News As We Read- 21st May'13

Thought of the Day:

Did you know?

Following made the Headlines:

India:

• Gulf Airlines engulfed in Indian fare dogfight: Middle-Eastern carriers have upped the ante to snare overseas-bound Indian travellers with lower fares this season, with Etihad and Emirates being the first to stir the market with discounts, much to the dismay of India's national carrier Air India. On Sunday, Abu Dhabi carrier Etihad, which bought a stake in Jet Airways last month, quietly announced discounted fares for a limited period for travel to cities in the EU, US and Africa from various Indian cities. On Monday, arch-rival Emirates, the largest foreign carrier in India by market share, responded by offering network-wide savings of 8% to foreign destinations. Air India fears the discounts are part of Etihad's long-term strategy of pulling fares down in order to capture a large chunk of Indian traffic to overseas destinations. "When price levels go down, everyone's revenues will go down. Moreover, the traffic will go to Abu Dhabi instead of coming to our Delhi hub. We'll be able to respond to this move after looking at how advance-booking loads look," said a senior Air India official. Etihad's website lists return fares on routes such as Kozhikode-Frankfurt, New Delhi-Manchester and Ahmedabad-Amsterdam that are open for bookings till May 23 for travel till June 30. These fares are lower by a few thousand rupees compared with prevailing prices. Etihad did not respond to ET's email query on the rationale behind the discounts.

• SABMiller plans Rs 440-crore investments in India arm to take on rivals: SABMiller, the world's second-largest brewer after AB InBev, plans to invest 440 crore in its unlisted Indian arm to expand capacity and its portfolio, and revive its fortunes in Asia's third-largest economy where young urban consumers are driving demand. In an extraordinary general meeting in March, SABMiller India decided to allot 78 million shares to its UK-based parent at 56 each, it said in a filing with the Registrar of Companies. The maker of beer such as Haywards, Miller High Life and Foster's plans to use the funds to increase capacity by over 10,000 litres by 2014, according to the filing submitted two weeks ago. Confirming the development, a SABMiller India spokesperson said the move reiterates that India continues to be a focus area for the group, which has over the past 12 years invested over $700 million in the country. "Fresh equity should accelerate the company's ongoing drive to support development of the Indian market on all fronts, build a wider brand portfolio to offer more choice to the consumer, innovate and bring world-class technology and best practices into the country," the spokesperson said. SABMiller, the second-largest player in India's $2.2-billion (approximately 12,000-crore) beer market, is looking to claw back its market share lost to leader United Breweries and others in the past few years.

• Nestle to invest Rs 250 crore on expansion of Punjab milk plant: Dairy major Nestle India today said it will invest Rs 250 crore on expansion and modernisation of its existing milk plant at Moga in Punjab. In his meeting with Punjab Chief Minister Parkash Singh Badal here, Nestle India Ltd Chairman & Managing Director (CMD) Antonio Helio Waszyk said the company had made investment of Rs 9,500 crore in the country, according to an official statement.  He added that Nestle had already invested nearly Rs 250 crore and the balance Rs 250 crore would be invested for technological upgradation, expansion and modernisation of its Moga plant over a period of next two years. Badal said the meeting with Waszyk would put all the rumours of winding up its unit from Punjab which was spread by opposition party, at rest. Waszyk said the company had launched its first unit in 1961 at Moga and termed it as 'Jewel in Crown' of their investments across the globe. He said: "It is a plant in Punjab run by Punjabis, which is evident from the fact that out of total work force of 25,000 employees, 90 per cent are Punjabis. Likewise, Nestle purchases raw material worth Rs 650-700 crore from Punjab annually." At present, the company was procuring milk from as many as 1,10,000 dairy farmers across the state.

• Qatar National Bank Group gets nod for India subsidiary: The Qatar National Bank (QNB) Group has announced that it has received all regulatory approvals to establish a fully owned subsidiary under the name of QNB (India) Private Limited, which is expected to commence its operations during the 3rd quarter of 2013. "QNB (India) will take the role of extending consultancy and advisory services in the field of investment and finance for the Middle East companies that are willing to establish businesses and/ or invest in India," the bank said. "As part of its international expansion strategy, QNB Group is seen to always seek presence and competition in leading markets. The Indian economy is the tenth-largest in the world by nominal GDP (Gross Domestic Product) and the third-largest by PPP (Purchasing Power Parity)," the statement said. QNB Group was established in 1964 as the country's first Qatari-owned commercial bank and has an ownership structure equally shared between the Qatar Investment Authority (50 per cent) and the private sector (50 per cent).

• Goa's Feni manufacturing process may be patented: After obtaining Geographical Indication (GI) status for the famous Goa Feni, researchers and producers in the coastal state are now trying to patent the process to manufacture this local brew, which is also known for its medicinal benefits. The Indian Council for Agricultural Research (ICAR) has begun the process to patent the process of manufacturing Feni (spirit made from either coconut or the juice of cashew apple) in consultation with legal experts, who have prepared a water tight case to be presented before the concerned authorities. "The process to be patented involves the system followed to manufacture Feni, right from plucking of cashew apple to bottling of the brewed final product," ICAR Goa Director Dr N P Singh told reporters. On behalf of ICAR, the application is moved to Patenting Authority of India (PAI), which will certify the process after inviting objections from across the world. "To get it patented, the process should be unique to the Feni manufactured in Goa," Singh said. The researchers are closely working with a local businessman, Gurudatta Bhakta, who owns a brewery producing internationally marketed Feni. The ICAR would also rope in more entrepreneurs, mostly from South Goa this month for the process.

• Gold hits 21-month low, slide likely to continue: Gold and silver lost some more sheen on Monday. While the price of the yellow metal fell by Rs 300, touching a 21-month low of Rs 26,370 per 10 gram, silver declined by Rs 1,530 to Rs 42,170 per kg in the capital — a level that was last seen in November 2010. In Mumbai, standard gold fell by Rs 220 to 25,900 per 10 grams while silver closed at Rs 42, 970 per kg, a drop of Rs 830. The fall in prices has raised expectations of gold jewellery getting cheaper with price of the precious metal expected to slide to Rs 25,000 per 10 grams in the near future. With the US economy showing signs of improvement resulting in a weak investment demand for gold, analysts said gold prices are likely to remain bearish over the next few months. “The correction in price was quite expected, the main reason being the improvement in the US dollar as compared to the euro. International price of gold is expected to remain around $1350 an ounce in the near term,” said Bhargava Vaidya, proprietor at Mumbai-based B N Vaidya & Associates. Price of gold in the international market, which determines domestic price, stood at $1,354.20 an ounce on Monday. In domestic market, gold prices fell by over 3% during the first quarter this year, while in April alone, prices declined by 18% due to global factors. With investors turning to the US equity markets owing to an improvement in the economy, analysts said more money is expected to be withdrawn from gold ETFs pushing prices lower. “In case of gold, $1,320 an ounce is seen as a good support level. In domestic markets, the support level is Rs 25,000. Once this level is broken, prices might fall further,” said Ashok Mittal, CEO, Emkay Commotrade. “This could happen in the next two months,” he added.

• Woodland plans a new identity for Woods: Aero Group, known for its flagship Woodland brand, is planning to give a spin to one of its old brands, Woods. The company is planning to open around 30 Woods stores in the year in a new avatar. Managing Director Harkirat Singh said the eight-year-old brand would play out with the fashion quotient, rather than the typical outdoor, rough and tough image of Woodland. “This would focus more on the fashion needs of women. Sixty per cent of Woods would be focused on women, while the rest would be for men. We will slowly introduce an apparel range in Woods as well,” said Singh. The branded footwear market is estimated to be about ₹ 30,000 crore. “Though the luxury segment is still not that big, it is growing significantly. Out of that, the segment for women has been growing more than that for men,” added Singh. Woods started as a footwear brand for men; it was later extended for women. Woods contributes around 20 per cent of total sales. Singh said the contribution of Woods would scale up to around 30 per cent in three years and there were plans to invest ₹ 50- 60 crore for carving out the new identity of Woods. Woods products would cost ₹ 4,000- 8,000. Woodland had a top line of ₹ 850 crore in FY13 and is looking to close the current year with an over ₹ 1,000 crore top line.

International:

• Wal-Mart told to provide more information in bribe case: A US judge ordered attorneys for Wal-Mart Stores Inc. to turn over more information to shareholders seeking records on how the company responded to allegations of bribery involving its operations in Mexico. The judge on Monday suggested that Wal-Mart attorneys had taken a ``persnickety and narrow'' approach to turning over documents requested by attorneys for large pension funds trying to find out what, and when, company directors knew of the payments. The plaintiffs also want information about an internal investigation conducted by Bentonville, Ark.-based Wal-Mart into allegations that bribes were used to speed building permits and gain other favors. The shareholders have alleged that Wal-Mart officials breached their fiduciary duties by allowing and covering up the alleged payments, which spurred federal bribery investigations in both the US and Mexico.

• Yahoo unveils makeover of flickr site, offers 1 terabyte of storage: Reinvigorated technology player Yahoo! Monday unveiled a dusted-off design of its flickr photo platform only hours after the company's dramatic acquisition of blogging site Tumblr. Yahoo chief executive Marissa Mayer, maintaining that her ambition was to make flickr "awesome again," said the new site will showcase "bigger images" and create a user experience that is "more immersive, more expressive." Mayer's announcement of the flickr makeover came only hours after the company announced it was buying Tumblr for $1.1 billion. Referring to Tumblr, Yahoo promised "not to screw it up." Mayer, a Google veteran who joined Yahoo as chief executive last summer, Monday referred to flickr as a once-shining acquisition "that didn't fare so well" and vowed that Tumblr would not follow a similar path. Yahoo Inc. said at an event in New York City on Monday that it is now offering Flickr users 1 terabyte of online storage for free. One terabyte is 1,024 gigabytes _ enough to store more than 500,000 images at a resolution common to most smartphones. The remade flickr aspires to transform a consumer experience that had become flat with excessive text and dull, uninspired photos.

• Apple 'among largest tax avoiders in US' - Senate committee: Apple has been accused of being "among America's largest tax avoiders" by a Senate committee. The committee said Apple had used "a complex web of offshore entities" to avoid paying billions of dollars in US income taxes. Apple chief Tim Cook will go before the panel on Tuesday. In prepared testimony Apple said it did not use tax gimmicks. The committee said there was no indication it had done anything illegal. Apple has a cash stockpile of $145bn (£95bn), but the committee said $102bn of this was held offshore. The company says it is one of the largest taxpayers in the US, having paid $6bn in federal corporate income tax in the 2012 fiscal year. The Senate Permanent Subcommittee on Investigations has been examining "methods employed by multinational corporations to shift profits offshore". Some large firms in the US have come under fire for their reluctance to repatriate their foreign earnings as they could face a top tax rate of 35%. US corporation tax is one of the highest in the world at 35%. However, companies typically pay far less, thanks to numerous deductions and exemptions.

• Ryanair profits at record high despite fuel cost rise: Discount airline Ryanair has reported record full-year profits and rising revenues, despite soaring fuel costs. Profits after tax rose 13% to 569m euros (£481m) on revenues of 4.88bn euros for the year to 31 March. Passenger traffic grew 5% to 79.3 million as the airline added 217 new routes to its roster, bringing the total to 1,600. But fuel costs rose by more than 290m euros, the company said, and now account for 45% of total costs. Chief executive Michael O'Leary said: "Delivering a 13% increase in profits and 5% traffic growth despite high oil prices during a European recession is testimony to the strength of Ryanair's ultra-low cost model." But he warned that growth would be slower in the 2013-14 financial year at Europe's largest budget airline, thanks to rising oil prices and "unjustified higher Eurocontrol and Spanish airport charges". The company is forecasting net profits in the range of 570m to 600m euros for the coming year. In March, Ryanair placed an order with Boeing for 175 planes worth £10.3bn ($15.6bn) to be delivered between 2014 and 2018. The deal will increase its fleet by a third to 400 planes.

• Robert Vignola Exits Calvin Klein: Robert Vignola has stepped down as president of Calvin Klein Collection and global licensing. He is succeeded in that role by John Van Glahn, former executive vice president of finance and administration at Calvin Klein Inc., a division of PVH Corp. Van Glahn reports to Tom Murry, Calvin Klein Inc.’s president and chief executive officer. “It was a turning point in the company’s evolution,” said Vignola, when reached at home Monday. “I was president of global licensing, and it was a game changer when PVH Corp. bought Warnaco.” Vignola noted that 70 percent of Calvin Klein’s business was done through licensing, and he spent the lion’s share of his time and energy on that business. “Now, with the acquisition of Warnaco, it all changed. PVH brought many of the Calvin Klein brands in-house, and the licensing has become diminished. It was the right turning point for me to depart,” he said. He said Warnaco was the biggest Calvin Klein licensee and had more than $1 billion in net sales, through jeans, underwear and swimwear. They also had more than 800 retail stores around the world, which have now become company-owned. Asked how the Calvin Klein Collection business was faring, Vignola said, “It’s small but serves an important function. It’s the halo for the whole business and helps sell a lot of commercially priced product.” Vignola said he was talking to various companies about licensing opportunities, but hasn’t decided his next move.

• Avon in Talks for Brazil Buy?: Avon Products Inc. is said to be in talks to buy a stake in Jequiti Cosméticos, a Brazilian direct sales cosmetics company, for about 500 million reals, or $246.3 million at current exchange, according to two sources with knowledge of the negotiations. The stake would be significant but wouldn’t give control of the Brazilian company to Avon, the sources said. Coty Inc. and L’Oréal SA have also courted Jequiti since last year, when its controlling shareholder Silvio Santos, a Brazilian media mogul, hired Barclays plc to find a partner for his cosmetics company.  After dropping an attempt to take over Avon last year, Coty in September made an offer to buy Jequiti but wasn’t successful. At the time, Jequiti as a whole was valued at 500 million reals, according to the sources. Coty in January formed a partnership with Jequiti to distribute some of its fragrances in Brazil. Santos has been selling stakes in some of his companies since 2010 to pay back a 2.5 billion real ($1.23 billion) bailout received from Brazil’s deposit insurance fund after the central bank found evidence of fraud at his bank, Banco Panamericano SA. He later sold the bank. Avon declined to comment, according to its Brazilian public relations firm, Imagem Corporativa.

• Benetton Unveils New Board of Directors: The changing of the guard continues at Benetton, which unveiled its new board of directors Monday. Most notably, all four company founders siblings Carlo,Luciano, Gilberto and Giuliana Benetton — have stepped down, and Christian Benetton(son of Carlo), Sabrina Benetton (daughter of Gilberto) and Franca Bertagnin Benetton(daughter of Giuliana) are taking over. Just more than a year ago, Luciano Benetton, who had been the company’s chairman, said that he was bowing out and that his son, Alessandro Benneton, would be the company’s new president. Alessandro remains in that role and on the board, alongside newly confirmed chief executive officer Biagio Chiarolanza. Other board members include Gianni Mion and Sandro Saccardi, as well as a new crew of independent advisers with experience in finance, retail and law: Tommaso Barracco, Fabio Buttignon, Paolo Cavallo, Alfredo Malguzzi and Fabio Tamburini.

• Stores Testing Same-Day Delivery: Same-day delivery is in the nascent stages in the U.S., but physical retailers from Wal-Mart to Nordstrom, as well as e-commerce sites Amazon, eBay, Google and Postmates, are in various stages of testing the service. The reason for same-day delivery is clear: immediate gratification. It’s the leg up brick-and-mortar retailers have over e-commerce. “This highlights one of their key competitive edges,” said Matthew Nemer, a retail analyst at Wells Fargo. While Amazon’s delivery model utilizes its distribution centers, Nemer said, “The model of products being delivered from the store to the home is the better model. The only way to make the same-day delivery model work is if there’s a store. If you pick up from the retail store, it’s always going to be closer to home. This will be an incremental way to utilize the store and a tool for retailers to fight Amazon.” Same-day delivery has relatively low consumer adoption rates — 7 percent, according to Shop.org. Nemer, who wrote a research note about same-day delivery, “Battle of the Couriers,” test-drove the various services. Nemer sampled Wal-Mart To Go and Google Shopping Express, which are still in the beta phase. EBay Now is operating only in San Francisco, San Jose and New York; Instacart is available in the Bay Area, and Postmates is serving San Francisco and Seattle. Start-up Shutl operates in 70 towns in the U.K. and is planning to launch in 19 U.S. cities by the end of 2013. “As Amazon expands its fulfillment network, we expect it to continue to refine and expand its Local Express Delivery program, which is available in 10 cities, though not in the Bay Area,” Nemer said. Despite the lack of interest from consumers, Nemer believes new models could break down resistance. “Same-day shipping provides offer a good experience, and further innovation will likely drive adoption for customers with above-average income in medium-sized cities and urban markets,” said Nemer. “It’s not a panacea for traditional retail, but it does bridge the competitive gap with Amazon Prime and could drive higher average order values.” For the economics of same-day delivery to work, there needs to be a third-party player who aggregates it. For example, a third-party courier could be aggregating orders from Wal-Mart, Macy’s and Nordstrom.

• Rents Up Along Manhattan Retail Corridors: Average asking rents in the first quarter either remained stable or increased for 10 of Manhattan’s 11 major retail corridors. That’s according to CBRE’s first-quarter recap, “Manhattan Retail.” Andrew Goldberg, a broker at CBRE, said, “The market report for all neighborhoods is either trending up or flat off of last year’s highs. With spending exceeding 2007 levels, business in Manhattan is very strong.” Goldberg represented Valentino in its long-term 20,000-square-foot lease at 693 Fifth Avenue, between 54th and 55th Streets, at what was known as the Takashimaya Building. Thor Equities acquired the 20-story building in 2010. The space leased by Valentino, with three floors of selling space plus the basement, will be home to the Italian firm’s largest flagship in the world. Set to open in summer 2014, Valentino will install a new facade, and British architect David Chipperfield will develop the look of the store. According to Goldberg, rents along Fifth Avenue are averaging $3,000 a square foot. The high ranges up to $3,500 and the low at $2,400.

• Giorgio Armani Profits Rise 20% in 2012: There’s no trace of an economic slowdown at Giorgio Armani SpA, which is expecting the momentum to continue this year. The Milan-based fashion group logged another year of gains in profits and revenues in 2012, led by a 39 percent jump in China. In the year ended Dec. 31, operating profits climbed 20 percent to 339 million euros, or $434 million, compared with 281.8 million euros, or $391.7 million, in 2011. Sales rose 16 percent to 2.09 billion euros, or $2.68 billion, compared with 1.8 billion euros, or $2.5 billion, in the previous year. Dollar amounts are converted at average exchange rates for the periods to which they refer. Armani does not reveal net profits until later in the year, when the company publishes its annual report. “The excellent results achieved in 2012 confirm the quality of leadership that we have here at Armani,” said the designer, who is chairman of the fashion house he founded almost four decades ago. He underscored how the figures are “the result of a strategy focused on the constant search for quality, an approach that over the years has built an extraordinary level of brand awareness and loyalty.”