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SATURDAY, FEBRUARY 25, 2012 PHOENIX: In this file photo, Rosio Guerrero shops at JC Penney. —AP Penney reports 4th quarter loss NEW YORK: J.C. Penney Co. reported a loss of $87 million in the fourthquarter, citing restructuring and management transition charges as well as the financial impact of preparing for its new pricing strategy. “While 2011 was a year of transition at J.C. Penney, 2012 will be a year of transformation,” CEO Ron Johnson, a former Apple executive, said in a statement. He joined the board last August and became CEO in November. But he has moved quickly to shake up a company that has been a laggard in the department store sector. It is transforming everything from its simplified pricing approach to what it keeps in stock. With its new pricing plan that debuted shortly after the end of the fourth quarter, the company is embracing a three-tier strategy: everyday prices that are about 40 percent less than initial prices of a year ago, deeper promotions that last a month and clearance events the first and third Friday of each month. The company also is changing its assortment of brands and the store experience. It announced in December that it will develop mini-shops in its stores with homemaking doyenne Martha Stewart. During an investor meeting in mid-February, it also outlined plans to add 80 to 100 other brand shops inside its stores to replace the sea of clothing racks typical of department stores. It also plans spots in its stores called Town Squares, like Apple’s Genius Bars, that will offer services and advice. Investors will want to know what other brands Penney hopes to add. The department store chain said Friday that its loss amounted to 41 cents per share for the three-month period ended Jan. 28. That compares with net income of $271 million, or $1.13 per share in the year-ago period. The results include restructuring and management charges that totaled 56 cents per share. The impact of its pricing strategy, which debuted Feb. 1, lowered results by an additional 59 cents. Excluding those charges, the company earned 74 cents per share, which beat estimates for a profit of 68 cents per share, according to FactSet. Revenue slipped 5 percent to $5.42 billion, reflecting the company’s exit from its catalog business. Analysts expected $5.5 billion. Its revenue at stores open at least a year fell 1.8 percent for the quarter.Its shares fell 65 cents, or 1.6 percent, to $41.28 in premarket trading. Penney faces a challenge in selling shoppers on its new pricing. For years, it followed the common retail practice of hiking its initial prices so shoppers feel like they’re getting a great deal when items go on sale. Penney threw 590 sales events last year, and nearly three-quarters of its revenue came from merchandise discounted by half or more. In fact, this past holiday season, Penney was forced to heavily discount to get shoppers in. That helped to depress gross profit margins to 30.2 percent in the fourth-quarter, down from 37.6 percent in the year ago period. The turnaround plan took a hit when Fitch Ratings dropped its rating this week on Penney’s debt to the “speculative” range, better known as “junk.” Fitch said it’s not sure that shoppers will accept the pricing structure or that the company can lift sliding sales and improve profitability. Penney has been a laggard among department stores as its core middleincome customers have been among those hit hardest by the weak economy. It’s also failed to attract younger customers even adding hip brands like Mary-Kate and Ashley Olsen’s teen clothing collection Olsenboye. Johnson has tapped former colleagues at Apple and Target to join Penney, including former Target marketing executive Michael Francis as Penney’s president.—AP FRANKFURT: Robust growth and record low unemployment enabled Germany to slash its public deficit last year, even if Europe’s biggest economy ground to a halt at the final months, data showed yesterday. Germany-which given its economic clout has assumed a leading role in the fight to end Europe’s chronic debt crisis-ran up a deficit equivalent to just 1.0 percent of output last year, down from 4.3 percent in 2010. It is the first time in three years that the German deficit ratio has been below the 3.0-percent ceiling imposed by the EU and puts Berlin in a powerful position in the efforts to find a solution to a crisis that is threatening to break up the single currency and push the entire world into recession. Europe’s current financial woes stem from long years of overspending by governments and growing doubts on the financial markets that countries will ever be able to pay back their vast mountains of debt. Germany itself has fallen foul of the very rules that it was so keen to impose on profligate southern European neighbours in the early years of currency union and its deficit has spiralled upwards in recent years. But it is now reaping the benefits of the deep and painful economic restructuring undertaken in the past and the overall state deficit-which covers budgets for central government and regional governments, social services and the local authorities-is coming down. In concrete terms, the deficit-the gap between income and spending-amounted to 25.3 billion euros ($33.8 billion) in 2011, compared with 105.9 billion euros in 2010, the national statistics office Destatis calculated. While the federal government and the regional governments of Germany’s 16 states still spent more than they received in revenues last year, the municipal authorities ended the year with a modest budget surplus. And the social welfare system achieved its biggest budget surplus since unification in 1991 thanks to the favourable situation on the labour markets, according to Destatis. Germany has performed much better than its eurozone partners during the debt crisis, notching up robust growth of 3.0 percent last year, while unemployment fell to record lows. Nevertheless, the crisis has not left Germany totally unscathed and growth shuddered to a halt at the end of the year, contracting by 0.2 percent in the period from October to December. On Thursday, the EU Commission in Brussels warned that the debt crisis will drag the eurozone into a long-feared double-dip recession this year, pulling down most neighbouring non-euro economies in its wake. But analysts believe Germany will remain immune to the worst and a whole range of forward-looking indicators, such as the Ifo business climate index, all suggest that the dip in the German economy will prove only temporary. Timo Klein, economist at IHS Global Insight, said GDP will remain underpinned by solid underlying private consumption growth. Exports, too, should remain “fairly resilient exports, with weak demand in much of business Germany slashes deficit despite faltering growth Unemployment slumps to record lows LONDON: Britain’s economy may avoid another recession after a rise in consumer spending and an upsurge in exports offered it a solid base to bounce back from a fourth quarter dip, but a vigorous return to health is unlikely. The Office for National Statistics confirmed its earlier estimate that the economy shrank by 0.2 percent in the final quarter of 2011, largely due to a slump in investment at a time when the turmoil in the euro zone was at its most disruptive. But the strong consumption and export performance chime with recent business surveys indicating a pick-up in activity at the start of 2012. High unemployment and the overall meagre recovery from a 2008-2009 slump are keeping pressure on finance minister George Osborne to find ways to boost growth without wavering on his plans to erase the country’s huge budget deficit. With substantial cuts to public spending still to come and a Britain’s main export market, the euro zone, headed into recession, the Bank of England may still need to inject further cash into the economy in the months ahead. “We now expect a positive GDP outturn for Q1 given the upturn in many of the indicators which we’ve seen recently,” said Investec economist Philip Shaw. “The uncertainties remain, and when economies recover from financial crises, they don’t recover in a straight line, and certainly the (Bank of England’s) central GDP forecast for 2013 does look punchy.” The ONS adjusted annual growth in the fourth quarter to 0.7 percent- a slight downward revision which briefly pushed the pound lower against the dollar. Consumer spending rose by 0.5 percent on the quarter - the first quarterly increase in 1-1/2 years - while exports jumped 2.3 percent, the ONS said. But gross fixed capital formation dropped by 2.8 percent, with business investment falling 5.6 percent on the quarter, and slower inventory building also dragging on growth. “The relative strength of growth (in household spending) in the fourth quarter may reflect some demand which had not been exercised in the previous five quarters,” the ONS said. The ONS said the dominant services sector stagnated at the end of last year as manufacturers and construction firms cut back production. Separate Europe being offset by persistently solid growth in emerging Asia and an improving US economy.” The relatively weak level of the euro would also have a supportive effect. And low German interest rates would boost investment. “Indeed, the ECB may well ease monetary policy further in the coming months, depending on overall economic developments in the eurozone, which will keep financing conditions quite favourable for German firms in the foreseeable future,” Klein said. Natixis economist Christian Ott similarly also saw “brighter prospects for the start of 2012.” While the first quarter might get off to a “sluggish start... we’re expecting a pickup in the second quarter,” Ott predicted. Thomas Harjes of Barclays Capital Research said: “All in all, we continue to see the economic contraction in the fourth quarter as a temporary soft patch and expect that a moderate recovery is already underway and may gain steam in the course of the year.” But Jennifer McKeown at London-based Capital Economics was less optimistic. “While survey data point to a slight improvement in the first quarter, we doubt that this will be sustained,” she said. Employment growth was set to slow and “given concerns about the potential impact of bail-outs on the German public finances, households will probably favour saving over spending.” So while Germany might avoid a recession, “the economy is likely to manage extremely slow growth at best,” she predicted. —AFP UK consumers offer sign of hope in fourth quarter data showed that services output grew by 0.2 percent on the month in December. More stimulus The strong rise in exports at the end of 2011 - coming after two quarters of falling sales abroad - was mainly driven by exports to non-European Union countries, the ONS said. The German economy also contracted in the final quarter of 2011 and, despite some encouraging surveys and agreement on a bailout for Greece, the euro zone is still teetering on the brink of recession. The Bank of England, which added another 50 billion pounds of stimulus this month, predicts that the economy will recover later this year after a weak start, because consumers should spend more as easing inflation helps their stretched budgets. BoE Governor Mervyn King said that quarterly growth this year would probably “zigzag” due to an extra public holiday, with a quarter of contraction likely, and policymaker Paul Fisher said the outlook for the economy was incredibly uncertain and that he was keeping an open mind as to whether more quantitative easing would be required. —Reuters
SATURDAY, FEBRUARY 25, 2012 TOKYO: A Tokyo Stock Exchange employee works at the computer terminal yesterday. Asian stocks markets mostly posted tentative gains yesterday following a mixed bag of US and European economic reports and as oil prices rose to a new ninemonth high. —AP Poll tension puts $2bn Malaysian IPO in doubt KUALA LUMPUR: Malaysia could delay a $2-billion listing of a state-linked palm oil firm as farmers’ opposition to the deal risks undermining the ruling coalition in fiercely contested national polls expected this year. The listing of FELDA Global Ventures (FGVH), originally set for mid-2012, aimed to give Malaysia’s $27-billion palm oil sector much-needed financial firepower to boost yields and expand when top producer Indonesia is gaining market share. But the initial public offering has triggered unexpectedly strong resistance from some of the 113,000 farmers who together own 60 percent of the land given to them by FGVH’s parent, the Federal Land Development Authority (FELDA). Although the listing would bring each family a one-time windfall, opponents say it would deprive them of financial control of an asset they have held for generations. Pressing on with the IPO without addressing these concerns would be risky for Prime Minister Najib Razak, who calls the farmers his “safe deposit” in the fight to win elections that must be called by April 2013, but are expected this year. Najib is fighting to reverse a dismal election showing by his ruling coalition in 2008, when the opposition made historic inroads in parliament. “The prime minister is concerned about this. He wants the listing to happen but he may take a step back to ensure the settlers are satisfied,” said a senior government official with direct knowledge of the listing plans. “The process needs to take time. In the worst case scenario, Najib will push the IPO after the elections,” said the official, who declined to be identified. The farmers, or FELDA settlers, as they are known, number about 1.6 million, including their extended families. They form the bulk of the voters in 54 of Malaysia’s 222 parliamentary seats and are mostly ethnic Malay, the core support base of the ruling Barisan Nasional coalition. The opposition has backed the farmers over the deal as it seeks to push its way into the traditional rural strongholds of Najib’s United Malays National Organisation (UMNO). Najib’s father, former prime minister Abdul Razak, started FELDA in the 1950s, handing out land to Malays to fight poverty. The farms expanded to 880,000 hectares (or 2.2 million acres), making for the world’s biggest plantation scheme, with FELDA owning about 40 percent of the land bank. The farmers and FELDA played a crucial role in making Malaysia the world’s second-largest palm oil producer. “There is now the potential for widespread dissatisfaction over the listing, with the younger generation of settlers questioning the economic benefits,” said Ibrahim Suffian, director of Merdeka Centre, an independent polling group. “It is a generational gap.” Growing resistance The listing plan envisages FVGH taking over the plantation group’s commercial arm, Felda Holdings, which is 51-percent owned by farmers through an investment cooperative (KPF). On paper, it fits Malaysia’s plan to privatize state assets and draw in investors seeking exposure to palm oil prices that have risen six percent this month alone. —Reuters business Chinese investors tread more carefully in Africa China eyes more partnerships with foreign firms BEIJING: China’s oil and commodities firms are set to tread more carefully in Africa after being stung by kidnappings, seizures of cargo and, most recently, the expulsion of a chief executive . But they won’t pull back. If anything, China will broaden its exposure to the region, home to some of the world’s most resource-rich but unstable countries, as it scours the globe for resources needed by the factories and businesses of the world’s fastest-growing economy. Any major change is instead likely to be in tone rather than intent, with Chinese investors expected to take a less aggressive approach and to increasingly partner with other foreign firms in dangerous and unpredictable markets. “When Chinese firms started in Africa, it was more driven by the political motivations of top executives of state energy giants,” said a Beijing-based oil executive. “So the investments were made in a rushed and aggressive manner ... But (now) I think they will be more cautious when it comes to due diligence and investment decisions.” Recent problems in Sudan have shown China the risks of being a big and politicised investor in a continent that accounted for 24 percent of China’s crude oil imports last year. Rebel forces operating in Sudan, near the border with South Sudan, kidnapped 29 Chinese workers last month, apparently using them as political pawns before releasing them 10 days later. It was the fourth case of abduction of Chinese in Sudan. Chinese oil firms have also become tangled in an oil row between Sudan and newly independent South Sudan, leading to production shutdowns and the expulsion this week from South Sudan of the head of Chinese- Malaysian oil consortium Petrodar, the main oil firm operating in the new African nation. As Chinese firms go overseas in pursuit of profit and raw material, such problems have multiplied. In the last year alone, China has seen two dozen cement factory workers kidnapped by Bedouin tribesmen in Egypt, and a spate of strikes for better pay and conditions at mining operations in Zambia and Zimbabwe. No option Given that stepping back from Africa is not an option, China must learn to better navigate the region’s hazards, experts say. China’s state-owned energy and mineral Fitch downgrades 3 Australian banks SYDNEY: Fitch yesterday downgraded the prized credit ratings of three of Australia’s big four banks, citing higher funding costs. It downgraded by one notch Commonwealth Bank, Westpac Banking Corp., and National Australia Bank Ltd. to AA minus from AA. Australia and New Zealand Banking Group, which already had a AA minus rating, remained unchanged. It follows Standard & Poor’s downgrading of the credit ratings of all four banks from AA to AA minus in December as part of changes to the way it assesses risk. “In Fitch’s view, wholesale funding, particularly when sourced cross borders, has become more vulnerable to swings of confidence,” it said in a statement explaining its move. “Despite some improvement since 2008, all four banks retain a reliance on wholesale funding, particularly from offshore markets.” Despite the downgrade, the four major Australian banks remain among the strongest for Fitch globally. —AFP firms have usually tried to remain above the fray, saying disputes with workers or ethnic groups are the local government’s responsibility, but experts say they should work on their public relations savvy. “They become associated too closely with the government and don’t make enough effort to tell the local people and the NGOs at home or from abroad that they are doing a good job,” said Zha Daojiong, a professor at Peking University who studies China’s energy deals abroad. At the very least, China will certainly strive to improve the security of its projects in Africa, said Michael Arruda, a specialist in energy deals and partner with legal firm Jones Day in Beijing. “China isn’t going to change its strategy when it comes to Africa. They are going to go where the oil is. You can’t say you’d like to go to nice places like California because that’s not where the super-sized resources are. In contrast, the resource potential of Africa remains enormous.” “But I think they are going to be more cautious about the safety of their operations on the ground there.” While Sudan may provide far less oil to China than Iran or Saudi Arabia, it ranks as Chinese oil company CNPC’s most valuable overseas investment. In building investment ties, China sometimes trades off long political ties to many of the regimes in charge. And it also has a lot of human capital invested in Africa and elsewhere around the world, with more than 800,000 citizens employed abroad.Jobs for hundreds of thousands of Chinese at these overseas locations also relieves pressure on the teeming domestic job market, said Zha of Peking University. “China is in a vulnerable position. It is different from the United States or Britain or other countries primarily because of the employment of its own nationals,” he said. China’s focus on Africa and some other emerging markets also reflects its struggle to make inroads in other, more established regions, and not just because of political opposition. “(That) is one of the explanations and it remains true, but I don’t think it is the only explanation,” said Zha. “Oil and other energy investment is a competitive market and Chinese companies in comparison with their peers-not only in Europe and America but closer to home in Japan and South Korea-are not as competitive in terms of quality and efficiency, the quality of equipment, post-project services. “In more stable places, the demand for quality ... is higher and it is an issue whether Chinese companies are capable of winning contracts in those countries.” Political blowback China describes its investments in Africa as “normal commercial practice”, but many of its state-owned firms have won contracts on the back of a high-profile campaign by Beijing to expand its political, diplomatic and economic presence on the continent. They have thus been exposed to political blowback. The China Non-Ferrous Metals Mining Corporation (CNMC) has had more problems than most, and became the much-maligned face of Chinese investment during a bitter election campaign last year in Zambia, where it owns several lucrative copper deposits. Many of the troubles facing Petrodar-a consortium of Chinese state firms Sinopec and CNPC along with Malaysia’s Petronasare derived from China’s support for Khartoum during decades of civil war between the Muslim north and mainly Christian South that killed two million people. One way Chinese firms can lower their profile in Africa is by joining consortia led by foreign firms. On Tuesday, state oil firm CNOOC teamed up with France’s Total to sign a $2.9 billion deal to join British firm Tullow to develop an oil field in Uganda. Metals conglomerate Chinalco has also sought to cut its exposure by teaming up with Anglo- Australian miner Rio Tinto to develop the huge, politically troublesome Simandou iron ore project in Guinea. “You are seeing them taking stakes in consortia instead of looking for 100 percent control over an asset,” said Arruda. “As time goes on, they are more confident in taking positions that are smaller, and they are doing so not just to get access to reserves but also to knowledge and expertise.” The trend is likely to continue, said Zha, the Peking University professor. “It will help internationalise our operations and increase the number of stakeholders when it comes to such issues as political risk,” he said. —Reuters AIA’s new business grows 40 percent HONG KONG: Asian insurance giant AIA said yesterday its new business grew 40 percent year-on-year, a better-than-expected result thanks to strong growth in Singapore, Malaysia and China. The firm, which is one-third owned by the troubled American International Group (AIG), said the value of its new business rose to US$932 million in the 12 months to November 30, up from $667 million a year earlier. The result beat an average forecast of $870.5 million in new business by eight analysts polled by Dow Jones Newswires. Value of new business is a common growth measure used in the insurance industry, which takes into account the present value of expected future profits arising from new policies sold during the year. “We have continued to deliver strong growth in our key performance measures,” AIA group chief executive Mark Tucker said in a statement. “These results demonstrate that the momentum in value creation which we generated in 2010 has been sustained throughout 2011.” —AFP
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