Document 6603531

WEDNESDAY, NOVEMBER 12, 2014
BUSINESS
Changing UK shopping habits help suppliers
LONDON: Changes in British shopping habits have
forced suppliers of goods such as ice-cream and soap
to adapt, strengthening their hand in negotiations with
supermarkets battling for lost sales. Consumers are
turning away from the four major chains to save money
at discounters or treat themselves at upmarket shops,
reducing suppliers’ dependence on any one customer.
More accurate forecasting and faster manufacturing
also means they can offer alternatives to straight discounts, such as exclusive products or packages. “There
are many things that lead toward the same conclusion:
consumer packaged goods manufacturers being in less
of a corner during negotiations,” said Fabio Vacirca,
managing director of Accenture’s consumer goods
practice. The big four-Tesco, Asda, Sainsbury and
Morrisons-still control 73 percent of UK grocery
turnover but discounters such as Aldi and Lidl, e-commerce sites like Ocado and higher-end stores like Marks
and Spencer and Waitrose are gaining ground.
Smaller packs
Unilever says it keeps margins with discounters,
which account for over a billion euros of turnover, in
line with its overall business by supplying packs that
can sell for 1 pound such as a smaller Cornetto ice
cream or larger value packs such as Surf detergent for
90 washes. “Rather than see them as the enemy, it’s
part of our business,” said Unilever Chief Financial
Officer Jean-Marc Huet recently.
PZ Cussons, maker of Imperial Leather body wash,
gets about half of its UK sales from the big four, down
from 90 percent five years ago, as it expanded to stores
such as Poundland. “You have to be very nimble,” said
CFO Brandon Leigh. “That’s suiting us.” “We can put a
new request in to our manufacturing team this week
and the product can come out next week,” he said,
thanks to a factory that runs so close to real-time it only
holds four hours’ worth of raw materials. Imperial
Leather’s “classic” range has fewer moisturizers than its
“signature” range so can be sold at a discount price
without undermining pricing at the major chains.
“The pack sold in Lidl isn’t the same pack that’s sold
in Tesco,” said Will Hayllar, co-leader of OC&C Strategy
Consultants’ consumer goods team. Tiering may
become more common, especially in retailers’ own
labels, if more major chains match prices of the dis-
counters, as Morrisons has effectively done. “They
won’t match a box of Kellogg’s Corn Flakes with an Aldi
price,” said Investec analyst Nicola Mallard. “Maybe with
their own label they might do, but it can’t ever just go
across the piece that we have everything selling at a
discount price.” Premier Foods avoids brand dilution by
selling Bisto gravy and Ambrosia rice pudding at major
grocers and Paxo gravy and Bird’s rice pudding at discounters. “We’ve got the flexibility to use our support
brands ... to offer bespoke products to discounters,”
said Premier’s corporate affairs director, Richard
Johnson.
All eyes on Tesco
Tesco, the market leader, is known for pushing suppliers but has seen its negotiating power crimped by
shrinking market share. Analysts say Tesco, facing an
accounting scandal, could put through another round
of price cuts that would make a pressurized situation
even worse.
“We might have a reputation somewhere of being a
little too aggressive and maybe not recognizing that
we’re not growing the way that we did,” said Tesco’s
new boss Dave Lewis recently. Tesco can fund discounts itself, but analysts expect it to lean on suppliers.
But they “can now be a lot more scientific about
whether they will or will not comply,” said Ken Harris of
Cadent Consulting Group in Chicago, due to advances
in data-tracking and technology that detail the financial implications of promotions. Fear of being taken off
shelves has ensured the compliance of small- and
medium-sized companies, especially private or familyrun firms that supply retailers’ own brands with staples
such as fresh produce. Many already run near recordlow margins. “Some are rabbits in headlights still,” said
Duncan Swift, head of Moore Stephens’ food advisory
group. “But the more informed ones with knowledge
and confidence are being brave enough to say ‘we
can’t go beyond this point’.”
Pushing too hard for discounts could also turn savvy
shoppers off, especially after last year’s horse meat
scandal. “You can always get a cheaper deal but that
cheaper deal often involves lower quality,” said
Investec’s Mallard. “No one’s going to buy a 69 p box of
25 burgers anymore because they’re going to question
what’s in them.” —Reuters
Ireland’s FBD issues
fresh profit warning
DUBLIN: Irish general insurer FBD Holdings Plc
issued its second claims-driven profit warning in
six months yesterday, saying it could face a fullyear loss and sending its shares tumbling 25
percent.
FBD cut its full-year guidance range to an
operating loss per share of zero to 10 euro cents
from a profit of 70 to 80 cents that it expected in
August, which was in turn just half the level it
had forecast in March. Shares in the group,
which posted an operating profit per share of
136 euro cents in 2013, fell to 10.80 euros
($13.40) by 1117 GMT, near their lowest level in
almost two years. Its latest claims included an
above average level of large claims. It also cut its
earnings guidance for the fourth quarter by 10
million euros, citing the recent “unprecedented
volatility in claims costs”.
“The claims environment in recent months
has been far more challenging than expected,”
the Dublin-based firm said in a trading update.
“Following a detailed review, there is no reason
to believe that this development is systemic or
that the experience will recur in future periods,”
it added. It said the board’s dividend policy
would remain unchanged and that the growth
in economic activity in Ireland, which is expected to be the fastest growing economy in Europe
over the next three years, would help the company in the medium term. The Irish insurance
market grew for the first time since 2003 in the
first nine months of the year, and FBD’s gross
premium level written to date is up 4 percent
year on year, marginally increasing its market
share, the company said. Davy Stockbrokers said
that given the unprecedented level of claims
volatility and a lack of visibility, it was revising its
rating of FBD to ‘underperform’ from ‘neutral’.
Merrion Stockbrokers said the latest news might
further undermine credibility in the FBD investment case, which could take some time to be
restored. — Reuters
UK caps interest
on payday loans
LONDON: Interest charged on loans offered
by payday lenders in Britain will be capped
from January to cut the cost of short-term
loans criticized for causing misery among borrowers, the country’s financial watchdog said
yesterday.
Payday lenders offer to tide borrowers
over until they receive their salary, and antipoverty campaigners say the sector has
grown sharply in recent years as the cost of
living rises and some people struggle to have
access to credit. Loans will be capped at 0.8
percent a day, equating to an annual rate limit
of 292 percent. Britain’s biggest short-term
lender Wonga, says on its website that its representative annual interest rate is 5,853 percent. “People using payday lenders and other
providers of high-cost short-term credit will
see the cost of borrowing fall and will never
have to pay back more than double what they
originally borrowed,” the Financial Conduct
Authority (FCA) said. Default fees will be
capped at 15 pounds ($24), the watchdog
said. “For people who struggle to repay, we
believe the new rules will put an end to spiralling payday debts,” FCA Chief Executive
Martin Wheatley said. “For most of the borrowers who do pay back their loans on time,
the cap on fees and charges represents substantial protections.”
The FCA has estimated that lenders will
lose about 42 percent of their revenue, or 420
million pounds per year, because of the new
rules. But some payday lenders warn privately
the restrictions could force some companies
out of business and push borrowers into the
hands of back-street loan sharks.
The new rules are in line with proposals
the FCA put out to public consultation in July
and will be reviewed in 2017. “This is all part
of our long-term economic plan to have a
banking system that works for hardworking
people and make sure some of the absolutely
outrageous fees and unacceptable practices
are dealt with,” said British finance minister
George Osborne. —Reuters
GUANGDONG: Soldiers walk to a Gulfstream G650ER business aircraft at the Airshow China 2014 in Zhuhai, south China’s Guangdong province
yesterday. Global aviation firms flocked to China yesterday to show off their wares as economic development and an expanding middle class
promise a bonanza in one of the world’s fastest-growing aircraft markets. — AFP
Global aviation firms flock to
China’s fast-growing market
China will need 6,020 new airplanes over next 20 years
ZHUHAI: Global aviation firms flocked to China
yesterday to show off their wares as economic
development and an expanding middle class
promise a bonanza in one of the world’s fastestgrowing aircraft markets. Chinese defense companies and the People’s Liberation Army’s air force
are also putting the latest weaponry on parade at
the country’s premier Zhuhai airshow this week,
including the new J-31 stealth fighter and its
biggest-ever military transport plane.
For foreign companies, the airshow offers a
chance to tap a market in which air travel grew by
an annual 11 percent last year to 350 million passengers-a gold mine for plane makers such as
Europe’s Airbus and Boeing of the United States.
“China will become the world number one aviation market,” Airbus China President and Chief
Executive Officer Eric Chen told a news conference. Just days before the show, Airbus
announced a $10 billion deal for China Aircraft
Leasing Co. to buy 100 planes from its A320 family. Crowds gathered to take photos with the dou-
ble-decker A380 superjumbo, which Airbus is
showing off at the show. The company says
Chinese deliveries already represent 25 percent of
its global production.
US rival Boeing forecasts China will need a
total 6,020 new airplanes valued at $870 billion
over the next 20 years. “That’s a lot,” Kent Fisher,
vice president for supplier management of
Boeing Commercial Airplanes, told a signing ceremony at which the company announced China’s
AVIC would produce tips for the vertical fin and
horizontal stabiliser of its 777.
Problems
Despite the optimism, industry officials see
problems in the short-term: a slowdown in the
economy, strict controls on airspace and a corruption crackdown. China’s economic growth-which
has a direct correlation with air traffic eased to 7.3
percent in July-September, the lowest since the
depths of the global crisis in early 2009. “The
Chinese economy has been slowing, it has been
impacting the development of the civil aviation
industry,” said Chen of Airbus. But he added: “A
growth rate of six or seven percent, compared to
the other parts of the world, is still very impressive.” Massive flight delays across the country in
July, blamed on military exercises, cast the spotlight on another problem-controls on airspace
that leave only 20 percent of China’s skies open to
civil flights. “It’s so important for China to fix their
air traffic management issues because it’s starting
to have economic impact,” Briand Greer, president
of aerospace for Asia-Pacific at US conglomerate
Honeywell, told AFP.
A crackdown on corruption launched by
China’s leader Xi Jinping after he came to power
in late 2012 has also hit the aviation market.
Government officials stopped flying higher classes, prompting two Chinese airlines to cut or
remove first-class seats. The graft crackdown has
also affected the small but growing market for
private jets in China, where owning an aircraft is
often viewed as a needless luxury. — AFP
Gold steadies as 2%
slide prompts buyers
KUALA LUMPUR: People play chess on a street in Kuala Lumpur yesterday. Malaysia’s premier said Monday his government would continue to make unpopular cuts to subsidies
that have kept prices of key consumer items in check but which have helped fuel worryingly high levels of debt in Southeast Asia’s third-largest economy. — AFP
Turkey’s Bank Asya
falls to Q3 loss
ISTANBUL: Turkey’s Bank Asya yesterday
posted a third-quarter net loss on loan provisions and a shrinking balance sheet but said
its operations were healthy despite political
turmoil that has surrounded it for much of
the year. The Islamic lender fell to a 301 million lira ($133 million) net loss from a 60 million lira profit a year earlier, it said in a stock
exchange filing.
Assets of 16.5 billion lira at the end of the
third quarter were down 40 percent from the
end of 2013, while deposits almost halved to
10.07 billion over the same period.
“ The bank continued its operations
healthily with a 2.2 billion lira equity capital
and capital adequacy ratio of 18.32 percent,
despite a 9-month loss due to higher loan
provisions as part of efforts to increase asset
quality,” Chief Executive Ahmet Beyaz said in a
statement.
That was up from 17.35 percent as of end
of June and one of the highest in the industry. The Turkish banking sector’s average capital adequacy ratio stands at around 16 per-
cent. Bank Asya, which has more than one
million deposit-holding customers and 282
branches, has been caught in a power struggle between President Tayyip Erdogan and
Fethullah Gulen, an Islamic cleric whose sympathizers founded the bank. Erdogan has
accused Gulen - now based in the United
States - of seeking to overthrow him by staging a corruption scandal and has pledged to
purge institutions such as the police and judiciary of his supporters.
Gulen, via his official websites, denied any
involvement. Seeking to show loyalty to
Erdogan, depositors including state-owned
firms and institutions this year withdrew 4 billion lira ($1.75 billion), or some 20 percent of
Bank Asya’s total deposits, according to media
reports. The bank has declined to comment
on those figures.
Loyal clients have been battling to shore
up the lender against what they say is a government-orchestrated bid to scuttle it, selling
everything from their sofas to their wedding
rings. — Reuters
LONDON: Gold steadied near $1,150 an
ounce yesterday as demand for physical metal
picked up after the previous day’s 2 percent
slide, though prices remain under pressure
from gains in the dollar and stocks. Buying of
physical metal gathered pace in major consumer China yesterday, traders said, supporting prices after dollar strength pushed them
sharply lower in the previous session.
Spot gold was flat at $1,150.45 an ounce at
1021 GMT, while US gold futures for
December delivery were down $9.90 an
ounce at $1,149.90. The metal slid to a 4-1/2
year low at $1,131.85 an ounce last week, and
is currently down 4.3 percent this year.
“Retail demand is very strong since prices
came off,” Heraeus trader Alexander Zumpfe
said. “Overall, physical demand is lending
some support - Asia is also showing steady
buying interest, though not on extreme levels.” A 0.2 percent rise in the dollar index is
keeping pressure on gold. A stronger dollar
makes assets priced in the US unit more
expensive for holders of other currencies.
Appetite for other assets is also improving.
European stocks rose, with investors bullish
after Wall Street posted a fourth straight
record close and Tokyo’s Nikkei hit a sevenyear high.
Gold’s inability to retain Friday’s 3 percent
jump suggests investors are selling into rallies,
expecting more losses on the back of the US
economic recovery, a robust dollar and expectations that the Federal Reserve will raise rates
sooner rather than later. Gold could fall
towards $800-$900 an ounce, a level not seen
since the 2008/2009 financial crisis, as the
metal is no longer seen as a decent portfolio
diversifier, hedge fund Red Kite said on
Monday.
Holdings of the world’s largest goldbacked exchange-traded fund, SPDR Gold
Trust, fell 1.8 tons on Monday to 725.36 tons, a
six-year low. The fund has seen outflows of
15.8 tons so far this month. Silver was down
0.3 percent at $15.51 an ounce. Spot platinum
was down 0.2 percent at $1,190.24 an ounce,
while spot palladium was down 0.2 percent at
$757.35 an ounce. — Reuters
TOKYO: IBM Corporation Chairman Virginia Rometty delivers a speech at the 16th Nikkei
Global Management Forum in Tokyo yesterday. Rometty spoke on the session titled “Reinvent
Your Company” during a two-day business forum. — AFP