Japan Tobacco to acquire RAI’s Natural American Spirit in $5bn deal

BY Fraser Tennant

In a $5bn deal designed to further expand its brand portfolio, leading international tobacco company Japan Tobacco Inc. (JT Group) has entered into negotiations with the Reynolds American Inc. group of companies (RAI) to acquire the international rights to the Natural American Spirit brand name and associated trademarks.

An all cash transaction, the acquisition of the Natural American Spirit brand name is the latest big success for the JT Group in a highly competitive market following strong growth momentum in the US, Japan, Germany, Switzerland, Italy, Spain and the UK.

A leading international tobacco company, Japan Tobacco products - including internationally recognised brands such as Winston, Camel, Mevius and LD - are sold in over 120 countries. The JT Group’s revenue was ¥2.154 trillion (US$17,867m) in the fiscal year ended December 2014.

“Natural American Spirit, which has a strong and international presence in a premium priced category, will allow the JT Group to further extend its brand portfolio," said Mitsuomi Koizumi, president and chief executive of JT Group. “This strong and unique brand equity combined with an energetic and experienced team of people will further strengthen our Group’s business foundation.”

What the JT Group’s purchase does not include is the rights to the Natural American Spirit brand name and associated trademarks in the US market, US duty-free locations, US territories or in US military outlets – all of which is to be retained by Santa Fe Natural Tobacco Company, Inc., a wholly owned subsidiary of RAI.

“Natural American Spirit has achieved excellent international growth over the past several years,” said Susan M. Cameron, RAI’s president and CEO. “When backed by the strength of the JT Group’s international distribution, sales force and manufacturing capabilities, we believe that growth trajectory will not only continue, but accelerate. We believe this sale once again demonstrates our commitment to creating value for our shareholders.”

Upon closing of the transaction, which requires the approval of regulatory authorities in a number of countries, all current international employees will become employees of the JT Group of companies.

The Japan Tobacco/RAI transaction is expected to be completed by early 2016.

News: Japan Tobacco to buy Reynolds American brand for $5 billion; shares dive

Volatile global markets leave financial services sector in business volume slowdown

BY Fraser Tennant

Volatile global markets are having a marked effect on the financial services sector with business volumes slowing from July to September, according to the latest CBI/PwC Financial Services Survey.

Strong competition is being blamed for the slowdown, with financial services firms taking a big hit on fees & commissions, net interest, investment and trading income.

Despite this impact on income growth, the overall business situation is viewed as stable, with profitability still growing, albeit at a significantly slower rate than that seen in recent years.

The Survey’s key findings include: (i) 25 percent of financial services firms reporting that business volumes were up, while 21 percent said they were down (the slowest rate of growth seen since September 2013); (ii) 24 percent of firms expecting business volumes to increase, while 8 percent believe they will fall; and (iii) 28 percent of financial services firms stating that they felt more optimistic about the overall business situation compared with three months ago, while 26 percent said they felt less optimistic (the lowest rate of growth since September 2012).

“The winds of volatility blowing through global markets have left a clear mark on the financial services sector, impacting business volumes and investment intentions, particularly in investment management and securities trading," said Rain Newton-Smith, director of economics at the CBI.

“Nevertheless, building societies’ business volumes have rebounded, and with financial sector costs under control, profitability is in good shape. At the same time, investment in IT is set to increase as firms aim to improve efficiency.”

Mr Newton-Smith also points out that slower growth in China and other emerging markets has had a knock-on impact on confidence in the world economy, with the Federal Reserve holding off raising interest rates in the United States.

Kevin Burrowes, PwC’s UK financial services leader, added: “Business confidence among banks flat-lined in the quarter leading to September 2015, leaving the sector cautious over its short-term outlook. Recent macro-economic events such as the fall in oil prices, China’s Black Monday, and the ongoing turmoil in global stock markets might have fuelled this sentiment. With interest rates expected to remain on hold, growth for UK banks continues to be challenging.”

Challenging for sure, but the outlook for the financial services sector is encouraging with growth forecast to pick up over the coming months (keeping pace with business volumes in  life insurance, building societies and securities trading), although still well short of the growth levels seen in early 2015.

Report: CBI/PwC Financial Services Survey – September 2015

Gender equality key to GDP growth?

BY Richard Summerfield               

Women today continue to face myriad social and economic barriers to attaining true gender parity. However, according to a new report from the McKinsey Global Institute, a lack of gender equality not only hinders women, it is also holding back the global economy to the tune of $28 trillion.

The world’s gross domestic product (GDP) could be uplifted by the equivalent of the combined economies of the US and China - $28 trillion - by 2025, according to the report, entitled 'The power of parity: How advancing women’s equality can add $12 trillion to global growth'. This economic uptick is contingent on women performing identical labour roles to their male equivalents. “We would call it an opportunity cost - this is the value at stake,” says Anu Madgavkar, a senior fellow at the McKinsey Global Institute and one of the authors of the report.

According to the research, women currently generate just 37 percent of global GDP. However, if they gained gender parity, they could boost the global economy by the equivalent of the US and Chinese economies combined. Even incremental progress on gender equality could be hugely beneficial to the global economy. If every country matched the participation rates of the highest-performing countries in their region, global activity would increase by $12 trillion – a figure equal to the combined GDPs of Japan, Germany and the UK.

Three of the major roadblocks which hold women back, according to the report, are lower workforce participation, fewer hours worked, and the fact that women are disproportionately represented in low-productivity sectors like agriculture. The notion that women are expected to take on the role of unpaid care in their personal lives also has a detrimental effect on their ability to contribute more significantly to global GDP. “When we looked at all the elements of gender inequality in work, unpaid care work was one of the top factors,” notes Ms Madgavkar.

Clearly, the role that women can play in advancing the global economy is considerable; however, it is important to note that gender equality in the workplace must go hand in hand with equality in wider society: "Realising the economic prize of gender parity requires the world to address fundamental drivers of the gap in work equality, such as education, health, connectivity, security, and the role of women in unpaid work".

Report: The power of parity: How advancing women’s equality can add $12 trillion to global growth

Volkswagen chief quits as emissions gloom gathers

BY Richard Summerfield

Volkswagen’s chief executive, Martin Winterkorn, announced his resignation yesterday in light of the increasing scandal around the German car manufacturer’s rigging of emission tests in the US.

Mr Winterkorn’s resignation was a long time coming. Analysts had expected his departure from the firm as soon as the news broke, but Mr Winterkorn remained in his position until Wednesday, only tendering his resignation following an emergency board meeting in the company’s native Germany.

“I am shocked by the events of the past few days. Above all, I am stunned that misconduct on such a scale was possible in the Volkswagen Group” said Mr Winterkorn is a statement released at the conclusion of the meeting. “As CEO I accept responsibility for the irregularities that have been found in diesel engines and have therefore requested the Supervisory Board to agree on terminating my function as CEO of the Volkswagen Group. I am doing this in the interests of the company even though I am not aware of any wrongdoing on my part. Volkswagen needs a fresh start - also in terms of personnel. I am clearing the way for this fresh start with my resignation.”

Volkswagen also vowed to prosecute those individuals responsible for the scheme to cheat US anti-pollution testing, though the company has not yet stated how many people were involved or whether their identities are known. A special investigative subcommittee has been established by Volkswagen in order to establish the facts of the case.

Volkswagen has championed diesel vehicles in both Europe and the US. Diesel engines account for just three percent of new cars sold in the US, compared to around half in Europe. Better fuel economy and lower carbon emissions have proven to be key selling points for Volkswagen and the wider automotive industry, however the suggestion that the German manufacturer – and possibly other firms – utilised ‘defeat devices’ to beat emissions tests could have long-term repercussions.

To date, Volkswagen has recalled nearly half a million vehicles in the US alone, setting aside around $7bn to cover costs. However, should it be required to modify the 11 million vehicles worldwide that are believed to have the software responsible for the falsified figures, $7bn would be grossly inadequate. Furthermore, Volkswagen could face fines of more than $18bn from the US Environmental Protection Agency. In addition to the internal probe launched by the company, the US Department of Justice has also launched a criminal investigation that could result in indictments against Volkswagen executives.

News: Volkswagen boss quits over diesel scandal

Second time around: Syriza election win is ‘victory for the people’ hails Tsipras

BY Fraser Tennant

Greece’s newly re-elected prime minister Alexis Tsipras has described his party’s return to power as a 'victory for the people’ and pledged to make persuading the country’s creditors to remove more debt his first priority.

The second general election to be held in Greece this year - triggered by Mr Tsipras' announced resignation on 20 August - saw the left-wing Syriza party win 145 seats (35 percent of the vote), delivering a fresh mandate to govern, albeit alongside a coalition partner.

Despite the re-endorsement, analysts are warning that Mr Tspiras faces tough times ahead.

“Syriza’s resounding win came after a painful and dramatic seven-month negotiation process with creditors that ended last July with the signing of a new harsh austerity program," observes Dimitris Rapidis, a political analyst and director of the think-tank, Bridging Europe. “In addition to that, Tsipras’ major argument to convince voters was the renegotiation of the sovereign debt that is expected to surge over €300bn.”

Further concern was expressed by the familiar figure of Yanis Varoufakis, the prime minister’s former finance minister, who said that Mr Tspiras’ fate “depends on whether his new government implements genuine reforms to give bona fide business some confidence to invest, and uses the intensification of the crisis to demand real concessions from Brussels".

The vote by the Greek people to give Mr Tspiras a second chance to make a difference means that full implementation of the spending cuts demanded by international creditors (and promised by Syriza in the summer following an anti-austerity U-turn) in return for an EU bailout of €86bn, will now have to be swiftly carried out by the new administration.

“The Greek economy will get back to health if it sticks to the terms of its new bail-out program," European Commission vice president Valdis Dombrovskis said earlier this week. “If the reforms agreed are properly implemented, Greece can grow again quite quickly. The underlying growth potential is still there.”

Should the newly installed Greek government fail to implement the reforms and appease international creditors, the consequences for the country remain dire: a default and potential ejection from the eurozone (the dreaded Grexit).

“The true winners of the Greek election are the creditors that will now squeeze the government to force a bailout deal that is designed to fail," claims Mr Rapidis. “Syriza pledged to implement a parallel program against austerity aimed at supporting and protecting the most vulnerable parts of society. But under pressure from creditors, it is likely that the Greek government will end up failing in i mplementing both programs.”

For now, although the election may be over, Greece’s long-standing economic problems remain. 

News: Triumphant Tsipras returns to fight for debt relief