitality vertical, which has hotels like The Westin in Gurgaon, Jaipur and Pondicherry and is developing a Four Points by Sheraton in Gurgaon. Private equity funds had invested close to $13 billion in the Indian real estate between 2006 and 2009 and many of them have been seeing an exit over the past two years. According to property advisory firm Jones Lang LaSalle India, close to $3 billion of exits were to happen in 2012 and 2013.

• What’sApp to Stay Ad-free, Tie up with More Telcos: Mobile messaging company WhatsApp, which claims more users than Twitter’s 200 million, is looking to expand in India through tieups with telecom firms. The California-based company— which has an alliance with Reliance Communications— is talking to at least two other telecom service providers, Neeraj Arora, vicepresident for business development, told ET’s Lison Joseph & Archana Rai in an interview.

• Rasna takes on Tropicana: It had been giving tough competition to Kraft Foods’Tang in the powdered drink segment with its ₹ 1 and ₹ 2 sachets. And now, Rasna is set to play a similar pricing game with Pepsico’s Tropicana in the fruit juice category. Having launched its first ready- to- drink (RTD) fruit beverage under the brand name ‘Ju- C’ recently, the soft drink concentrate maker has now set its eyes on the fast growing ready- to- drink beverages market Rasna has priced the product at ₹ 65 for one litre PET bottle as against the industry’s current pricing of ₹ 75- 90 for one- litre Tetrapack. Take, for instance, the average price increase of its current products. Rasnas average price increase annually has been a meagre four per cent. In comparison, Piruz Khambatta, chairman and managing director of Rasna, claims, Kraft Foods Tangs average price increase has been around 22 per cent annually. Rasna enjoys an over 80 per cent market share in the soft drink concentrate and powdered drink market in the country. “At Rasna, we believe we will have to cater to everybody. Rasna has to cater to the bottom of the pyramid with ₹ 1, ₹ 2 and ₹ 5 sachets as well as large party pack products. We have products from bottom to the top. We are the only soft drink maker who can reach everywhere,” Khambatta says. So, how exactly does the company manage to hold on to its attractive pricing? To keep the prices down, Rasna has also done some backward integration where even the fruits are picked up directly by Rasna officials from the farm to reduce procurement costs. The non- alcoholic ready-to-drink (RTD) beverage segment has been growing at a compound annual growth rate (CAGR) of 13 per cent since 2009, and is one of the segments that have defied the slowing economic growth, according to the Indian Beverage Association (IBA), which expects the country’s beverage industry to continue to grow in double digits in 2013. It indeed is a lucrative space to be in. According to brand experts, Rasna has till date confined itself to indoor home space consumption, where consumers would have to make a Rasna drink to have it, but with the new Ju- C, the company has entered the outdoor space as well. “Powder has a limitation. It takes time in making and is suited for indoor consumption. Launch of a fruit beverage now shields Rasna from the seasonality of sales. The focus will now have to be on managing competition. Plus, Rasna’s core is juice and since affordability is a big plus in India, the fruit beverage should work well. Rasna is good at distribution but will still have to work on its supply chain to be present everywhere,” says Pinakiranjan Mishra, partner and head retail and consumer products at Ernst & Young India (E& Y). On its part, Rasna is taking cue from it and is working on a hub- and- spoke model of supplying its products to villages through depots in a nearby town, something that has brought success for the Gujarat Co- operative Milk Marketing Federation (GCMMF)- owned Amul brand for its milk and milk products. While the overall RTD market including carbonated drinks is around ₹ 15,000 crore, the fruit beverages market is estimated to be around ₹ 5,000 crore, Khambatta informs. “Our research shows that there is a gradual shift from carbonated drinks to nectar or fruit juice.” Rasna’s strategy in beverages would be to target the ‘middle category’ or as its CMD puts it, “We are not competing with brands like Frooti and Maaza, nor even the more premium placed brands. We want to grow in the middle segment.” While a 360- degree campaign is indeed planned around the new launch, over the years, Khambatta says, he doesn’t wish to focus on TVCs solely. After having given the country one of its longest running product slogans, ‘I Love you Rasna’, Khambatta feels television commercials are losing TRPs. However, Rasna has only recently launched a fresh TVC for its Fruit Fun product with a new mascot – Gillu, the squirrel.

• Nestle India Q1 net up 1 per cent at Rs 279 crore: Nestle India reported almost flat net profit growth in the first quarter ended March 2013 partly due to low volume growth. The maker of Maggi noodles, Cerelac infant cereal and KitKat chocolate said a change in regulatory procedures resulted in higher interest and depreciation costs during the quarter when net profit rose 1.4% YoY to Rs 279.09 crore.  Net sales of the company rose less than 10% to Rs 2,248.08 crore from Rs 2,047.45 crore last year. This increase was mainly on account of price realisations rather than growth in volumes. Analysts tracking the sector said price increases undertaken by the company last year have impacted the company's performance. "Overall weakness in consumer sentiment implies that Nestle will have to wait longer for volume growth to come back to the business, or realign the pricing strategy according to the market conditions," financial services firm Espirito Santo Securities said in a note. Nestle India said net profit for the quarter is not comparable with the year-ago period because it has been negatively impacted due to changes in regulatory procedures. "These changes resulted in timing differences for certain provisions for contingencies that reduced the net profit for the quarter," a company statement said. Commenting on the results, Nestle India CMD Helio Waszyk in a statement said, "We expect some volatility to continue throughout 2013 but remain confident on our strategy to deliver long-term sustainable profitable growth, which has been progressing well." He said that while Nestle is facing several challenges, its "concerted efforts are starting to show positive signals in certain categories while in others it may take some more time". Nestle India revenues account for only 1.6% of its Swiss parent's consolidated sales. Shares of Nestle India fell 1.13% to Rs 4,853.45 on the BSE on Monday.

International:

• H&M and Zara to sign Bangladesh safety accord: Retailers in Europe, including Hennes & Mauritz and Inditex which owns Zara, have said they will sign an accord to improve safety conditions in factories in Bangladesh. It comes after a garment factory building collapsed in April, killing more than 1,100 people. However, US firm Gap Inc declined to sign the agreement, throwing its impact into question. Bangladesh is the biggest producer of clothing after China. Two labour groups are behind the legally-binding agreement, called the Accord on Fire and Building Safety in Bangladesh. They have set a deadline of 15 May for retailers to sign on. The accord includes regulations on safety inspections and requires retailers to pay for factory repairs. Discount clothing company Primark and UK supermarket chain Tesco have also signed up to the agreement. Sixty percent of Bangladesh's garment exports go to European retailers. US retailer Gap said it would only sign the accord if changes were made to rules on how disputes were resolved. "With this single change, this global, historic agreement can move forward with a group of all retailers, not just those based in Europe," said Eva Sage-Gavin, from Gap's global human resources and corporate affairs department, in a statement. The collapse of the factory was Bangladesh's worst industrial disaster. In the wake of it the government has been taking steps to try and reassure Western buyers.

• Samsung claims 5G mobile data transmission breakthrough: Samsung says it has developed technology that could sit "at the core of 5G" - the successor to the 4G mobile-communications standard. The company says its equipment is capable of transmitting data at more than 1Gbps across a distance of up to 2km (1.2 miles). It suggests the tech would eventually allow users to stream ultra-high-definition video while on the move. However, one expert says the news needs to be put in context. Prof Rahim Tafazolli - who heads up the University of Surrey's 5G research efforts - suggests that even if the latest development was used, it would only be "a small part of the larger jigsaw" of technologies needed to deliver 5G. His words carry weight since his own £35m project to develop a 5G standard is part-funded by Samsung.

• Singapore to eclipse Switzerland as tax haven by 2020: As regulations tighten in Europe and the world's wealth moves to Asia, Singapore is tipped to overtake Switzerland to become the largest global offshore wealth center in terms of assets by 2020, according to London research firm, WealthInsight. Although Switzerland easily retains its offshore banking crown with $2.8 trillion in assets under management, or 34% of the global private banking industry, Singapore is now the world's fastest growing market with $550 billion under management at the end of 2011, up from just $50 billion in 2000. With $450 billion belonging to offshore clients, Singapore has grown to become the fourth largest offshore banking center globally. The UK and Channel Islands is the world's second largest hub with $1.8 trillion under management at the end of 2011, followed by the Caribbean and Panama with $800 million. A loss of confidence among wealthy American and European investors in bank secrecy laws and independence in traditional banking hubs, combined with increasingly stringent banking regulations, are playing in Singapore's favor, analysts say. "A lot of the benefits of being in Switzerland have fallen away in terms of secrecy, therefore if you look at a convenient market, particularly for a wealthy Asian individual, Singapore fits the bill," said Chris Wheeler, a bank analyst with Mediobanca. "It's got a stable government, transparent legal system, a history of investment management, having English as the first language is really very helpful and therefore it's the obvious place to go to." The increasing numbers of wealthy Chinese, Indians and Indonesians are helping fuel the shift to low-tax Asian centers, according to the report, with Hong Kong in a strong position to benefit from the Chinese government's moves to free-up international trade in China's yuan and the growing number of Chinese millionaires looking for a safe place to invest their money. European currency movements have also contributed to the shift, with the value of the Swiss Franc rising more than 20% against the U.S. dollar last year due to ongoing concerns over Europe's debt crisis. "The European crisis undoubtedly has had a big impact on Switzerland because all the European nations now are looking to get back as much as tax as they possibly can from anywhere, and anyone," said Wheeler. "We've seen Switzerland fall away as a secret cross border location and just become somewhere which is convenient to put your money with a reasonably good tax rate." Many investors in the Asian markets prefer to invest offshore for risk diversification, or are forced to look overseas due to a lack of experienced and reputable wealth managers in their home markets, according to the report. Assets under management in Singapore could quadruple by 2016 as a result, while offshore assets in Swiss bank accounts are predicted fall by nearly a third to below $2 trillion in the next three years.

• Salvatore Ferragamo Profits Climb: Salvatore Ferragamo SpA saw net profits more than double in the first quarter, driven by a solid performance worldwide and continued growth in its core footwear and leather goods categories. In the three months ended March 31, the Florence-based fashion house reported net profits of 24.3 million euros, or $32 million, compared with 12 million euros, or $15.7 million, in the same period last year.  Including minority interests of 2 million euros, or $2.6 million, as a consequence of the buy-back of stakes in the distribution companies in Greater China, Korea and South East Asia, profits rose 57 percent to 27 million euros, or $35.6 million, compared with 17 million euros, or $22.2 million, in the same period last year. Revenues increased 9 percent to 282 million euros, or $372.2 million, compared with 260 million euros, or $340.6 million, in the first quarter of last year.

• Jones, Macy's Chase Millennials With QMack: “You could throw it up in the air, and it could land on the floor and still all go together.” That’s how Stefani Greenfield described the lineup of QMack, The Jones Group Inc.’s new brand centered around 13 key items with the Millennial customer at Macy’s in mind. The executive, until last month Jones’ chief creative officer and now serving as its global creative consultant, spearheaded the collection from original concept to production after Macy’s approached Jones — already strong partners in the Millennial Rachel Rachel Roy brand — to develop an exclusive line. “We have been really public about the fact that we’re very interested in pursuing the Millennial customer, and making sure that we have the right product for her,” said Jeff Gennette, Macy’s chief merchandising officer. “We evaluated all the brands we had in our brand portfolio and we saw some gaps. One of the lifestyles that we thought we had opportunity with was ‘the girl next door.’ “We talked about this girl, and they immediately got it,” he added. “When you walk our Millennial floors, and specifically Impulse, you don’t see a lot of [clothes] she would wear to work. We had a lot of casual and evening, a lot of going-out-at-night clothes, but what she would wear during the day, in a professional environment…that was really a gap for us.”