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QUEST MEANS BUSINESS
CVS Cigarette Ban; Companies Taking a Stand; Lackluster Day on Wall Street; Twitter's First Earnings Report; Central Banks Blamed for Emerging Market Turmoil; Central Bank Coordination; Twitter Q4 Earnings; Beckham to Form Team
Aired February 5, 2014 - 16:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
(NEW YORK STOCK EXCHANGE CLOSING BELL)
RICHARD QUEST, HOST: It couldn't quite hold on to the little gains that it had seen during the course of the session. The market, I think the final number will show it is down. But hit the hammer -- yes, it is Wednesday. Only once. It's Wednesday, it is February the 5th.
Tonight, kicking a $2 billion habit. One of America's biggest stores says no more cigarettes here. We'll tell you why.
Also, welcome to Miami. David Beckham takes his talents to South Beach.
And a birds-eye view. Twitter's about to release its first-ever quarterly earnings report. We'll have the tweet.
I'm Richard Quest. I mean business.
Good evening. We're going to keep an eye out for Twitter's first-ever quarterly earnings. They're due to report after the bell. You've heard the bell. Now, we'll await the earnings and we'll give you some analysis on them as soon as we get them.
QUEST: First, though, one of America's largest pharmacy chains is taking cigarettes off its shelves. Tobacco products will no longer be sold at the CVS Caremark stores from October the 1st. CVS is the first US pharmacy chain that's going to kick the habit. The company's CMO, chief medical officer, said ending tobacco sales was the right thing to do for customers.
(BEGIN VIDEO CLIP)
TROY BRENNAN, CHIEF MEDICAL OFFICER, CVS CAREMARK: We are committed to promoting health, and we're engaged increasingly in treatment of disease. We're trying to help doctors make sure that their patients take their medications for diseases like diabetes and hypertension and heart disease.
We're encouraging them to take those medications, we're telling doctors when we think there are gaps in care. We're part of the overall health care team. It's really antithetical, as a result, to have a product in our store, tobacco, which actually causes the kinds of diseases.
(END VIDEO CLIP)
QUEST: Now, the fact is, of course, that American drug stores have sold cigarettes for decades, and the contradiction has been obvious for some time. But CVS, which is America's largest pharmacy chain, based on total prescription revenue, have now decided to make this dramatic change.
And it is dramatic, make no bones about it. It's got 7,500 stores across the United States that not only sell pharmaceuticals, they sell groceries, they sell beer, they sell toys, they sell stationary, makeup, you name it.
But they also sell, behind the counter, cigarettes. They have 26,000 pharmacists and nurses to advise customers. And perhaps this is the reason why. CVS Caremark is looking to move further into the health care business.
It estimates it'll lose some $2 billion by withdrawing tobacco from its stores, $1.5 million in tobacco sales and $0.5 million in other purchases tobacco from -- that they would have made. So, put it all together and you end it with $2 billion as a result of the tobacco ban.
The move to ban tobacco was well-received by many, who chose to let their views known on Twitter. The first lady of the United States, Michelle Obama, says, "Thanks, @CVS_Extra, now we can all breathe a little easier, and our families can live healthier." That's Michelle Obama.
The former mayor of New York, Michael Bloomberg, tweeted, "CVS's decision to eliminate tobacco sales is a major milestone in the effort to reduce tobacco use." Oh, I -- not squint. "CVS quits."
Not everyone was supportive of the decision. Ian Bremmer, president of Eurasia Group, he's been on this program many times, criticized the retailer, saying that it was inconsistent -- "'Sale of tobacco products is inconsistent with our purpose.'" What he basically says is very few Americans now smoke and he used the hash tag #hypocrisy.
By the way, what's your views on this? @RichardQuest, we'll show you that, @RichardQuest, and we'll get to some of your thoughts and your views later in the program.
CNN's Casey Wian joins me from outside a CVS store in Los Angeles. It has always seemed a rum contradiction, Casey, that you have a pharmacy that sells the cancer stick of tobacco. But even so, people were surprised by today's announcement.
CASEY WIAN, CNN CORRESPONDENT: That's right, Richard. And Larry Merlo, the president of CVS, said that he -- this is really the paradox for the company. You walk into one of these stores and behind the cash register, you're able to buy tobacco products. You walk further into the store, and you can buy smoking cessation products.
Merlo says that selling these tobacco products goes against everything that the company stands for. They are now concerned and focused on the health of their customers. And he says that what they are going to do is actually double-down on the smoking cessation part of their business.
He says that he does not expect that this move individually is going to have any sort of significant impact on smoking rates in the United States. But what he's hoping is that other big pharmacy chains follow suit. And we spoke to some of his customers. Here's what they had to say.
(BEGIN VIDEO CLIP)
CRYSTAL GASKILL, CVS CUSTOMER: I don't know if they'd agree, but I think it's a pretty noble thing, and I think there'll be a lot of healthier people for it. I also think it'll probably drive the prices of cigarettes up. But hopefully then everybody will say I'll just quit and be healthy and cancer-free and save their pretty little lungs.
EDWIN CUDE, CVS CUSTOMER: Bad idea.
CUDE: Because you realize how many smokers are in the US? It's ridiculous. They have some of the best prices on cigarettes, so they're going to lose so many customers.
(END VIDEO CLIP)
WIAN: And Richard, you mentioned earlier, the lower rates of smoking in the United States, it still is a financial risk for the company. They say it's about 3 percent of their annual profits. They are getting no applause, though, from the American Medical Association, the American Association of Pharmacists. They have been calling on pharmacy chains to make this move for some years, Richard.
QUEST: Casey Wian joining me from the West Coast. CVS is not the first company to claim it's making changes for ethical reasons. You remember, on this program, we told you McDonald's announced major changes to its Happy Meals. The food chain said it would offer children a choice of fruits and vegetables instead of fries and would stop promoting sodas with those Happy Meals.
Now, last month, Calvin Klein and Tommy Hilfiger both agreed to stop selling products made with angora wool or from angora wool. The ban came after the prominent campaign by PETA, they said H&M and Top Shop have also halted production but have not committed to the ban.
And then, of course, Starbucks. Good old Starbucks. The chief exec asked customers to leave their guns at home. But he stopped short of banning firearms, sort of danced on the point, despite being asked to do so by relatives of victims of the Newtown school shooting.
Brian Moriarty is the lecturer at the University of Virginia's Darden School of Business. He joins me now, live from Charlottesville, Virginia. So, Brian, I can hear viewers saying, is this a principled decision of a corporate executive, or is it an element of hypocrisy based on good business value because they want to move into health care anyway. Which do you think?
BRIAN MORIARTY, LECTURER, DARDEN SCHOOL OF BUSINESS: Well, Richard, I think that when you look at the fact that we are in the midst of a reputation economy, and trust is really kind of the gold of the realm, purpose of a company matters more than ever.
And I think that this is really a purpose-driven decision, where a company that's kind of banking on -- I mean, their mission statement at CVS is "Helping people on the pathway to better health." And they just -- I think that many people would say that that seems kind of inconsistent with selling tobacco products.
QUEST: Right. Which, of course, is a fascinating idea, this risk of reputational damage that comes in these cases. Arguably, it took them a long time to get there, but I suppose it's better to arrive at the party late than not arrive at all, you would say.
MORIARTY: Yes. And if you look at the valuation of companies, now, we know that roughly 60 percent of company valuation is based on intangible assets, like brand and trust and integrity. And so these things really --
QUEST: Right, so --
MORIARTY: -- they matter throughout the business.
QUEST: Would you expect the other big chains to follow on? The Duane Reades and here in the East Coast, and the others, to follow on now that, if you like, the initial move has been taken, there is good cover for other pharmacies to make the same decision?
MORIARTY: You know, I think it'll be really interesting to see what other companies do. I think if you look at the mission statement that CVS has, I think it fits very well with their mission. It'll be interesting to see what other pharmacies do. I would not be surprised to see others follow suit.
QUEST: You see, this is the interesting point, here. CVS with its Caremark has very much carved out an area that it wants to be more than just a drug store. I don't think I'm giving any secrets away here at Time- Warner, they are the providers that we use for our health care provision for pharmaceuticals and the like.
So, they're very much designed and the way they thrust themselves forward is in the health care business, not pop along and buy a pair of ladies' hosiery or makeup.
MORIARTY: That's right. When you look at -- they have 26,000 employees who are either pharmacists or nurse practitioners. So, you have to think about, how do people at that company, do they feel like the company's really living its mission? So, that's very important.
QUEST: Thank you very much for joining us. Much appreciated, good to have you on tonight's program.
Now, it has been a lackluster day on the US markets. We don't need to waste too much time talking about them. They were up, down a bit. We'll take a look the graph -- oh, well, there it is, the graph.
You see perfectly, started off down, went up, came down, went up, went down, came up, went down, and then ended up just down, down 5 -- that little smidgen right there. That's the down 5 points on the Dow Jones.
Zain Asher's at the New York Stock Exchange for us. Not worth talking about the market, but those Twitter results we are awaiting. Have you seen them yet?
ZAIN ASHER, CNN BUSINESS CORRESPONDENT: Hi, Richard. Yes, we have. We're just getting the results in just now. Twitter actually met on estimate on profit. They beat on revenue, though, reporting sales of $243 million in that period.
They also gave better-than-expected sales outlook for the current quarter. There have been a lot of anticipation leading up to Twitter's earnings. Obviously, it's their first set of earnings since they debuted on November 7th, since their IPO.
As investors look over these results, they're going to be looking to see how Twitter plans to monetize their ads and what the expectation is for the rest of the year. Now, Twitter shares have actually increased by 47 percent since their IPO, and obviously, investors are going to be looking to see whether that increase was, that premium is, in fact, justified. Richard?
QUEST: Zain at the Stock Exchange. Thank you very much, indeed, for joining us. I'll have a full round-up, of course, we'll update you on the detail of the Twitter results and the headlines in just about 20 minutes from now when we've actually had a chance to look at and crunch the numbers.
After the break, the turmoil in emerging markets continue, and some say central banks and central bankers aren't helping. We'll speak to a senior advisor at Citi will be joining me after the break. QUEST MEANS BUSINESS.
QUEST: Emerging markets and stocks have taken another beating today over continuing fears of a slowing global growth, and the damage reflects a failure by central banks to get their act together. That's the view of the Bank of England's executive director for financial stability.
In, apparently, an implicit criticism of the Fed's move to reduce stimulus, Andy Haldane said, "Individual countries were acting in their own best interests without taking the broader situation into account."
Remember, tapering saw the hot money fly out of the emerging markets and back into dollar assets. The ECB, the BOE -- Bank of England -- are to announce their interest rate decisions on Thursday.
William Rhodes is a senior advisor at Citi, also the author of the book "Banker to the World," a copy which I have here, and looking forward to reading on my next trip. Thank you for this. He joins me now. Is Haldane is right when he says central bankers today pay lip service to coordination but act in self-interest.
WILLIAM RHODES, SENIOR ADVISOR, CITI: Well, as you know from reading my op-ed yesterday in "The Financial Times," I think you need better coordination. And the central bankers of the world, the major ones, meet every weekend once a month in Basel in Switzerland. And one of the things they're supposed to do is work on coordination. And we had a lot of that when the crisis hit us in 2007, 8, and 9.
QUEST: Right, but that was the highpoint of coordination --
QUEST: -- that was also the highpoint of the G20 and arguably, I would say, it's all gone downhill since then.
RHODES: Well, I think we've got to get back to that. Gordon Brown's moment in history was the 2009 G20 in London.
QUEST: And yet --
RHODES: And there you had the coordination, how to get back to sustained growth.
QUEST: OK, but there's a difference between coordination and consultation. And what we seem to have know is consultation but not coordination.
RHODES: Well, I'm not even sure how much you have of that because I think the communication area -- and you saw that when the Fed made their announcements in May last year -- has not been so great.
And then, there's another thing that can be done. Those countries that are being hit in the emerging markets, that have proper economic policies or will put them in, should be entitled to swap lines from other major central banks. So, there needs to be more of that, like there was in the Asian financial crisis and the crisis that came up with the Great Recession.
QUEST: Right, but --
RHODES: Remember Korea?
QUEST: Right, but the Asian financial crisis, again, was layered. The US was able to take on and lead. The IMF was able to take a lead. Not everybody was in the same dreadful leaky boat at that particular point.
I'm curious, though. How do you coordinate on tapering? How does Mario Draghi coordinate on another LTRO or the Bank of England? Surely you've just got to do it.
RHODES: Well, there's no doubt about that. And of course, I think markets should have been prepared that tapering was coming. The question is, when you see a run like you see in some of these countries, what can be done about it?
RHODES: Well, it's case by case. You have contagion, but every country's different. We learned that in the Latin American debt crisis, Asian financial crisis, which I have in my book. So, it's case by case.
However, you can sit down, the major central banks, and see how those countries that are willing to put in positive structural reforms, can be supported.
QUEST: Ultimately, though, when --
RHODES: By swaps.
QUEST: Right, but -- well, swaps work up to a point.
QUEST: Ultimately -- I mean, but swaps is only sort of papering over the cracks.
RHODES: It buys you time.
QUEST: It buys you time.
RHODES: It buys you time.
QUEST: Right. But ultimately, when Janet Yellen and the FOMC, now it'll be Stan Fischer who'll be sitting next to her --
RHODES: Who's a great internationalist, by the way.
QUEST: Absolutely. Very -- and been on this program, like yourself.
QUEST: But when they sit down and make that decision on raising rates, they're doing it for the US, and then to the rest of you.
RHODES: Well, that's basically what Ben Bernanke said, and of course, his thesis was what's good for the US will act as a motor for the world economy. However, as the head of the Central Bank of India said a couple of days ago --
QUEST: Mr. Rajan.
RHODES: Exactly. Who's a very good economist, and I think he'll do a great job there. You need -- when you get consultation, that often leads to coordination. How you can put swap lines into place to buy time to take the proper measures.
QUEST: Good to have you, Bill. Thank you very much.
RHODES: It's great to be finally on your show. I see you all over the world.
QUEST: You'll be on it again. Now we've found you. You'll be on it again.
RHODES: Thank you.
QUEST: When we come back after the break, David Beckham is on his way to a new football team. This time, he'll be off the pitch and in the boardroom. QUEST MEANS BUSINESS, good evening to you.
QUEST: Twitter has reported a quarterly net loss of $511 million on revenues of $243 million. Now, I'm no accountant, but they lost more than twice as much as they actually had as revenue. That is an accomplishment. Paul La Monica is our assistant editor, CNN Money's assistant managing editor, and joins me now. Tell me that this wasn't a disaster.
PAUL LA MONICA, CNN MONEY ASSISTANT MANAGING EDITOR: It wasn't a disaster, but here's the reason why. First off, sales beat forecasts, so people are -- can take solace in that. The loss was expected and I know we're now going to get into that whole debate of gap versus non-gap.
The apples-to-apples number for what they reported in terms of net income, they actually reported a small profit on a non-gap basis. Analysts were expecting a loss --
QUEST: So, what took it out?
LA MONICA: -- non-gap.
QUEST: What --
LA MONICA: Competition expenses, other one-time charges. So, yes. This is a company that is still losing money, if you want to be traditionalist, which I think we should, and look at the pure gap number. But they did report a profit on a non-gap basis when it wasn't expected.
The reason the stock is down after hours is even though the growth was pretty strong for users, their guidance -- and they chose to give guidance, which is interesting, because Google and Facebook don't give guidance -- their guidance, while good, wasn't strong enough --
QUEST: All right. OK --
LA MONICA: -- to impress investors who have ludicrous expectations for this company.
QUEST: All right. I can hear the viewers saying at home, does this mean Twitter gets better, or does it get worse? What does it actually mean in terms of it its trading performance?
LA MONICA: The quick reaction is definitely Twitter is coming down. I think that's warranted. I think Twitter --
QUEST: Not the price, per se.
LA MONICA: Well, yes.
QUEST: Not the price. I'm talking about the actual -- the profit. Where are the profits going to come from --
LA MONICA: Right.
QUEST: -- with this company.
LA MONICA: Right. No, it's a great question. Facebook, unlike Twitter, has proven from the getgo that it's a profitable company, profits are growing, it's doing a very good job of raking in advertising revenue.
Twitter still has a lot to prove. Is there really going to be advertiser allure in sponsoring tweets? Some companies are obviously doing that, but the ad revenues are -- they pale in comparison to Facebook, to Google, to other online advertising giants.
So, I think there are still many questions about whether or not Twitter really has a viable long-term strategy or if this is just somewhat of a curiosity. I love tweeting, I love the service, but I would never buy this stock.
QUEST: Paul, good to have you on the program --
LA MONICA: Thank you.
QUEST: -- as always. Thank you for coming in.
David Beckham has announced he will form a new football team in Miami. Beckham was given the option to form a new Major League soccer franchise when he signed for LA Galaxy in 2007. The option will cost the retired footballer $25 million. In Miami today, Beckham said building a new team was a project close to his heart.
(BEGIN VIDEO CLIP)
DAVID BECKHAM, FORMER FOOTBALLER: Going forward, I wanted to create a team that can be very personal. Everything that I've done throughout my career has been very personal to me. The decisions that I've made are all very personal. And like this one, it's a big decision, but it's a very personal one. I want to make it my own team.
(END VIDEO CLIP)
QUEST: "I want to make it my own team." Well, moving from sport to business has been one of Beckham's priorities since he moved to the United States. Let's remind ourselves -- let's have a Beckham Bulletin.
In 2007, he started playing for LA Galaxy in Major League soccer. That was 2007, brand Beckham takes off in the US. It was then he made sure to get an option put in the contract that to eventually start his own franchise.
Now, the football star's also taken on ambassadorial roles, helping to boost the brand. He campaigned for the London Olympics and has worked as a global ambassador for Chinese soccer. Didn't do quite so well when England, of course, and London wanted to go for the World Cup.
Beckham is a master at attracting corporate money. His sponsorship income for 2013 was reportedly $26 million. He has represented brands including Armani, Adidas, Samsung, and Diet Coke, and currently can be seen sporting his underwear or less for the company H&M coming to a billboard near you.
CNN Espanol's Elizabeth Perez caught up with Mr. Beckham after the news conference and asked Beckham how involved he really will be, not in the underwear, but in the team.
BECKHAM: I've been lucky. Throughout my career, I've been able to be involved in every project I've been part of. And that's exactly the same as my position here. I'm owner. I will make decisions.
When players come in, obviously I will be working with maybe one, maybe two other investors, but I have partners as well. But also picking players is going to be down to myself, it's going to be down to the manager, the coach, and that's an important part of my ownership.
I'm going to be involved 120 percent. I'm going to be spending a lot of time here in Miami. So, yes. My involvement in this club is a total involvement.
ELIZABETH PEREZ, CNN ESPANOL CORRESPONDENT: I know that you have said why not? Why not Miami? And my question is, what you makes you think that a franchise now will make it -- will be successful, taking into consideration the Miami Fusion didn't work out with the MLS a couple of years ago?
BECKHAM: You know, I can't comment on, obviously, the last franchise that was here, but what I will say is, in the last ten years, the success that the MLS has, the success that -- the growth of this sport, the growth of soccer in this part of the world, has been huge. Has been huge.
So, that's what I see is the difference here. We have a league, now, that is being run unbelievably well. We have some great owners, some great teams, and great players in this league. And I know this city's ready for a soccer team. I know this city is ready to see great players and young players coming through and to have their own stadium.
And that's the difference. I feel that this time around, everything is set up for this to be a success. So, a lot of hard work. There will be difficult times, but there will be more fun times than anything else. So, this time, people are ready for this.
QUEST: David Beckham on the new team in Miami.
Google's promised some significant ways and changes in Europe. By doing so, it's avoiding a potentially hefty fine. The changes at Google in a moment.
QUEST: Hello, I'm Richard Quest. There's more QUEST MEANS BUSINESS in just a moment. This is CNN, and on this network, the news always comes first.
Russian state media is reporting the mastermind of December's suicide attack in Volgograd is dead, killed in a police shootout with the police in the North Caucasus republic of Dagestan. The bombings late last year killed 34 people and raised new concerns about security for the Winter Olympics in Sochi.
Syria has failed to meet the deadline to remove virtually its entire chemical weapons stockpile. An international watchdog says Syria has shipped out only 4 percent of its arsenal. The country says it's still committed to seeing all of its chemical weapons destroyed by mid-year.
A UN committee is accusing the Vatican of putting its reputation ahead of protecting young victims of sexual abuse. The panel's comments were part of a scathing critique of the Vatican's handling of sexual abuse in the Catholic Church. The Vatican says it will study the report and that it is committed to protecting the rights of the child.
Police have arrested four people who may be connected to the drugs found in the late actor Philip Seymour Hoffman's apartment. During the raid, they uncovered 350 bags that usually contain heroine. The actor was seen withdrawing large amounts of money from several cash machines the night before he died. Investigators found close to 50 bags of heroine in his New York home.
One of America's biggest pharmacy chains is taking cigarettes off its shelves. Tobacco products will no longer be sold at the CVS Caremark stores from October the 1st. CVS is the first U.S. pharmacy chain to make the move.
Google is about to take on a new look in Europe. The company's agreed to make significant changes to avoid a potentially massive fine from the European Union. When you go looking for something, Google now showed three rival search engines alongside its own specialized search service. Join me at the Google screen and you'll see -- and you got to look carefully here - - so here's a Google search. Now, this is the Google search for cafes in Paris. This is what it looks like today. You have the ten best cafes, you've got -- then you've got -- the sponsored ones at the top and then you've got the isolated ones here, and you've got those on the map. Now, look closely. Here are the changes that will be promised. Yes. I'm not sure that they are revolutionary. Ten of the best cafes is still the number one non-sponsored search, and Paris specials in cafes is still there. But this t the top -- alternatives -- is now there from Yelp and a few others. So I'm just going to go between the two again.
This is the old one, and that's the new one. Well, you can be somewhat underwhelmed by perhaps the difference between the two. Google's dominance is unlikely to be eroded any time soon. According to Pew Research, the search engine rules the world online along with some social networks that obviously you're familiar with. So, let's look at Google. This is a map of the most visited websites by country, and this is the one where Google is number one, OK? Google is number one in North America, large parts of South America, nearly all of the European Union and Europe, out towards Asia, right the way down to Australia. That is Google is the number one. Next, you have Facebook which is the number one. Now, here you've got Mexico, you've got parts of South America, you've got North Africa interestingly as a communication tool -- large parts of North Africa, Facebook is the number one. If you go over to China, you'll see that Baidu is obviously the number one there -- where it's a Chinese website engine. And Yahoo -- Yahoo -- where is, where is (inaudible) number one. Where is it? Where is it? That's over there -- it's in Japan. It's the number one website. So you can see by a large margin, Google dominates. The group FairSearch is a group representing 15 companies and it has accused Google of running a monopoly. Thomas Vinje is the chief counsel. He joins me now via Skype from Brussels. So, I look at the change that's taken place. It's very small, it's not immediately obvious, but you're telling me what do you think about this change? Will it do the trick?
THOMAS VINJE, CHIEF COUNSEL, FAIRSEARCH: Our position is that it will not make any significant difference. Google has moved from providing objective results that are based upon relevance to providing results to users that benefit itself, and this will not make any significant change to that.
QUEST: So when the commissioner Almunia decided to accept his and give up his three-year fight, arguably it was an agreement, but you say Google won.
VINJE: I'm afraid we'd have to say that Google must be drinking a fair amount of champagne in Mountain View today.
QUEST: Right, but it wasn't that much different with Microsoft and Internet Explorer. Admittedly, they did push it further and ended up paying fines to the Union and all sorts of things like that. But ultimately, they won the day. These companies tend to win ultimately when they come head-to-head against the commission, correct?
VINJE: Um, I'm not so sure I would agree with that. There are quite a few companies that has -- have had quite some difficulty dealing with the European Commission, and the Commission did require Microsoft to make some quite significant changes to its practices that made a real difference, I believe, in the market.
QUEST: So, why today -- why do you think the Commission didn't fight harder against Google?
VINJE: Well, I of course don't have insight into the minds of the people deciding his on the Commission, but one can speculate about the fact that -
QUEST: No, you don't have any insight into the minds, but you certainly have an insight into the gossip and into what's being said in the salons in Brussels. So you've got a pretty good idea why they gave up now.
VINJE: Well, some would suggest that it has something to do with the fact that this Commission is ending in November. It's been dealing with this for about three years and it doesn't have anything to show for it yet. And so, some have suggested that the Commission is doing this now and doing it in a relatively light way to be done with it, to claim some sort of victory before the end of the -- the end of its term -
VINJE: -- even though in fact it really won't make a difference.
QUEST: Thank you for joining us, sir, from Brussels tonight. I wish you good night. Thank you for joining us.
VINJE: Thanks very much, Richard.
QUEST: As we continue our business look around the world, world on the Panama Canal expansion project has ground to a halt after talks between the building company and Canal officials broke down. The project will take $1 and 1/2 billion to finish, and neither side can agree on who's going to pay for it. Last month in Davos, Panama's president told me he would only stump up the cash if it was proven the government was not to blame.
RICARDO MARTINELLI, PANAMANIAN PRESIDENT: Well we will pay, we have the resources, but if the -- we are not a -- if we are not liable, they have to comply within the framework of the contract.
QUEST: That, the president of Panama. Our senior Latin affairs and - - our senior Latin American affairs correspondent, Rafael Romo, joins me now from CNN Center. When we look at this, the president was basically say, look, I asked them again and again and again will you get your checkbook out. And, you know, being the president and the man who follows the rule of law, he said yes, if it comes to it, we will get our checkbook out. But we think it's the Italian company that's at fault and we think it's this other company that's at fault. So now the work has finally stopped.
RAFAEL ROMO, CNN SENIOR LATIN AMERICAN AFFAIRS EDITOR: That's right. Well there are conflicting reports about whether it stopped completely, Richard, or not. But this morning Jorge Quijano, the administrator of the Panama Canal, says that they're going to find -- to try to find alternatives if the working relationship with the GUPC doesn't work. And we had to explain to our viewers, Richard, that this is a massive project - - $5.25 billion -- and the goal here is to allow for larger ships to travel from North America to Asia. The problem started back in December when cost overruns were estimated at $1.6. GUPC says it is the Panamanian government's responsibility to pay for those overruns. The construction conglomerate says, no it is the responsibility of Panama to do that. But this morning, Jorge Quijano said that no matter what, the construction project will go on and will be finished but -- by -- 2015. Let's take a listen.
JORGE QUIJANO, PANAMA CANAL ADMINISTRATOR, VIA TRANSLATOR: What is truly important for you to know is that the Panama Canal will abide by everything stipulated in the contract and will finish this construction project by 2015, with or without GUPC.
ROMO: Now, Richard, I was taking a look at a statement published by GUPC earlier this morning, and they say that they continued negotiations -- they're open to negotiations with Panama for a solution and to be able to finish the Canal the project that it stated by 2015. They blame the Panamas Canal Authority for the break -- break down -- of negotiations and they also say if there's no -
ROMO: -- solution reached in the short term, that they will face years of legal wrangling and at stake here for the moment, Richard, is 10,000 jobs that may be gone as soon as the next few weeks.
QUEST: Rafael, thank you for joining us from CNN Center. Interestingly, one other thought on this -- more than one expert pointed out at Davos -- the only people who seem to be doing rather well out of this will be the lawyers who'll probably be fishing and eating from this mess for years. When we come back, Singapore and other countries are getting a closer look at Indian jets landing in their airports. Straight ahead, why inspectors are so concerned -- in a moment.
QUEST: Time for today's "Business Traveller" update. And anyone traveling to India or at least on an India carrier may have seen the story. Singapore is now stepping up inspections on all engine airlines as a result of some safety concerns after the U.S. Aviation Authorities downgraded India's safety ranking. It put India in the same category as Bangladesh, Indonesia and Zimbabwe. U.S. officials say they became concerned when an audit December 12th showed deficiencies in international standards. Now, within the U.S., the safety downgrade means Indian airlines can still operate existing routes but they cannot establish any new ones. It also puts an end to code-sharing with U.S. carriers -- Delta for example -- United Airlines has already canceled its code share with Jet Airways. American Airlines is looking at its code share, so all the U.S. carriers. And indeed this will have knock on effects around the world. Let's bring in Mary Schiavo for more on this -- former Inspector General of the U.S. Department of Transportation. Mary, this is -- it's unusual, isn't it? Particularly for an aviation authority in one country to bash and beat up an aviation authority in another country -- friendly country -- in such a fashion?
MARY SCHIAVO, FORMER INSPECTOR GENERAL, U.S. DEPARTMENT OF TRANSPORTATION: Very, very unusual, and in fact it's not only the Federal Aviation Administration, the Department of Transportation that's involved, but whenever they try to get tough with a foreign country, the U.S. Department of State also raises its concerns. So here the fact that they acted is very serious, but it also means the problem is severe. The FAA does not like to do anything like -
SCHIAVO: -- this, so we just have to realize that if they did, you better be worried, folks who are traveling on the carriers.
QUEST: Well, right, but what are -- but this is -- the problem with all of this is that it's smoke, isn't it? I mean, there may be a fire there -- there may be a fire there -- but I can't see it and they're not actually saying this is what happened and this is what we've got and this is --
SCHIAVO: That's right.
QUEST: -- we don't have the chapter and verse so that you and I can make our decisions on this.
SCHIAVO: That's right, and remember what the FAA is look at when they go over there to inspect it, they're looking whether the Indian government has in place sufficient agencies to evaluate carriers, see if they're fit to have a certificate to fly, and that's what they're looking at -- the government oversight.
QUEST: It's extraordinary though, but here you have -- I mean -- why then -- there's a contradiction here. Because you allow the existing flights to continue, you just won't let them have any new ones. Well, what's the common sense of that? If you're basically saying the thing may not be as safe as it should be, why allow the existing ones?
SCHIAVO: Well that was a political compromise long ago, and basically it was well, that's what we've always been doing and you haven't had any problems yet, so. It was kind of a compromise. They used to have a three- tier system instead of a two-tier system and then the third-tier was you're absolutely banned -
SCHIAVO: The second tier was provisional.
QUEST: Mary, I want you to stay exactly where you are for a moment. I've got some breaking news. But I want a one-word answer from you on this. Have a listen to what -- U.S. and international airlines with direct flights to Russia have been advised that explosive materials could be concealed in toothpaste or cosmetic tubes. That comes from intelligence gathered by the Department of Homeland Security in the United States. It's all of course ahead of Sochi. You're shaking your head, Mary. Why that?
SCHIAVO: Well, because it's unfortunate and it's serious. You know, we had started to relax the rules on liquids, pastes, gels and creams as did Europe. Europe was already relaxing it and put it into place. Since they've announced the threat, that means they have credible evidence -- those are the key terms that they use -- and now we will look for more bans I'm sure on the flights.
QUEST: Mary, good to have you always. Thank you for being on the program.
SCHIAVO: Thank you.
QUEST: "Quest Means Business" needs you to help us understand these things.
QUEST: Mary Schiavo joining us. The weather forecast. Jenny Harrison is at the World Weather Center. We had a sort of bit of snow here in the United States, but frankly, the real nasty stuff is elsewhere at the moment.
JENNY HARRISON, WEATHER ANCHOR FOR CNN INTERNATIONAL: You know, I think the very dangerous weather, Richard, which of course continues to be a threat. And as you say, yes of course the snow is very much the concern and a threat to some parts of the U.S., but it's really about these systems which keep coming in across from the Atlantic to western Europe, in particular island, the U.K. western France, have just been inundated time after time with these storm systems -- the gale-force winds and huge amounts of very persistent rain. This is again is the forecast as we continue through the next few days with a couple of systems coming in.
Very heavy amounts of rain, very, very high and dangerous surf because of the winds that are coming with these areas of low pressure. Now look at these pictures from Ireland. This is in (Inaudible) but also the city of Korg in southern Ireland. This was actually in the overnight hours Tuesday night into Wednesday, and just as you can see, that the streets literally looking like rivers. And of course, this is just very much a familiar theme across much of Ireland. France, as I say, even down into Spain and certainly across most southern and western sections of the U.K. That man there seems to be enjoying it, but for most people of course, not much really that is enjoyable about this sort of weather
Let me show you one of these pictures. This is actually now looking at Spain. Some huge waves here. Now I know these girls are quite a way back on the beach, but again, certainly in the U.K. the police in particular are putting out warnings (inaudible) everybody to say stay away from these areas. Look at the size, the vastness, the intense pressure and spent of these waves that are coming onshore. And now this -- that was Porthcawl in South Wales. This is Dawlish, and this is in south Devon, again on the coast. Now, what we can just about see here is a railway line. That is a major route all the way through the West Country right the way down to (Inaudible). The waves actually buckled that track. The people in the homes along here had to evacuate from their houses as well as this of course, the (inaudible) levels we've been talking about. People there have also now been told to evacuate.
There's a river, there's also a big reservoir there. Both are in threat of bursting their banks. This is the situation -- system after system coming through. They'll continue to come through over the next couple of days. I've already shown you this, but I want to show you again in sum the amount of rain that has come down in January -- more than double in some cases. And of course this was coming down on top of the weather that we had back in December with these systems coming through. So, look at this -- the next 48 hours -- still some heavy rain to go through in the next few hours, a slight break and then this big system coming through. Again, very strong winds but in particular it is the floods that are, again, about 280 flood warnings -- two of them severe flood warnings which is one of the danger to life.
This is the rain that's expected to come in again on top of what's already come down -- 55 millimeters as we continue through the next few days. These are the winds again, a slight break, then look at this -- the next new system coming through. All of this as well, Richard, means that there's some very long delays expected. All the major airlines you can see here, of course the warnings in place and as I said, the main airports in northern and southern Europe -- some long delays because of the winds.
QUEST: Frankly with those winds, I'd rather not be bouncing around and coming in to land in some of those places.
HARRISON: Yes, absolutely.
QUEST: Jenny Harrison of the World Weather Center where the weather is particularly unpleasant in the U.K. Ahead in a moment -- the chief financial officer from GlaxoSmithKline will be on the program talking about the turbulent 2013 in a moment.
QUEST: GlaxoSmithKline is preparing to introduce new respiratory, cancer and HIV drugs soon. The drug maker says some of its sector saw a turbulent 2013, facing bribery allegations in China and headwinds elsewhere. Jim Boulden spoke to the CFO who says it's all about momentum.
SIMON DINGEMANS, CFO OF GLAXOSMITHKLINE: One percent sales growth , (inaudible) leveraged between the P&L to deliver 4 percent to the bottom line. Very much the upper end of the (inaudible) we gave at the beginning of the year despite some the headwinds during the course of the year. But I think showing the strength, resilience, breadth and balance of the business that's contributing to a much better momentum in the business. And I think that's the point that I would really call out for 2013.
JIM BOULDEN, CNN INTERNATIONAL CORRESPONDENT: Of course the R&D pipeline is everything in pharmaceuticals, yet you spent less money on R&D in 2013 than you did in 2012.
DINGEMANS: Only by a small amount. I mean, we generally kept R&D pretty much stable around 3 and 1/2 billion pounds or so over the last several years, and that's really driving better decision-making within the organization but also making sure that we're driving efficiencies out of our platforms and the infrastructure so that we can put as much as we need to into what's been a very busy late-stage pipeline. And I think you've seen that in the five files we've had approved in 2013, one more still to come in the first half of '14, and the breadth of contributions we're now making into the late-stage pipeline.
BOULDEN: Must ask you about China of course (inaudible) the Barberry scandals involving GSK and sales fell heavily in the third quarter in China. What happened in the fourth quarter?
DINGEMANS: Well we've certainly seen the business stabilized and while we are still continuing to cooperate with attorneys/authorities on their investigation, we've also made sure that our commercial teams are really focused on reestablishing and stabilizing that business so that we can bring our medicines to patients in China where we think we have perhaps a genuinely differentiated. We are committed to staying there and we hope to have the opportunity to rebuild that in the future. And that's what the commercial team have really been doing in the last quarter.
BOULDEN: Do you think sales were hurt by the Barberry scandal?
DINGEMANS: Well, clearly in the third quarter -
DINGEMANS: -- you saw quite a lot of disruption with sales down very sharply. Some of that has receded in the fourth quarter but, you know, we need to get through the inquiry and we need to see what the requirements of the authorities will be going forward and then we can rebuild our business. But we certainly feel more confident about the base that we're establishing there.
BOULDEN: The U.S. of course is your largest market. How are you preparing for healthcare reform which is one of the major issues there at the moment?
DINGEMANS: Well, I think the U.S. business has seen a number of significant products roll out of its portfolio in the last several years as you touched on earlier. And so what we're really doing with our U.S. business is thinking about how we bring new products to strengthen our respiratory business, our oncology business, HIV and really broaden out the base of the business that we have in the U.S. At the same time, it's continuing to improve the efficiency and focus of our sales force efforts and make sure that we're engaging with what's a very dynamic marketplace in the way that our patients and our customers and the payers and providers want us to. And I think we've seen very good progress in that over the last couple of years. That positions us very well and very effectively for these new launches that we've now gotten very much underway.
BOULDEN: You said Europe was a challenging market for you last year. How much of that was about the economic crisis, how much was GSK-specific?
DINGEMANS: I think that we certainly saw the economic crisis putting a lot of pressure on our particular portfolio given that we a) had some very large products that tend to attract attention and people tend to go to those when they look to make savings. But also we had a relatively old portfolio. Now, what we did in restructuring the European business was say let's really focus on those areas where we're truly leaders like respiratory (inaudible), oncology and vaccines. And you've seen that in the better performance of the business this year. But Europe still remains challenging, so we're very convinced that we're on the right track with the strategy, and that positions us well for that environment.
QUEST: When we come back, there'll be a "Profitable Moment."
QUEST: Forget Twitter results. That sort of got a bit of interest and will do in the next few hours. The really big news in the business world came in the United States with the decision that CVS Caremark is to - - a drug -- a major pharmaceutical company/pharmacy and drugstore in the U.S. -- is to stop selling cigarettes from October. Michelle Obama welcomed the news as did Michael Bloomberg, others were less -- well, less praiseworthy and taunt as a hypocritical act since they thought it was only because people weren't buying as many cigarettes in the first place. So here's the issue in tonight's "Profitable Moment" -- does it matter the reason why if you do the right thing? I've often thought it a rum business that these pharmacies that cell medicines and life-saving cures then go and sell cancer sticks behind the counter. But if that's what the customer wants, that's what they sell. Now we'll see whether others follow the light. Will Walgreen, will Duane Reade, will all the other pharmacies give up the profits from cigarettes? That will be the test, and it still begs the question -- does it matter if you do the right thing with a reason why you've done it? Ask Richard Quest. And that's "Quest Means Business" for tonight. I'm Richard Quest in New York. Whatever you're up to in the hours ahead, (RINGS BELL), hope it's profitable. I'll see you tomorrow.