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Italian Supreme Court Upholds Berlusconi Tax Fraud Conviction; Rajoy Resolute; US Markets Break Records; US Earnings Season; BOE and ECB Hold Fire; European Markets Up; Dollar Up; Make, Create, Innovate: Robotic Surgery

Aired August 1, 2013 - 14:00   ET


NINA DOS SANTOS, HOST: The S&P 500 cracks the 1700 mark. Wall Street begins August with something of a rally.

Deceived and defiant. Spain's scandal-hit prime minister says that he's only guilty of trusting the wrong person.

And Ryanair's gift that just keeps on giving. We examine the power of bad publicity.

Hello, I'm Nina Dos Santos and this is QUEST MEANS BUSINESS.

First, our top story this evening. Italy's Supreme Court has now confirmed former prime minister of Italy, Silvio Berlusconi, is guilty of tax fraud and is now handed down a sentence. Let's get over to Barbie Nadeau, who's standing by in Rome with all the details. Barbie?

BARBIE NADEAU, CNN INTERNATIONAL CORRESPONDENT: Well, it is a very definitive answer. Finally, after more than 20 different legal proceedings against Silvio Berlusconi, this one finally sticks. This is for tax fraud relating to the acquisition of American film rights for his Mediaset -- Italian Mediaset TV channel here in Italy.

And the high court today took more than six hours to deliberate after two days of testimony from the prosecutor and from his defense lawyers to uphold this conviction.

And with that comes a four-year sentence, three of which he's almost automatically -- he doesn't have to serve it because of an amnesty. And he'll be able to serve one year in a house arrest situation because he's over the age of 70. He's not going to be going to jail. He can serve that in house arrest.

But the most interesting detail of this is he was also sentenced in the first court and the appellate court a ban of five years from public office, which would have meant he couldn't participate in parliament, he couldn't run for office.

This high court chose to send that back to an appellate court. They want another review of how many years that should be and why and the various characteristics of that particular penalty as related to this tax fraud conviction. But Silvio Berlusconi tonight is a convicted felon here in Italy.

DOS SANTOS: What should we read into this, Barbie? Because for instance, journalists like you who've been in Italy many years, myself as a correspondent there for five years or so, we've covered endless scandals here surrounding Silvio Berlusconi. Is this eventually the end of the road for his political career and all?

NADEAU: Well, I think it really has to be. This is the first of three major cases. Earlier this year, he was convicted for paying an underage prostitute for sex and for abusing his office to spring her from jail when she was arrested on an unrelated charge.

He's -- the end is sort of the end, the beginning of the end for him. Even if he's not banned from public office, this very definitive high court ruling is the first time a high court has ever, ever done this. In previous instances, the cases have been sent back because of statute of limitations or other legal loopholes. This time, it stuck, and that's a big difference in what we've seen in the last 20 years.

DOS SANTOS: OK, Barbie Nadeau, live in Rome for us this evening. Thanks so much for that, with news that Silvio Berlusconi, according to Italy's Supreme Court, has now been sentenced.

As Barbie was just saying before, it's more likely that he'll end up spending one year in house arrest, because out of the four-year sentence, three will be given as an amnesty, and because of his age, he's likely to stay under house arrest rather than go to prison.

Now, let's move on and talk about Spain's embattled prime minister, Mariano Rajoy, because he's refusing to step down over the slush fund scandal which has been engulfing his party of late.

Instead, Mr. Rajoy delivered his strongest defense yet denying that he took cash for favors from the business world, and admitting that his only mistake, really, was to trust a colleague who has now been disgraced.


MARIANO RAJOY, PRIME MINISTER OF SPAIN (through translator): I am sorry, but that's the way it is. I was wrong in trusting someone we now know didn't deserve it.


DOS SANTOS: Mr. Rajoy and his top members of the Ruling People's party in Spain are accused of taking illegal payments from business leaders in return for favorable treatment. But Mr. Rajoy has again defied calls to quit.


RAJOY (through translator): The judge will determine what to do over each insinuation, but I can tell you in advance that he People's Party has not had a double accounting system, nor has it hidden any crime.

And what concerns me, I can assure you, I have always declared all my earnings. My tax returns over the last ten years are available for everyone to see.


DOS SANTOS: In parliament, the premier accused the opposition of sullying the image of Spain. Journalist Javier Ruiz is outside the parliament building in Madrid for us this hour. Javier, this has just gone on and on and on. What do the Spanish people make about Mariano Rajoy's just staunch refusal to really address the issues here?

JAVIER RUIZ, SPANISH JOURNALIST: Well, the polls tell that people do not believe Mariano Rajoy, but nothing has changed. Even though we've had a six-hour debate, nothing else is going to change because the government has a huge absolute majority here in Spain, and the president does not need to resign because nobody can force him to do that.

Actually, that was his last sentence after a six-hour speech. He said the prime minister will not resign. I trusted someone who did not deserve my trust, but that's all the mistakes I've made so far.

So, bottom line: we've had a long, long, long debate here, but nothing else is going to happen. There is going to be no practical consequence. The government says they will not resign, and the opposition here are accusing the government of being responsible for the economic instability of the country at this point.

DOS SANTOS: Javier, obviously this must be a huge distraction from the real issues that Spain is facing these days, 26 percent unemployment for the average person, double if not triple that for the young people across the country. How much of a distraction is this scandal?

RUIZ: It is a huge distraction, actually. So far, three international bodies have asked the government about what he consequences of this can be. The G20, the IMF, and the European Commission, all of them have asked is this going to derail the reforms that the government has to undertake.

The government says that is not going to change. The reforms are still in the agenda, and that's going to keep -- that's going to continue working. But again, it is a huge distraction.

So far, the economic markets have not -- they are not -- well, it's not tough, it's not a tough situation. But it could be. And again, if the government needs a further majority in the parliament, they're not going to get any more allies from now on.

DOS SANTOS: As you were saying just before, Javier, he does have a huge amount of political capital there. His support base is still strong, and this is a distraction. Is it eroding his support base, though? Will it risk eroding his support base if he doesn't really answer the questions that all the Spanish journalists are keen to ask him?

RUIZ: Yes, well, there are no answer to those questions you were mentioning. The main one is why the president kept texting and sending text messages to the treasurer who, as we knew at that point, had $47 million in Switzerland. So, there are no answers to that.

But again, the problem is with the reforms that the government has to undertake from now on. There are three issues, at least, that need more than the government's majority. The main one is the reform of the pensions and the reform of the unemployment system. Those things, those two policies need the opposition backup. And that is not going to happen from now on.

So again, there are no political consequences for the government, but there can be political consequences for the politics, for the policies.

DOS SANTOS: Well, the reform process that, of course, Brussels is very, very keen on Spain implementing to of course shore up the stability of the single currency area. Javier Ruiz joining us there outside the parliament building in Madrid. Thank you so much for that.

We'll have more QUEST MEANS BUSINESS after this short break.


DOS SANTOS: Hello and welcome back. US stocks are off to a sizzling start as August gets off to a record-hot record-breaking start for the month. As you can see, the Dow Jones Industrial average rose by around about 100 points at the open of trade and it hasn't looked back since.

We've also seen the S&P 500 top the 1700 mark for the first time ever. Can you believe that? Jobless claims data came in better than expected. That was a positive sign on the eve of the biggest monthly jobs report, which will be out on Friday, so tomorrow.

There'll also be some feel-good factors coming from the Fed at work. Remember that, of course, it delivered its policy statement just yesterday after its two-day rate-setting meeting. Zain Asher is live at the New York Stock Exchange for us this hour. Zain, what are you looking at?

ZAIN ASHER, CNN BUSINESS CORRESPONDENT: Hey Nina, yes, we are trading at record highs right now. The Dow is up about 145 points, the bulls came charging out of the starting gate today with both the S&P 500 and the Dow rallying past their previous records.

We saw the Fed, as you mentioned yesterday, reassuring investors that there are no immediate plans to taper, so everyone sort of breathed a sigh of relief. There's also this feeling that the unemployment report -- or the employment report, I should say -- we get tomorrow is going to be relatively strong. We are expecting a gain of about 180,000 jobs last month.

We also did get a drop in weekly jobless claims, as you mentioned, the first time jobless claims fell by about 19,000 last week to a five-year low. We're also seeing manufacturing activity pick up and also better- than-expected GDP growth.

And then also lots of good earnings news as well. We've gotten earnings from about just under 400 S&P 500 companies, and two thirds of them have actually beaten expectations, so that's also giving stocks a boost. Nina?

DOS SANTOS: So, you were just saying two thirds of these companies beating expectations, but also the other thing is the outlooks going forward. What have they been saying? Is that more positive or more bearish than people were expecting?

ASHER: Right. So, yes, a lot of people -- a lot of companies are reporting more positive outlooks as well. And we did get some key earnings reports today as well, Nina, a lot of them from -- basically from two Dow companies.

First of all, Exxon-Mobile shares are down just about 2 percent right now. It's pretty much the biggest loser right now in terms of blue chips. The oil giant fell way short of profit forecasts in the latest quarter thanks to a drop in oil and gas output and a decline in its refining business.

In the meantime, though, some good news for Procter & Gamble shares, up about 1.3 percent. It posted both profit and sales that topped expectations. The company's also right in the middle of a huge cost- cutting plan which aimed to save about $10 billion by 2016.

I also want to mention, Nina, that the tech sector is doing pretty well. We saw Facebook yesterday. Today, it's all about Yelp, shares jumping about 25 percent after earnings that beat expectations last night.

We're now seeing several brokerages upgrading the stock, JPMorgan saying they think there's more upside, and certainly pretty impressive, especially since Yelp shares already up about 122 percent year-to-date. Nina?

DOS SANTOS: Gosh, 122 percent year-to-date, that is even more impressive than the recent rise of Facebook, isn't it? Zain Asher, there, joining us at the New York Stock Exchange. Thanks ever so much for that.

Well, the European Central Bank's managed to hold off on changing their policies to boost the economy, but they're still promising to give us a few more clues on when they may actually move next, and that's a big departure from the norm here. The Bank of England and the European Central Bank each decided to keep interest rates on hold today.

Both banks are borrowing ideas, though, from the Fed because the Bank of England in particular is going to start telling us more next week about its plans to issue what it calls forward guidance about the direction of interest rates. And that would mean linking monetary policy openly to economic numbers like unemployment.

And in the meantime, the ECB president said that he would like to look into releasing minutes from that bank's meetings. Mario Draghi said that it's good to share.


MARIO DRAGHI, PRESIDENT, EUROPEAN CENTRAL BANK: Other central banks have come to take our customs and introduce press conferences in their communication strategy. So it was only natural that the governing council asked for a richer way of communicating.


DOS SANTOS: So, that's Mario Draghi, as you can see there, the president of the ECB trying to change from the kind of atmosphere that they've had over there where, of course, they didn't release minutes and they generally just had a statement saying what their interest rate decision was and then followed up by often a very long and wordy press conference.

Let's bring in Holger Schmieding, who's a chief economist at Berenberg Bank, joining us from CNN London this evening to try and read into the tea leaves here.

Holger, you and I have talked about the ECB for five, maybe seven years, and it hasn't really changed much until Mario Draghi got into the hot seat. And he's been pushed into a very difficult position here, hasn't he? Because the markets often try to second-guess institutions like the ECB and they get it wrong.

HOLGER SCHMIEDING, CHIEF ECONOMIST, BERENBERG BANK: Well, yes, the market doesn't always get it right when it comes to judging the central banks. The European Central Bank has evolved quite significantly over the years. It is becoming significantly more transparent, more open.

It has borrowed the idea of forward guidance from other central banks, and now, with the likely publication of some kind of minutes, the ECB will become even a bit more modern. But much more importantly than that, the communications is that the ECB policy for the last year has been successful in apparently turning the economy around.

DOS SANTOS: This could be a dangerous strategy, though, couldn't it, Holger? Because everybody knows if you give the markets just a little bit of an inch, they take a mile. And how exactly will they get that right? Because they can't give the markets everything that they want to know about their forward-thinking process. There's a number of people who set rates on the ECB.

SCHMIEDING: Well, no. The markets always ask for more, and there can never be full transparency in the sense that the markets will always know what every of the 23 council members is thinking at the ECB at the very moment, no.

But the ECB can give us a bit clearer ideas as to what exactly would make them change policy, to which extent we would have to, say, exceed in the economy, their growth forecasts, before they were to consider a rate hike.

Or they have guidance that they would keep rates at the current or lower level, some guidance as to what would make them cut rates would be useful. So, the ECB still has something to do without giving everything away.

DOS SANTOS: Do you still think that the ECB will manage to cut interest rates another time this year, despite the fact that obviously things are looking quite a bit more positive this time in Europe than anybody would have expected?

SCHMIEDING: Well, the European economy is starting to turn up, actually. If we look at what happened over the last year, exactly a year ago, the ECB reassured the world that the ECB would not commit suicide, that it would not let the euro disintegrate.

Ever since, confidence has stabilized and we now see in the economic data the beginning of an economic upswing. That's the work of the ECB. Ultimately, the strategy of the ECB seems to be working despite occasional questions about their communications.

DOS SANTOS: Just briefly, here. So, we live in an age of communication, very different for the ECB, which has only been around a couple of decades, to the Bank of England, which was founded in 1694. The Bank of England's also going to be replicating the Fed with forward guidance. What do you make of that? That is a huge departure from the tradition here.

SCHMIEDING: Yes, the Bank of England is actually having a much bigger departure form tradition. They are likely to link their economic policy to a number which is not inflation, but to link their interest rate policy to numbers such as unemployment. The Fed does that because the Fed has a dual mandate to keep inflation low and to watch over the labor market.

The Bank of England does not really have that dual mandate, so for the Bank of England to adopt a stop like judging -- looking -- giving an explicit unemployment number as a threshold, as a trigger for a rate change is a huge departure from previous practice. Mr. Carney from Canada, the newcomer, is likely to deliver it.

DOS SANTOS: OK, Holger Schmieding there, chief economist at Berenberg Bank, joining us from CNN London. Thanks for your views on that.

Well, banks across the European markets gave these markets something of a shot in the arm on Thursday's session, also thanks to the fact that those particular plans from the Bank of England and the ECB will kept on hold, as I was saying, interest rates remaining at their record low levels for both of those key regions.

The main markets in London, Paris, and Frankfurt all finishing the day up around about 1 percent or even more in some cases. In France, Societe Generale managed to gain more than 10 percent. That was after this company's profits more than doubled for the second quarter of the year.

And the FTSE 100 in London got a boost from Lloyd's Banking Group, which finished up more than 7 percent on the day. That particular bank did return to a profit in the first half of this year. It's still part-owned by the British government, and the treasury is now considering selling that stake.

It's time for a Currency Conundrum for you now. As you may know, the presidential elections have taken place in Zimbabwe. As such, I'd like to ask you how many zeros were there on the largest denomination Zimbabwean dollar bill? Was it A, 10 zeros? B, 12 zeros? Or C, 14? I'll have the answer for you later on during the program.

Well, the dollar is currently up against he pound, the euro, and it's up nearly 1.5 percent against the Japanese yen. We'll be back with more QUEST MEANS BUSINESS after this break.


DOS SANTOS: Doctors in India have managed to perform robotic surgery in front of an online audience of literally thousands this particular week. The workshop demonstrates the procedures to try and treat sleep apnea -- this is when people can't breathe during their sleep -- and it was a milestone in operations conducted by robots.

In tonight's Make, Create, Innovate, Nick Glass actually discovers how this medical breakthrough has been revolutionizing the way doctors treat these kind of conditions.


NICK GLASS, CNN INTERNATIONAL CORRESPONDENT: We sometimes forget what wonderful, dexterous tools our hands are. But these days, medical technology has advanced into the realms of science fiction. I've come to California to see how surgeons have been given a helping hand by robots.

What is the Da Vinci system?

DAVID ROSA, INTUITIVE SURGICAL: The Da Vinci is a tele-operated robot, and it is an advanced tool in order to do -- perform better surgery to produce better outcomes for patients.

GLASS (voice-over): David Rosa has been with Intuitive Surgical since the beginning. He has seen the Da Vinci system develop from a concept to the complicated machine it is today. He still remembers the first time he saw it in action.

ROSA: I was nervous and we were -- there were ten engineers in the room. I remember a few people would joke about me in terms of my gloves being filled with sweat. They were just wet because we were all nervous.

GLASS: Anxiety soon turned to optimism. The benefits to the patient were clear.

ROSA: It's really the benefits of minimally-invasive surgery. So, the patient will incur less pain, less time to recover, generally less blood loss, depending on the operation.


GLASS: Consultant surgeon Dr. Myriam Curet has pioneered the use of Da Vinci in hospitals.

GLASS (on camera): Do you remember the first time you used it in anger?


CURET: I remember very well. I spent several months down here developing a robotic procedure for operating on morbidly obese patients, and then we did it on our first patient, and things went extremely well, we were really, really pleased with what it allowed us to do that we couldn't do with the traditional methods.

GLASS: This is it.

CURET: This is it. So, there's three components to it. This is what we call the patient cart. So, this is the part that would sit over the patient. This is the console, where the surgeon sits. And then, this is the third component. We consider this the brains of the system.

GLASS: Moment of truth. Can I sit in the chair?

CURET: Yes, please, sit down.

GLASS (voice-over): So, under her watchful eye, I gave it a go.

CURET: Now, what I'm going to have you do is, you see the red ring there on the blue cone?

GLASS (on camera): I see it, yes.

CURET: Pick that up with either your left or right hand, your left or right instrument.

GLASS: OK, let's try it with my left hand, snapping away.

CURET: And you can turn your instrument a little bit if you need to. Excellent.

GLASS (voice-over): In reality, the system is used for operations on soft tissue. Here, multicolored cones mimic our insides. And this is what the Da Vinci system looks like in a real operation. Every hand movement relayed to the four robotic arms, controlling up to 50 different instruments. More than 1.5 million operations like this have been carried out around the world.

GLASS (on camera): The company is absolutely the dominant market leader in this field, with a turnover last year of over $2 billion and literally a wall of patents to protect its multiple inventions.

GLASS (voice-over): Ten thousand component parts. This is where the system is made. Two and a half thousand have been sold, each one costing more than $1 million. And in the future, it should be possible to increase the range of the remote system, the distance between patient and surgeon.

ROSA: I can imagine being a surgeon in San Francisco and working on a patient in another state, even New York, for instance.

GLASS: I like to think that Leonardo from the small town of Vinci in Italy would have an instant connection with the engineers here at Sunnyvale in California and with the robotic machine they've made in his name.



DOS SANTOS: Hello and welcome back. I'm Nina dos Santos. These are the top stories that we're following for you here on CNN.


DOS SANTOS (voice-over): Silvio Berlusconi has been sentenced to four years in prison for tax fraud. Three years of the sentence will be forgiven as part of an amnesty agreement. The remaining year is likely to be served by Mr. Berlusconi under house arrest. The former Italian prime minister also faces a possible ban from public office.

The man who kidnapped and imprisoned three women in the U.S. state of Ohio for more than a decade will never be released from prison. Ariel Castro's been given a life sentence plus 1,000 years without parole.

In his sentencing hearing, Castro denied being a monster.

A lawyer representing Edward Snowden says the former NSA contractor has now left a Moscow airport. His lawyer says that Snowden's application for political asylum has been approved and as such he now has legal status to remain in Russia for one year. There's no word as yet on Snowden's exact location.

Zimbabwean opposition leader Morgan Tsvangirai says that the country's presidential election has been, quote, "a huge farce." Tsvangirai is challenging the current president, Robert Mugabe, for the country's leadership. He claims the voting fraud made this election null and void.


DOS SANTOS: The activist investor Carl Icahn is now suing the computer giant Dell. The company's founder has been trying to take this PC maker private to bring it into the digital age and Icahn instead has taken Michael Dell, that eponymous founder, to court to try and block the firm from setting a new record date ahead of a crucial shareholders' vote on this particular matter.

Now that record date determines which shareholders are actually entitled to take part in the vote by excluding those who had been buying stocks after a certain date. The vote could come in on Friday and Michael Dell says that he wants to take this firm private and to try and restructure it. And he needs that in order to get the company back on track to compete in the age of tablets.

Here's Felicia Taylor with more.


SAMARA LYNN, "PCMAGAZINE": This is the latest Dell Latitude.

FELICIA TAYLOR, CNN CORRESPONDENT (voice-over): At the offices of "PC Magazine," where they test the latest tech hardware, there is still great respect for Michael Dell, who, in 1984, founded the company that bears his name. He was just 19 years old.

LYNN: He's absolutely a visionary. He saw personal computing as a great opportunity.

TAYLOR (voice-over): Dell, who launched the firm with a mere $1,000, had a groundbreaking business model. Cut out the middleman and sell computers directly to consumers.

MICHAEL DELL, FOUNDER, DELL COMPUTER: The idea essentially was to sell computers directly to the end user without the markup of the dealer.

TAYLOR (voice-over): (Inaudible) Dell computers quickly became coveted machines.

UNIDENTIFIED MALE: You're getting a Dell.

TAYLOR (voice-over): But like many tech giants, Dell was caught flatfooted by the market shift to mobile devices and tablets.

DELL: I think Dell was just so invested in hardware. I mean, their core business was servers, desktops, laptops. And that's all changing.

TAYLOR (voice-over): In fact, Dell's business model has been changing for some time.

TAYLOR: So this is an example of what they're doing right.

TAYLOR (voice-over): Dell is shifting away from hardware and into more profitable software and cloud-based computing services like data storage.

LYNN: This is a good example of Dell's taking its hardware and transitioning.

TAYLOR (voice-over): To help hasten his company's transformation, Dell launched a bid in February to take the company private in a leveraged buying worth more than $24 billion. Dell believes it'll be easier to make necessary fixes without having to answer to the demands of shareholders. But the plan quickly ran into resistance.

Opponents like Dell's second largest shareholder, Carl Icahn, say the bid greatly undervalues the company. As part of his fight, Icahn told CNBC that he wants Dell booted from the company.



CARL ICAHN, DELL SHAREHOLDER: I have -- yes. We definitely do and you can believe that we're going to do whatever it takes to get someone.


TAYLOR (voice-over): "PC Magazine" believes that Dell will still be a tech industry player in years to come. But whether it'll still be led by Michael Dell remains uncertain -- Felicia Taylor, CNN, New York.


DOS SANTOS: The latest twist in that ongoing saga.

Well, this week, Ryanair was in (inaudible) apparently telling its pilots slow down and save fuel. After the break, we find out (inaudible) bad news is not always really bad news for some companies. It can usually be good news for firms like Ryanair.





DOS SANTOS (voice-over): Earlier in the show I asked you how many zeroes there were on Zimbabwe's largest-ever banknote and the answer is -- well, as you can see there, number C, a whopping 14. This is the 100 trillion-dollar note issued just a month before it was -- it deflated the currency -- Zimbabwe, this is.

And just -- it just goes to show what hyperinflation can actually do to an economy as we were saying. We're talking about in the trillions, you know, you take a look at Washington, some of the wrangling over there, and that's of the trillions of dollars' worth of U.S. dollars. This is just one note, which is worth trillions of Zimbabwean dollars.


DOS SANTOS: Let's talk about Ryanair, because its CEO, Michael O'Leary, has revealed his brand strategy and namely it is that he doesn't have one. That is except pile it high and sell it cheap. In a frank interview with "Marketing" magazine, this man has said that he doesn't actually mind bad publicity.

In fact, the magazine quoted him as saying this, "Short of committing murder, negative publicity sells more seats than positive publicity." He went on to refer to one of his most famous myths, that was that Ryanair wanted to charge passengers for the use of the toilets.

And he said, quote, "It continues to be the" -- as you can see there - - "the number one story that resurfaces in the press, and it's the gift," he says, "that keeps on giving."

Mr. O'Leary also said that marketing was done in house because marketing companies, in his words, were, quote, "rubbish," and that ad agencies -- again, I'm quoting him here -- "are useless."

Well, I'm joined now by Benjamin Webb, the managing director of Deliberate PR, who's joining us from CNN London.

Benjamin, bad news, bad publicity. It is always good news, really?

BENJAMIN WEBB, MANAGING DIRECTOR, DELIBERATE PR: Well, I have to say that though I disagree with the -- his choice of words, the fact is you ultimately have to agree with the sentiment, which underpins it. The fact is now we're in a digital age; the rules regarding PR, advertising and marketing are fundamentally changed.

And the thing O'Leary has correctly identified is that if you can get short of criminality, if you can get an enormous number of visitors to your website, it is -- that's the mission because the website will convert them one way or another.

DOS SANTOS: And, Benjamin, let's be honest. If you say something that could be deemed bad publicity, it's going to get you an awful lot more eyeballs than good publicity which is often viewed as the norm.

WEBB: Well, which is extremely true. I mean, the thing is that the - - his success, in a sense, is that the companies are very much based around the cult of his personality. And as such, I would argue that organizations or businesses where there is not a prominent figurehead, will struggle to come back from a bad -- what would be described as being a bad piece of PR.

My argument is, within the modern age, what is defined as bad PR is fundamentally changed because, in a sense, what it -- what PR has emerged as being -- or should be about -- is all about news.

DOS SANTOS: But the other issue here is that you can't just have one bit of bad publicity that ends up getting you an awful lot more headlines and translates to higher sales. It's got to be a whole strategy. Michael O'Leary has spent the best part of two decades making himself stand out by making these kind of comments. It has to be part of a comprehensive strategy here, though, isn't it?

WEBB: Well, you'd like to think so. But I mean, there is a long and proud tradition of CEOs and senior people within companies coming to embody a brash or an eccentric -- I mean, Richard Branson has done this for years, which he himself cites in the article.

But I mean, I think the thing for me, which was the most revealing part of the entire article, is when he cited the fact that a woman had used social media to complain about the fact that she'd received an enormous fine for having failed to print out her boarding cards.

And it actually, as he said -- and it has to be said, in a not particularly charismatic or what I would perceive to be charming way, he said, this was fantastic. This meant that people were enraged on social media and the traffic was going to our site.

And I think the thing that he said quite correctly is that actually nowadays only criminality is the thing that can be perceived as being bad publicity in its old-fashioned sense.

DOS SANTOS: It's not just bad publicity, it's illegal, isn't it, as well. But obviously I suppose he does very, very fine line there with quotes like that, as we were saying before.

Benjamin Webb, joining us there, from Deliberate PR, where he's managing director at CNN London this evening. Thank you for taking the time to come on QUEST MEANS BUSINESS.

Now let's have a look at how the weather forecast is shaping up. Stormy skies, perhaps, for Ryanair's Michael O'Leary, Jenny Harrison, but anywhere else in the world? How's the business travelers' forecast looking?

JENNY HARRISON, CNN METEOROLOGIST: It's (inaudible) mix across in Europe. Some pretty storm conditions indeed across the northwest. A pretty hot day in London. I'll get onto that as well, Nina.

You can see on the satellite that most of the weather is indeed across the northwest. Generally, it's fairly quiet picture across Europe. We've got high pressure very much in control. But look at this, some very persistent and at times heavy rain across Ireland, pushing into the west of Scotland as well and so much so that the warnings continue Thursday into Friday.

Warnings for the heavy rain but also some pretty strong winds, always a threat or tornadoes, would you believe, and also some large, damaging hail. So there's one airport which is actually putting out the warnings of Friday. It is Glasgow, it is those severe winds and it is for the afternoon hours, (inaudible) 45 minutes.

Now whilst we're looking at this, look at this, the last few hours, I really want to focus your attention on St. Andrews because, of course, it is the women's British Open. Now right now and really for the last few hours, the rain has actually eased up, the winds coming in from the east, the visibility's pretty good.

But in fact as we go through Friday, we are expecting more rain. Saturday it is actually going to be a pretty windy day indeed. The temperatures are a little bit low as well for the women, having a much rougher time than the men did a few days ago or a week or so ago in Scotland. But it should at least stay dry through Saturday and Sunday.

This is the picture as we go through the first part of the weekend. There is that area of low pressure responsible for all this weather, quite a bit cooler as well, the heat pushing across into central and southeastern areas.

But look at these temperatures for Thursday, 41 in Cordoba in Spain, 35 in Paris and look at this, 34 in Toulouse, but also 34 in London as well, what can you do in the heat (inaudible) London? I've got to show you these pictures.

Nina, as you see these pictures of our Mr. Quest, look at this, he's at the moment filming for "Business Traveller." Yes, it is what you think. It is a jetpack and there's another picture as well to show you.

I'm not sure whatever you think of these pictures, but it looks like he's having a bit of fun. Not sure entirely what the story is. I'm sure we'll hear all about it in the next episode of "Business Traveller." But, well, we had to show those pictures, Nina. Have you got any comments? What do you think?

DOS SANTOS: Yes, a bit James Bond, isn't it? (Inaudible) you and I know that he's probably wearing a suit under that life vest as well.


HARRISON: (Inaudible).

DOS SANTOS: Jenny Harrison, thanks so much for that. We'll tackle Richard on those shots when we see him.

And that's it for QUEST MEANS BUSINESS. Thanks for joining me. I'm Nina dos Santos. MARKETPLACE EUROPE with me (inaudible) on CNN.




DOS SANTOS: Hello from (inaudible) Station in London, and welcome to MARKETPLACE EUROPE. I'm Nina dos Santos.

Well, this high-speed train will soon be hurtling towards the Channel tunnel that connects London with continental Europe and Great Stanbury (ph) for freight and passengers alike. Transport links like these are vital for the running of a single market.


DOS SANTOS (voice-over): On this week's show a strategy for transport, both real and replica. Isa Soares gets off to a flying start with a visit to Hornby's model plane factory. With costs rising in China, it's now bringing some of its manufacturing back home to the U.K.

And I sit down with the CEO of Eurostar, a man with ambitious plans to take on the airlines in Europe.

NICOLAS PETROVIC, CHIEF EXECUTIVE OFFICER, EUROSTAR: There are 20 million people flying a year. And our market here is very, very low. So the expansion plans are all about targeting those markets and grow our market share.


DOS SANTOS: China has long been known as the land of cheap manufacturing. But recent data shows that exports from China to Europe actually fell by over 8 percent in the last year. With demand overseas as well as the strengthening yuan have certainly had an impact. But rising labor costs have also contributed to make China less competitive.

And as those wages soar, well, some British businesses are bringing production back home in a process known as backshoring. Here's Isa Soares with more.



ISA SOARES, CNN CORRESPONDENT (voice-over): Piece by piece, it's all coming together, components of a business model that have until now been made solely in emerging markets.

ROGER CANHAM, HORNBY CHIEF EXECUTIVE: Once upon a time, it was all manufactured in the UK, but I think change in the marketplace now -- and I think people would be incredibly proud to know that their model was made in the U.K. for what is a very British brand.

SOARES (voice-over): This pride is palpable on the production floor, too, with workers keen to show their knowledge and their expertise in their brand.

UNIDENTIFIED MALE: The machine is an injection molding machine. What we use is we use a raw material called ABS and it's got a pigment color added to it that we put in there. We control the dose. So we inject it under high speed and under high pressure into the injection mold.

The injection mold is water cooled to maintain a constant temperature on the process. So once (inaudible) see the machine's opening now; the parts produced are ejected out.

SOARES: Straightaway.

UNIDENTIFIED MALE: The parts then drop in through a beam (ph).

SOARES: There they are.

UNIDENTIFIED MALE: There we are. That's the waste part, which is called the sprue (ph).

SOARES (voice-over): While the pride of bringing it back may be admirable, the reasons behind it are much more commercial. Labor shortages in a fast-growing economy have pushed China's minimum wage up as much as 15 percent.

This has forced five British companies, such as Aston Martin, Topshop, Symington's and DFS to return home, ultimately all helping the British economy. The numbers are the proof in the quarter ending in April, exports to China hit $1.5 billion.

For Hornby, this isn't the first time manufacturing has been brought onshore. Early this year, the company brought back some of its tumbrel (ph) paint facilities following some labor disputes and quality concerns in China.

CANHAM: For many industries, the natural thing to migrate to a lower cost base, some of the other difficulties you have of going to a different time zone, talking to people that don't necessarily talk the same language, actually or culturally or technically, that presents challenges. But clearly the cost saving outweigh those difficulties.

Now when those costs -- equalize is the wrong word -- but nevertheless, that gap starts to narrow, and those other parts of the equation, when it comes to manufactured products, become a much more important part of the decision-making process.

SOARES: Moving production back home, which is their biggest market, may not be the cheapest option when compared to the likes of India or China. But it does give Hornby a huge advantage, that of time, by producing 30,000 of these components a day, that's roughly 1,000 of these kits, Hornby gets roughly a month in terms of lead time, allowing it to respond quicker to demand.


SOARES (voice-over): It can mean the difference between gaining and losing several customers at home.

CANHAM: Just the physical shipping time will be four weeks. So even if today we found that this product was selling through very strongly and we placed additional orders, that's four weeks of the market potentially that we have missed.

Now clearly we have planning processes in place that means it probably isn't four weeks. But nevertheless, it is a successful as the market's telling us, then we really need to be on the front foot when it comes to turning on the production meeting the demands of (inaudible).

SOARES (voice-over): A close to home business model that should help Hornby fly high.



DOS SANTOS: Isa Soares there with the components of a new business strategy.

After the break, I speak with the CEO of Eurostar, Nicolas Petrovic. He says the company's on track for its expansion plans. That's next.



DOS SANTOS: Hello and welcome back to MARKETPLACE EUROPE from Sintanco (ph) Station in London. Traveling to Europe is getting faster, cheaper and also more energy efficient, from this platform, I'm just two hours away from Brussels and a little more to Paris.

And now this high-speed train company wants to extend its network further with a new fleet of trains on order and more destinations on the map.


DOS SANTOS (voice-over): Eurostar is also the first half of 2013's show sales revenues of 7 percent year-on-year to just under $700 million.

Passenger numbers were also up 2 percent to 4.9 million.

The (inaudible) in 1994 was a fleet of 28 trains, Eurostar has carried more than 130 million passengers between London and the European continent. In a major overhaul, the company will invest $1 billion over the next two years. By 2015, it'll open a new permanent year-round route to the south of France and unveil a new fleet of trains.


PETROVIC: What we can see in the first half of the year is that there is a real decoupling of the British and French economy, which (inaudible) British economy picking up and the leisure market being more confident with sales going up about 8 percent, you know, so confidence there; whereas the French market is more subdued.

You can see that people are anxious; there are uncertainties about the economy. So it's -- the two -- it's more slowing down in France, where it's picking up in the U.K. We can really see a difference now.

DOS SANTOS: A lot more people are using the rail length underneath the Chunnel linking Britain to France. But of course the European Union is hoping to probe into pricing here, in particular with regards to Eurotunnel. How is pricing? How are you viewing that probe? And what are you going to do about it to protect yourselves?

PETROVIC: I think it's extremely interesting and we're looking at it very carefully, because actually our biggest cost is the cost of going through the tunnel. We have to pay per passenger fee, which is something like 30 euros. And enough (inaudible) you pay -- if you sell a ticket at, let's say, 79 pounds or 69 pounds return, it's a big chunk of that money is going to the tunnel.

So the European Commission said that number should come down. If it were the case, I mean, we are not (inaudible), but if it were the case we could pass on this reduction to the customers, which would grow the volume overall, because suddenly we could really price better to markets, which are different (inaudible) markets.

DOS SANTOS: You've often talked about this idea of using trains in the same way as we view planes, as sort of these big global interconnected travel hubs across Europe. A lot of that will take investment in infrastructure.

And of course, Europe doesn't have a lot of money these days.

PETROVIC: Well, the investment we are making it at the moment. That's why we are buying new trains and we're refurbishing our fleet to have enough capacity to transport people to new destinations.

For instance, our new trains, when they arrive, they won't be able to go to Holland or Germany or Switzerland (inaudible). So we haven't made a decision yet on where to deploy them, but there will be opportunities to do it.

DOS SANTOS: What about this new fleet then? Tell us how important it is to Eurostar. Is this a major rebranding for this company just at a time, I might say, when you're going to be losing the monopoly over the Chunnel tunnel?

PETROVIC: Yes, it's a big moment for Eurostar. We're going to have a new fleet, a brand new fleet with -- which would be a state-of-the-art in Europe. We'll have new uniforms; we've just launched a new website. It's all -- we're rebuilding the company. It's a fresh start. It's fantastic because, one, it grabs you opportunities of open access in Europe.

And we know there will be competition with us. But you know, it's good because it will create some awareness of the fact that you can travel cross-channel to new destinations all across Europe. So I think it will be good for us because what we really want to do is to gain market share against the airlines.

DOS SANTOS: But if you look at that competition, Deutsche Bank is going to be entering the fray sometime soon. Isn't that just naturally going to eat away at some of your luxurious margins here, because I was saying before, you really have had the best of the facilities under the Chunnel at the moment, and you're going to be losing that monopoly.

PETROVIC: Well, we've been in competition for the past 18 years with airlines. It hasn't been easy. It was the biggest air market in Europe. And we've been fighting with them because it's very competitive market we're in.

Now, Deutsche Bank's coming; I will commit. We've got a fair competition. We would see whether customers prefer. But in my view, it will grow the overall market. So I'm not really that worried.

DOS SANTOS: What can we expect from Eurostar in about 3-4 years from now?

PETROVIC: What I would expect is that we're seen really as the gateway between the U.K. and the continent. That you think, I don't know, I live in, let's say, Brighton and I want to go to Paris or I want to go to Bruges, and I think, oh, I'm going to (inaudible) and we refer a seamless experience. So that's really the ambition.

At the network, we'll go, you know, driving business from the U.K., crossing the channel and then into hopefully Holland, Western Germany, Belgium, Switzerland and the south of France.

Very exciting, actually.


DOS SANTOS: Nicolas Petrovic there, the CEO of Eurostar, bringing this week's MARKETPLACE EUROPE to a close. Join us again next week if you can. But in the meantime, it's goodbye and thanks for watching.