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QUEST MEANS BUSINESS
Pope Steps Down; EU Cap on Bank Bonuses; Bankers' Bonus Row; Defending the Bonus Caps; Dollar Makes Gains; Digital Warfare; Make, Create, Innovate: Making the Internet Safer
Aired February 28, 2013 - 14:11 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
(SIMULCAST WITH CNN US)
RICHARD QUEST, HOST: And there we leave our coverage of the resignation and the ending of the papacy of Benedict XVI. You've been watching live from Rome and, of course, from Castel Gandolfo, and there will be much more in the hours ahead, as we not only look back at his papacy, but also the speculation and the informed look at who's likely to be next.
When we come back after the break, QUEST MEANS BUSINESS.
QUEST: Good evening. You're watching a shortened version of QUEST MEANS BUSINESS on what has clearly been an historic day. No longer the supreme pontiff, Benedict XVI has left he Vatican for the final time. He will now be known as Pope Emeritus.
As his resignation took effect, the Swiss Guard ceremoniously moved away from their post.
QUEST: Now, those Swiss Guards will not return until another pope is elected. The guard marched away from the doors of the 17th century palazzo and also at Castel Gandolfo. Benedict will now retreat from the public eye, saying he will simply be a pilgrim starting the last part of his journey on Earth.
In the hours ahead, we will have much more on those issues, what you might describe as the spiritual side of life. But we need to turn our attention this our to perhaps what some would call mammon, or at least the wealth and, perhaps, some say greed of markets and business.
Because for the first time, the European Union has agreed to cap bankers' bonuses. Brussels says it's crucial. London, the financial capital of Europe, describes it as an outrage.
QUEST: Join me in the library. This is what's happened. The bankers' bonus cap, and it has the potential to start in 2014. The core of it is to cap bonuses at a maximum of twice bankers' salary. Shareholder approval is needed for bonuses larger than just salaries one-to-one, so if you get a one-to-two, you do need to have shareholder approval.
It would apply to foreign banks in London and European banks outside the EU. In other words, if you have a European component, that component would be liable under the bankers' bonuses cap. The European Union agreed the deal. It could come into effect on January the 14th. It's a major blow for the UK.
And it was pushed through as part of Basel II, because this number is so -- at such a huge discrepancy from what currently takes place that, not surprisingly, eyebrows have been raised, and there's been an angry reaction, especially from the city of London.
Boris Johnson, the mayor of London -- not the city of London, the mayor of London -- says the cap will help Wall Street and Singapore. He described it as the most deluded measure from Europe since Diocletian tried to fix the price of groceries in the Roman Empire. A nice bit of classical alliteration or simile on today.
As you can see, a serious issue for the financial world, and I'm going to show you why and how it's been debated and moved forward. This debate is the product of anger over the amount paid to bankers. RBS, for example, it's awarded $920 million in its bonus pool, and yet it made a pre-tax loss of some $8 million -- $8 billion. RBS is a taxpayer-owned bank.
The CEO, Stephen Hester, gave up last year's bonus. The chairman says Hester is still paid below the market rate. Hester came on, of course, after the egregious acts.
How about Barclays? The -- Barclays is undergoing a clawback, estimated to be $450 million as a result of fallout from the libor scandal. But Barclays still had a bonus pool of $2.7 billion.
If you take a look at how this plays out, the bonus on average in the city is $18,000. The salary on average, $128,000. Put all this together, you have bonuses, you have new regulations. One of the members of parliament in Europe who called for this cap admits some bankers may go off because of the plan. Philippe Lamberts said it was parliament's duty to help stop these egregious acts.
PHILIPPE LAMBERTS, BELIGIAN MEP, GREEN PARTY: OK. I'm not discounting that. I'm not denying that there may be banking jobs moving away from Europe. The real question that we have to ask ourselves is, when people say, OK, we are going to lose our talent, I'm asking, what talent are we talking about?
Is it the talent of people who are able to invent products and financial operations that create so much dissymetery of information that basically they're able to sell to customers things that their customers do not understand so they can extract a profit from that?
Or is it talent that allows you to create products or financial operations that allow banks to circumvent legislation and regulation?
QUEST: All right --
LAMBERTS: Well, if that is the kind of talent that we're talking about, I wouldn't say that I'm overly concerned by their departure, to be honest.
QUEST: Right, but -- I can hear them say, how dare you, European politicians? How dare you decide to pick and choose who you're going to allow to get bonuses in the free market?
LAMBERTS: We are not picking and choosing who may get bonuses, we are just saying that in the financial industry, which plays an essential role in our economy and a role which taxpayers know very much about, very, very, very much about, because, well, they end up picking up the bill.
When banks are putting together remuneration schemes that are very, very strong incentives to take excessive risk, if not to breach the law, then we have to intervene. So, we are not just saying, you, you can have so much and you not. We are just saying that in such a crucial industry --
QUEST: But you know --
LAMBERTS: -- there needs to be some restraint.
QUEST: You are saying exactly that. You're saying banks are different from other industries, therefore --
LAMBERTS: Absolutely. They are.
QUEST: So therefore, banks have to be treated differently.
QUEST: But if you look at other industries that may have been bailed out or have received state aid, legal state aid, I don't see there the European Commission deciding to suddenly -- or parliament suddenly deciding --
LAMBERTS: I agree.
QUEST: -- to say oh, well, we better not restrict their bonuses. It's one rule for the banks and one for everyone else.
LAMBERTS: OK, good -- good and fair question. So, I'll ask you two questions. A, can you name me one industry, just one, that has A, caused as much damage and B, received so much state aid than the financial industry? Just name me one --
QUEST: No, that's -- that's irrelevant.
LAMBERTS: -- and we'll start discussing.
QUEST: That's irrelevant --
LAMBERTS: No, no, it is relevant --
QUEST: -- the effect is irrelevant on --
LAMBERTS: -- it is relevant.
QUEST: -- the effect is irrelevant on a matter of principle. You're saying it's the --
LAMBERTS: OK, let me come to -- let me come to this. Let me come to this. Let's then identify one single industry that may have enjoyed state aid and where remunerations of aid be so -- well, absurdly high and, B, be instrumental in causing the state aid to happen in the first place.
And again, if you can make me a credible case that there's another industry we need to put our nose in, well, I will do that happily.
QUEST: Right. Talk about, for me, please, the argument that says -- actually, the industry I'm thinking of, of course, is aviation, which has had state aid left, right, and center, across the whole continent of Europe time and again --
LAMBERTS: Correct, yes.
QUEST: -- airlines have been bailed out. But I don't know just that the Commission or the parliament deciding that they were suddenly going to put any restrictions on CEO --
LAMBERTS: I agree. I agree. I agree, but now look at the pay structure in those industries and tell me whether the pay structures have indeed been the incentives that have caused these airlines to fail. The answer is no, and you know that.
QUEST: One of the arguments against these proposals is that it will rise -- it will lead to a rise in basic salaries. If you can only get --
LAMBERTS: Yes, I've heard that.
QUEST: Well, you say you've heard it, sir, but the experts I've spoken to say that's what's going to happen. So instead of having salary plus bonus, the salary will go up so that you can still get the multiple.
LAMBERTS: OK. Let me give two answers to that. A, I do believe that when you have to sell to shareholders Bob Diamond's basic salary at $1.5 million, hiding the fact that you will end up paying him $25 million down the road, that's a much easier sale to the shareholder than advertising that you are going to pay him base pay $12.5 million in order to end up paying him $25 million.
I believe that this is a hard sell, so it will have an impact. Second --
QUEST: You chose an --
LAMBERTS: Second -- let me finish --
QUEST: You've chosen a bad example there --
LAMBERTS: Let me finish --
QUEST: You've chosen a bad example.
LAMBERTS: Let me finish. Let me finish, my friend. What I want to say is that look at how the bankers' pay evolved over the small global financial crisis that we had back a few years ago. Did we see a drastic cut in variable pay at that time? Because that would make your argument valid, that well, we need banks to be able to retrench in their salaries when things go bad. OK?
Well, I do not think that we had something going as bad as the crisis of 2007, 2008, since a very long time. What did we see? Well, basically, bonus pools going down by 20, 25 percent, which means that 75, 80 percent of those bonus pools were actually guaranteed even in the worst of all times.
QUEST: And that's a robust discussion with Philippe Lamberts, joining me from Brussels.
A Currency Conundrum for you now, and let's return to matters of the papacy. The Vatican is allowed to mint its own euro coins, we know that. The coins feature a portrait of the current pope. In the interim period, before Pope Benedict was appointed, a new set of coins was minted. What image did they have on them?
Was it a crucifix, a coat of arms, a bishop's crook? And of course, we're not -- we don't know in this interim whether there will be a similar issue of coins. But if it does, what would be on them? The answer later in the program.
As for the rates, the dollar's making gains on the back of Italy's uncertainty up against the euro and the yen. The pound is weaker.
QUEST: Those are the rates, this is the break.
QUEST: China's Defense Ministry says it's being hacked by the United States at a rate of 90,000 attacks a month. The US in turn says Beijing has sponsored attacks on more than 115 companies, US companies, most of them blue chip. In recent weeks, Twitter, Facebook, Apple, Microsoft, "The New York Times," even the US Fed claimed they have been hacked.
Well, when you talk about hacking in digital warfare, what you're really looking for is a bulletproof vest. In this case, we're talking about the firewall. It sits between your computer, the internet, and any hackeroonies. It will prevent information going back and forward. That's where the firewall -- it stops something nasty and keeps out your private information.
As for the companies involved, this type of security is a multibillion-dollar industry. One company protects the bulk of the corporate world. If you take a look, all these companies -- ExxonMobile, Chevron, Conoco, General Motors, and more. In tonight's Make, Create, Innovate, we meet the man who's benefited from the Firewall.
NICK GLASS, CNN INTERNATIONAL CORRESPONDENT: Cyber crime. The escalating invisible crime of our new century. Here in Tel Aviv is a company that exists purely to help make the internet safer.
GLASS (voice-over): Gil Shwed got into cybersecurity before most of us realized what the world wide web might become. In 1993 at the age of 24, he created the first firewall.
GIL SHWED, CEO, CHECK POINT: The firewall, basically, is piece of software like a door and you block whoever goes in or goes out.
GLASS: This was Shwed's company, Check Point's first product. Hundreds of others have followed, growing ever more sophisticated as cyber attacks have become more complex.
SHWED: Twenty years ago, the typical hacker was a student trying to show his technical skills with no bad intention. Today, it's governments, it's very sophisticated organizations.
GLASS: Barely a day goes by without a major hacking story in the press. According to Interpol, cyber crime is growing faster than almost any other, with a global cost annually estimated at $1 trillion.
GLASS (on camera): Is the cyber threat the biggest threat to business at this moment?
SHWED: Every business today is facing hundreds if not thousands of attacks every day, and these attacks can go from small things that will just slow you down to bad things that will stop your business immediately, and we see them every day.
GLASS (voice-over): Motives vary. Hackers may want to steal intellectual property, spy on a company, hold it to ransom, or simply disrupt business for ideological reasons. The computer jargon is of viruses, bots, and malware. None of them sound friendly.
GLASS (on camera): The issue here is points of weakness, is it not?
SHWED: Absolutely, yes. We may go to a website that looks very innocent, but when we click on something, it will download some malware, some bad piece of software into our computer. We write a lot of software that tries to screen that, that tries to prevent users, for example, from going into suspicious websites.
GLASS: Noisy and full of hum. This is what they call the lab, where Check Point tests the security devices, both software and hardware. Thousands and thousands of boxes, tens and tens of millions of dollars- worth of equipment.
GLASS (voice-over): Check Point's software is big business, used by every single one of America's Fortune 100 companies.
GLASS (on camera): When you began, did you conceive it on this scale?
SHWED: No. I actually thought maybe we'll be 30 people, maybe we'll sell product $3 million. It's not -- I'd never imagined the internet to have such a huge effect on the world, or Check Point to be a company that sells for almost $1.5 billion today.
GLASS (voice-over): Check Point is one of many successful high-tech companies in Israel.
GLASS (on camera): It is a particular place to start up. Why does it happen in Israel?
SHWED: Well, it started a hundred years ago with my grandparents. They migrated to Israel, and they started everything here from scratch. They came from European cultures and tried to establish agriculture in the desert, complete opposite of what they were in the start up. And this culture, I think, translated itself in these days to technology.
GLASS: There can't be ever a sense of complacency. You can't say, "I've done a good job here, I can relax and say well done."
SHWED: Well, in technology, you can never say that. Technology there is constantly a rush to innovate more, to meet a challenge, to reinvent ourselves every year.
GLASS (voice-over): It's this mentality that has allowed Gil Shwed and Check Point to establish an astonishing one-third market share in the software security industry, working towards a safer cyberspace.
RICHARD QUEST, CNN HOST: Hello, I'm Richard Quest. There's more QUEST MEANS BUSINESS in a moment. This is CNN and, on this network, the news always comes first.
A short time ago, Benedict XVI became pope emeritus.
(BEGIN VIDEO CLIP)
QUEST (voice-over): The head of the Roman Catholic Church is the first pope in six centuries to have relinquished the throne of St. Peter alive. The papal apartment in the Vatican has now been sealed and pope emeritus is tonight residing in Castel Gandolfo.
The election for a new pope begins next week.
The U.S. Secretary of State John Kerry says his country's ready to take a more active role in helping the Syrian rebels and says the U.S. will provide food and medical supplies but not weapons. The U.S. has also pledged $60 million to local groups working with the Syrian opposition.
The U.S. Army Private Bradley Manning has pleaded guilty to 10 of 22 counts against him, but not to the most serious charge of aiding the enemy. Prosecutors accused the former Army intelligence analyst of leaking the largest cache of classified documents in the nation's history. Many ended up on the WikiLeaks website.
IAG has reported a four-year loss after its Iberia subsidiary more than wiped out profits from the other half of the company, British Airways. 2012 losses before tax almost doubled at $1.3 billion. Hit by restructuring charges at Iberia, Iberia is currently undergoing swingeing cuts and restructure.
(END VIDEO CLIP)
QUEST: Today will go down in history not only because it was the day a pope resigned for the first time in centuries, but tonight, this week and tomorrow night, on Friday, $85 billion in forced automatic spending cuts will kick in across U.S. government agencies.
(BEGIN VIDEO CLIP)
QUEST (voice-over): Over a day to go, there's little progress in talks between House Republicans and Democrats to broker a last-minute deal to stop it. The Senate will vote on plans in the next few hours. Neither proposal has much chance of passing. The White House meeting schedule for Friday also looks like a futile exercise and enterprise.
The cuts affect the Pentagon, Education, the Justice Department and designed to be so harmful Congress would have to find a better way to reduce the budget deficit.
So you're probably expecting me to tell you it is calamity, catastrophe and misery on the markets.
The numbers, up 47. What's going on? At 14,122, we are just about 40-odd points away from the all-time high. It's bobbing just around at that number is 14,164. You're getting an idea that maybe thing is all not what it seems. Let's join Ali Velshi, who is in Washington.
Ali, we will put this in -- we'll do the markets in a moment. Tell me when these -- when the cuts come in.
ALI VELSHI, CNN HOST: Well, what happens is if they don't have a deal by the end of Friday night here in Washington, the sequester, the forced spending cuts come into place starting on Saturday. But because most of the agencies being cut -- you can't cut Medicare and Medicaid and Social Security.
So most of the agencies being cut have to cut personnel; they have to be furloughed; they have to get at least 30 days' notice. So no one will really notice much until the beginning of April. But at that point, you'll see control towers. You'll see food inspectors. You'll see FBI, all sorts of -- you'll see big military cuts.
So you're not going to see it until April, which is kind of why we're not seeing the market effect now, because nobody really believes anything that comes out of Washington.
QUEST: And I think what -- then perhaps one way we could look at this is it's the U.S. government will have to operate at a lower level of spending moving forward. So that redoing the budgets and they're deciding who's go -- who's going to make cuts now.
VELSHI: So there are two issues here. One is there are some people who argue that the U.S. government shouldn't at a time when we have a tepid economic recovery, as you know, growth in the fourth quarter of last year was 0.1 of 1 percent, that you shouldn't cut, particularly when the U.S. government can borrow money at the rate of 2 percent for 10 years.
But let's just assume that you think the U.S. government should operate with less. Fair enough. These are indiscriminate across the board cuts, 13 percent to Defense, 9 percent to all other agencies. That's the problem. It's a sledgehammer as opposed to a scalpel. You (inaudible) surgery here and we're doing -- we're lopping off limbs.
QUEST: (Inaudible) hang on. Before you -- before you get all excited at the prospect of that, the truth is though, Ali, they knew that when they were putting in place the Budget Reconciliation Act, the Budget Control Act, the Fiscal Deficit --
VELSHI: This is a poison pill that (inaudible) never supposed to have to swallow. (Inaudible) make it so bad --
QUEST: -- now it's happening.
VELSHI: Yes, well, the -- here's the problem, and it is a larger problem. It is the problem that Washington simply just misses deadlines and doesn't do anything. So we've been politicking since August of 2011. That's when the Budget Control Act came into place, to avoid the problem that we're going to have by not increasing the debt ceiling.
They've had -- then they gave themselves the deadline of Christmas, the super committee, to come up with the cuts. They didn't do that. So then they had one entire year to figure this out. And you know what (inaudible) done? Goose eggs, nothing.
So now we're faced with indiscriminate across the board cuts. There's no argument that any CEO and many household heads could actually come up with effective cuts. It's $85 billion this year; $1.2 trillion over 10 years.
But to just lop it off the top, that's the equivalent of you taking your budget and saying, I got to take 10 percent less, so I'll pay 10 percent less on my mortgage, 10 percent less on my food, as opposed to cutting out your cable or something you can give up.
QUEST: You do realize if you give up the cable --
VELSHI: You wouldn't be watching this.
QUEST: I was about to say, this is a very bad idea, Ali Velshi. Let us leave that one exactly where it stands. It just proves once again why you're erroneous in your thinking. Ali Velshi, who is in Washington and has a busy weekend ahead.
The airplane that turns that into a nightmare, Boeing says sorry to Japan Airlines. We'll look at apologies in a moment. QUEST MEANS BUSINESS.
(BEGIN VIDEO CLIP)
QUEST (voice-over): The answer to the "Currency Conundrum," Vatican euro coins usually feature the pope; in the interim period before Benedict XVI was appointed, what image did they have in the interregnum? It was the Apostolic Chamber.
And the emblem of the Apostolic Chamber, the coat of arms of the cardinal chamber, the interim head of state. It will be interesting to see if in this interregnum they do actually do a euro meeting or if they wait for the new chap to take over.
(END VIDEO CLIP)
QUEST: The head of Boeing's commercial aircraft division has publicly apologized to Japan's leading airlines and the public for the Dreamliner fiasco.
(BEGIN VIDEO CLIP)
QUEST (voice-over): The entire Dreamliner fleet is now grounded after incidents on ANA or Nippon and Japan Airlines flights. Between them, the two carriers have nearly half of grounded Dreamliners and been forced to cancel hundreds heading to thousands of flights, tens of millions of lost revenue.
The head of Boeing Commercial is in talks in Tokyo with the airlines and had this to say.
(BEGIN VIDEO CLIP)
RAY CONNER, COMMERCIAL AIRCRAFT, BOEING: On behalf of the Boeing Company and the 170,000 people which I represent today, I want to first apologize for the fact that we have had these two incidents with our two very precious customers, ANA and JAL, and that we are deeply regretful that this happened.
I want to assure you, though, that the Boeing Company, its number one priority for us is the safety of the passengers, the safety of the flight crews and the safety of the airplane.
(END VIDEO CLIP)
QUEST: Now we can't -- this is (inaudible), but it seems to be although Boeing has apologized many times for what happened, this seems perhaps to be the first time that Ray Conner has come out and actually done a full mea culpa in such a fashion.
Of course, there was none of the crying or the bowing of apologies much seen by Japanese CEOs. However, when all is said and done, the fact that he chose to go to Japan to make a public apology in that fashion is very telling and symbolic of the crisis that Boeing is facing.
And that is our shortened show. It's still QUEST MEANS BUSINESS. I'm Richard Quest in London. Whatever you're up to in the hours ahead, I hope it's profitable. MARKETPLACE EUROPE next.
NINA DOS SANTOS, CNN HOST: From (inaudible) in the center of Madrid hello and welcome to MARKETPLACE EUROPE. I'm Nina dos Santos. Between tax increases and spending cuts on the other side, austerity has continued to take its toll on this country. Currently 6 million Spaniards are out of a job. That represents nearly 26 percent of the population.
But amongst all the gloom, there is still some signs that the recent labor market reforms are having some effect in improving the prospects of companies doing business here.
(BEGIN VIDEO CLIP)
DOS SANTOS (voice-over): Coming up, the cheaper, more flexible workforce which Nissan hopes to drive future performance.
And the CEO of Spanish food group Ebro on his concerns about the strength of the euro.
ANTONIO CALLEJAS, CEO, EBRO FOODS: We need to be competitive, not to stop the recovery at too early stages.
(END VIDEO CLIP)
DOS SANTOS: Just like the traffic here in Madrid, the European auto industry isn't going anywhere fast these days, either. In fact, last year, sales of cars hit a 17-year low and there's little sign of a pickup in demand further down the road.
(Inaudible) the pain comes some gain, it seems, because Spain is becoming an increasingly competitive location to make and export cars as manufacturers take advantage of lower labor costs. Isa Soares went to Nissan's production line in Barcelona.
(BEGIN VIDEO CLIP)
ISA SOARES, CNN CORRESPONDENT (voice-over): Piece by piece, it's all coming together, the components of recovery. Adversity, it seems, has brought opportunity to Spain. Here at Nissan's plant in Barcelona, reform and restructuring are bearing fruit.
Earlier this month, Nissan Barcelona received $178 million in investment to produce 80,000 cars. A deal only made possible, says Nissan's boss in Spain, by changes in labor legislation.
UNIDENTIFIED MALE: (Inaudible) we got (inaudible) with the unions. And to this we got a location of a new (inaudible) car, which will create 1,000 new employments from Nissan and 3,000 indirect employments from suppliers.
This (inaudible) remarkable and this will put Barcelona to produce more than 200,000 euros, which will be the record for this (inaudible) plant. It has been not only these unions are (inaudible). What has given a good competitive advantage to Barcelona.
We have bought various (inaudible) with the TDC, total delivery cost, or (inaudible) not only in the labor cost, but also (inaudible) supplier and our logistics in part. We have today 20 suppliers working inside of Nissan here in Barcelona plant, which give us a good advantage of logistics. And also we are (inaudible) to the port.
SOARES: (Inaudible) unions, in a way, you've set a precedent here in Europe (inaudible) labor, (inaudible). Do you think the rest of Europe would follow suit?
UNIDENTIFIED MALE: I think it's no other choice. Either you are competitive or you are out.
SOARES (voice-over): This change of mentality has benefited both employee and employer. For Nissan, it's a way to survive Spain's economic crisis, boosting it (inaudible) manufacturing. For its employees, it's a way of holding on to their jobs.
JOHN MARTIN, SENIOR V.P., MANUFACTURING NISSAN EUROPE: We agreed new, flexible working practices, specifically around our ability to hire temporary labor, which prior to this agreement, the unions had a very strict limit that we could not hire any more than 15 percent of our total staff as temporary workers.
The second change was we asked the workers to work an increase of around 42 hours per year on their existing contracts. So they are working 42 more hours per year for no extra pay.
The third area was gaining agreement that we would be able to hire new full-time employees on a lower but still very competitive salary level.
SOARES: Nissan's plant here in Barcelona has been able to reduce costs by 30 percent. Labor market reforms have played a huge part in that. But having key suppliers under your roof and a port on your doorstep have also been greatly beneficial.
SOARES (voice-over): Labor market reforms in Spain are already attracting investment. Ford, Renault and Volkswagen are all expanding production to take advantage of lower labor costs. And the difference is quite significant. According to the OECD, France's labor costs have risen 4.3 percent in three years.
Germany's slightly more competitive at 1.9 percent. But even Italy and the U.K. haven't adapted to the difficult times. Compare that with Spain, here labor costs have fallen almost 5 percent. The Spanish government hopes that making the labor costs more flexible will help combat recession and begin to cut unemployment, now at 26 percent. Here's one part of the long haul to recovery.
(END VIDEO CLIP)
DOS SANTOS: Isa Soares there on the Nissan production line in Barcelona.
After the break, I speak with the boss of the Spanish food firm Ebro and his company's appetite for swallowing up other businesses. That's next.
DOS SANTOS: Hello and welcome back to MARKETPLACE EUROPE here in Madrid.
The economic crisis has caused many companies to take a long, cold, hard look at their business portfolios. To some, that's meant refocusing and selling off assets. Or for others, it's caused them to look for expansion in new markets and to go on the acquisition trail.
(BEGIN VIDEO CLIP)
DOS SANTOS (voice-over): Ebro Foods started in the sugar and dairy business. And over the past decade, it's become a multinational food group, incorporating more than 60 brands, from sauces to ready-made meals and frozen products. It's the world's largest trader and miller of rice and the planet's second biggest producer of pasta.
Ebro operates in 25 countries and employs 4.5 thousand people. The company has an annual turnover of around $2.7 billion.
CALLEJAS: We have a kind of metrics in which we try to grow, first starting business in places where we have not been before. For instance, this year, we will be present with our produce in India. Now we are already present in many emerging markets, like Morocco, Egypt, Thailand.
But during 2013, we will be expanding as well into India and some other emerging markets. So first idea is to be where we are not yet.
And second, we are trying to enlarge the activities which we do, rice and pasta can be sold as dry but also as fresh or frozen. And we are dominant in dry goods; some presence in fresh, especially in France. But we want to make our (inaudible) in the (inaudible) areas in which we don't have still the participation that we consider that we -- that we should deserve or should look for.
DOS SANTOS: The price of durum wheat has really shot up of late; whereas the price of rice seems to have stabilized, at least for the time being.
How much of a pressure on margins are commodity input costs?
CALLEJAS: In the year 2012, our main problem was that rice and cost of goods in the durum business, especially in North America, but as well in Europe, of more than $100 million. at the moment, the situation is more relaxed and we have seen some stabilization in the prices of durum, which have not follow the escalation, the reescalation that they took during the year 2012.
DOS SANTOS: How concerned are you about the recent strength in the euro? Because obviously that could curtain the competitiveness of Eurozone companies like yours.
CALLEJAS: Yes. We are concerned. Obviously, the (inaudible) different currencies is an alarming situation. When we are still with a very weak recovery we are needing exporting our goods outside. So the value of the euro is a major concern, because we need to be competitive not to stop this recovery as too early a stage.
So I don't think that we can afford to have an euro at the higher level than what we are seeing today. I think it's all the opposite. We really feel on a moment in which recovery requires export, because domestic demand is still weak.
DOS SANTOS: Are you excited about the prospect of a new E.U.-United States free trade agreement going forward?
CALLEJAS: Well, I imagine that they will bring goods, good things and bad things. Some of the growers will be possibly worried because so far with the reform of the (inaudible) agriculture policy, there has been some concerns about what is going to happen with too much product coming from other countries.
I think that in that area, we will find most of the problems, but obviously we are a global company and we think that global solutions are welcome for us, yes.
DOS SANTOS: Countries like Spain, they've been trying to (inaudible) new labor reforms, to try and make themselves more competitive. Is it working?
CALLEJAS: We have now a new legislation, a new reform, which is starting to work. But really, it's affecting more to the companies which are newly formed than the companies which have their own staffs from many years, and which still are grown (ph) by the previous legislation. The (inaudible) company like Europe, we don't have much to do with the new legislation.
And in fact, it could be even a problem of competition. A newcomer into the business will be able to hire people at a much lower levels than we traditional companies have.
But for startups, for companies that are starting business now, they find themselves a social environment in which they can have lower costs because the new (inaudible) will be having lower salaries than the company with a tradition, with very well firm group of employees.
(END VIDEO CLIP)
DOS SANTOS: The CEO of Ebro Foods there, bringing this edition of MARKETPLACE EUROPE to a close. Join us again next week. But in the meantime, thanks for watching and goodbye.