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QUEST MEANS BUSINESS
Message for Greece; Most Powerful Woman Merkel Not Seen That Way at Home; HP Leading Losses on Dow; European Markets Down; Warning Signs for Europe; US Fed's Options; Economic Outlook; Diageo Profits Up; Euro at Seven-Week High; Economic Value of Europe's Top Monuments; How the Rich Get Around; Qantas Cancels Aircraft Orders Following Losses
Aired August 23, 2012 - 14:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RICHARD QUEST, HOST: Do whatever it takes. France and Germany tell Greece they must keep themselves in the eurozone.
The decline in Europe is set to deepen after a slack summer for manufacturers.
And an eye full of cash. A tour through Europe's monumental money- earners. We'll explain all later.
I'm Richard Quest. I mean business.
Good evening. In Berlin, the leaders of France and Germany say Greece must do what is necessary to keep the country in the euro.
Right now, French president Francois Hollande is in talks with the German chancellor Angela Merkel, and their aim is to draw up a unified message to the Greek prime minister Antonis Samaras. Ahead of the meeting, both leaders agreed Greece must stick with its austerity plan.
(BEGIN VIDEO CLIP)
ANGELA MERKEL, CHANCELLOR OF GERMANY (through translator): I would like to encourage Greece to proceed on its way towards reform and progress.
FRANCOIS HOLLANDE, PRESIDENT OF FRANCE (through translator): I want Greece to stay in the eurozone. It is a wish that we've expressed since the beginning of the crisis. It's up to the Greeks to do what is necessary. We've also put in place for countries that need it the measures that were put in place in June to help regulate the banks and come to the aid of countries like Spain.
(END VIDEO CLIP)
QUEST: CNN's Fred Pleitgen joins us now, live from Berlin. Fred, those talks are taking place. Frankly, Angela Merkel's and Francois Hollande's comments, Greece must do what it takes, up to Greece, so forth and so on, doesn't move one jot the position if Samaras turns up asking for more time. Will he get more time from Merkel?
FREDERIK PLEITGEN, CNN INTERNATIONAL CORRESPONDENT: Well, you're absolutely right, Richard. Certainly those two comments that both those leaders made don't really change very much, don't seem to indicate very much that there isn't any movement.
However, make no mistake, when these two are going to get together right now, they are going to be hitting on that point, are we going to have to give the Greeks more time, realistically, and under what circumstances are we going to have to do that?
Now, we're seeing them both keep up the pressure on Greece, saying that Greece has to do its part, has to stick to its commitments to its reforms.
It's been so interesting this past week, Richard, that we've seen the Greek prime minister start something like a media offensive here in Germany, where he's gone on record saying he personally will guarantee that the Germans will get their money back if they give him more time, Richard.
QUEST: All right. So, that's what they are promising so far, and that's what they -- but is your gut feeling that ultimately, Hollande and particularly Merkel, since that's why you're in Berlin, will go a long with a request for more time, even though it might not happen at the Cypress summit, but then, maybe the next one.
PLEITGEN: That's a good question. My gut feeling's been wrong a couple of times, but so far it seems as though Angela Merkel has always taken quite a hard stance on a lot of these matters, and right now, she really is being driven here at home by a lot of the members of her own governing coalition.
What the Germans are going to do -- and the French are also going to do -- is they're going to wait for the troika to do their work in Greece and then wait for that report. It all depends on how devastating that report is going to be, and then they're going to decide whether or not Greece has at least initiated enough reforms to grant them more time to pay that money back, Richard.
QUEST: Interesting irony, isn't it? Angela Merkel, one of the world's most powerful women, according to the latest -- I think it's "Forbes" survey, puts her way up there. But her power is not seen in quite the same way, Fred, when she's at home.
PLEITGEN: You know, you're absolutely right. And it really is, it's such an interesting matter of fact. She's at the top of the "Forbes" list, number one most powerful woman in the world.
And I can tell you, I've covered her for 12 years here in the German capital, and she's never been perceived that way by the German public or in party politics. It's always been perceived as though she doesn't really have her party, the Christian Democratic Union, under control. She doesn't really have her government under control.
There's a lot of people within her government who say they are missing a clear line, a clear strategy. And if you've heard the things coming out of some government ministers over the past couple of weeks, it really has been diametrically against what Angela Merkel has been saying, especially in light of the eurozone crisis.
Now, one thing I will say about Angela Merkel is that she's always been surrounded by all these alpha males who've been very loud and very vocal. Well, most of them are actually not in politics anymore, and she's the German chancellor. So, that's sort of her power, somewhat soft power, but very decisive, Richard.
QUEST: There's a legal expression, Fred: res ipsa loquitur. The facts speak for themselves --
QUEST: -- and that fact you've just told us --
PLEITGEN: They certainly do.
QUEST: -- tells us all we need to know. Fred Pleitgen in Berlin for us tonight. On Wall Street --
QUEST: What has happened? The Dow's off 114 points, 13,000's looking a little dodgy. It's slumped -- it's at a three-week low. HP -- think about HP, Hewlett-Packard as you and I used to call it, down by nearly 8 percent. The profits missed. They were already poorly performing. We know the company is in the midst of transition.
And in Europe, the indices were closed in the red except for the FTSE, which just really popped its head above the parapet, 2.4. Let's not get too excited about that. Banking shares were off. The RBS was down by 3.3 percent. SocGen was down 2.4 percent, and UBS was down 1.3 percent.
Now, the latest numbers we have on manufacturing suggest the Eurozone is heading into a deeper decline. The Market Purchasing Mangers' Index was more or less unchanged in August, 46.6. Now, this is PMI. This is the seventh straight month that it's been below 150, which indicates a contraction.
The important thing about PMI, it's labor costs, it's what purchasing managers thinks are happening, it's a very -- it's got ten different components in it, and it's a very broad brush. And all the history tells us is the numbers over the summer massage a decline of around a half of percent in Q3 according to market.
It's not the only one that is forecasting gloom. Besides this particular set of PMI numbers, if we look at what the private forecasts and analysts -- let's run down them.
Bank of America Merrill Lynch expects the euro -- this is the morning notes, these are just the notes we received this morning -- expects the euro crisis to reignite again after the summer with a contraction of a half of a percent in Q3 and Q4.
CitiGroup analyst Michael Saunders says the eurozone GDP will fall this year and next. And here's what they say: there's a 90 percent chance of a Greek exit from the euro in the next 12 to 18 months. Even Barclays today expects a half a percentage quarterly GDP contraction in the eurozone. So, major banks all down on the eurozone.
And if we look, at course, at what's happening in the United States, the minutes -- just grabbed them -- the minutes from the Fed that you and I talked about last night, they show how the United States is about ready to tackle its own downturn, because as we know, the FOMC is worried of its own contraction.
Extending the date range -- these are some of the things that they believe, the FOMC believes they could do. They believe they could extend the rate date range into the future, 2014 at the moment, it could be put even further. Or they could extend it to, for example, specific economic variables. Rate.
They could extend the amount of quantitative easing, no longer just treasury securities. They could do mortgage-backed securities, as well.
And the third one, of course, that they could do, they could reduce deposit rates very much as the ECB has done, to zero. In other words, make it so disadvantageous for banks to put money on reserve that they'd prefer to lend it out.
These are the things that they are considering on the FOMC. And the Fed says finally that the committee will monitor closely incoming information for economic and financial development and will provide additional accommodation as needed.
Lewis Alexander is chief US economist at Nomura. Lewis joins me now from New York. The Fed yesterday -- we'll go onto the eurozone at the moment -- but the Fed yesterday, they started to lay out in very concrete terms the non-conventional methods that they're seriously thinking of adopting.
LEWIS ALEXANDER, CHIEF US ECONOMIST, NOMURA: Yes, they did. It was surprisingly specific. They said, I think, they're going to move the timing on their interest rate commitment, probably into 2015 at the next meeting.
They also said that unless there is a substantial and sustainable improvement in the economic outlook, they're likely to take further steps. And I think they made it clear that that means another round of QE.
QUEST: But when I read your morning note this morning, the tone that you were -- and Nomura is taking is very much one of downside risk with potential for -- I hesitate to use the word "recession" -- if they don't get their act together.
ALEXANDER: I -- I think the odds of a recession at this point are not all that high. But there's no question that the pace of growth has slowed, from where -- particularly from where we were in the first quarter. We're looking at an economy that's growing sub 2 percent, and we don't think it's going to be above that for the next year.
QUEST: And yet, if they needed to pump that sufficient amount of money into the economy to basically hit their mandate of 2 percent inflation, which they'll easily do, but -- price stability and inflation, but also employment, they're going to have to do something more than tinker around the edges.
ALEXANDER: I think that is exactly the point. I think the core of the committee does not believe that the outlook is sufficiently positive to expect major declines in unemployment. And that's simply unacceptable in an environment where inflation's running below their target. And I think that is the case for moving.
I think there is a question of how quickly it comes and exactly in what form it takes. We learned some more about that from the minutes yesterday. I think it is another round of QE, I think it will probably be this open-ended QE. So, rather than saying we're going to do some fixed amount, they'll say we're going to do it a certain amount each month until things improve.
QUEST: That, of course, is one of the options they talked about. And when you look at today's PMI numbers, which do suggest a half percent contraction in the eurozone, that -- and we know from the Fed that they factor in what's happening, it's a major concern -- would you say that the eurozone is still the biggest unknown that they need to worry about?
ALEXANDER: Yes, I think it is. It's very unusual to have a foreign development be the most important uncertainty in the US outlook, but I think that's still the case.
Of course, we still have our own problems with fiscal policy and how that's going to all play out after the election. But Europe's the biggest issue.
QUEST: Lewis Alexander, you and I will talk more about the fiscal cliff as we get towards the election later in the year and just how much of a parachute we will need to prevent us going over it. We thank you for joining us, Lewis Alexander, at Nomura in New York.
Coming in a moment, bottling the potential of the emerging markets. Diageo is the maker of Johnnie Walker whiskey and Smirnoff, and he shows us how it's done. The chief executive on the program next.
QUEST: Johnnie Walker scotch and Guinness stout could soon be joined by tequila in the drinks cabinet as Diageo makes it even a bigger opportunity. Growth in emerging markets has boosted Diageo's full-year sales by some 6 percent.
QUEST: It's posted an operating profit of just over $5 billion before exceptionals. And there were strong results in emerging markets which, of course, was a major contrast to the sluggish European sales.
Diageo's been buying up producers in Turkey, China, and Brazil and, reportedly, it's close to adding Jose Cuervo tequila to its brands. A little earlier, the chief executive of Diageo, Paul Walsh, gave me his take on his results.
PAUL WALSH, CEO, DIAGEO: Yes, I think these are a very strong set of numbers. Clearly, we are outperforming in many of the markets, but good top-line, efficient growth, driving good margin expansion, good cash flow, and we've been able to increase our dividend by 8 percent.
QUEST: So, what are you worried about, besides collapses of the euro, recession in the eurozone, a slowdown in the United States, which could translate into a global slowdown?
WALSH: Well, there's little point in me worrying about any of that because there's nothing I can do to influence it. What I have to do is make sure that our brands are healthy, that we continue to focus on consumer opportunities, and that we are agile in looking for new opportunities so that if we see a problem in one market, we react and divert resources to where we can see growth.
I think we have to accept that what we are faced with currently in Europe is likely to remain so for the next couple of years. I actually think the US is on a good trajectory. We hope that continues. We believe it will.
Then, if we look at the emerging markets, the high growth markets of Asia, Latin America, and Africa, we are not seeing today any interruption in the growth trends we enjoyed in the fiscal year we just reported upon.
QUEST: Are you making real preparation and plans for a collapse of the eurozone or for some massive dislocation within the eurozone? A plan B, C, and D?
WALSH: You would expect a company of our size to have a variety of contingency plans to mitigate the risk that you've articulated. So, plans are there. I don't expect us to have to activate them.
QUEST: The purchase of tequila. The shift that takes place. An old drink with a new twist and a new lease on life. What's your play there?
WALSH: Well, we are a distributor of the Cuervo brand. I've made it very clear that we would not wish to simply renew that relationship, that distribution relationship, if there is a way for us to deepen our ownership of the brand, capture more margin, and be a little bit more fleet of foot in how we market the brand. That's the direction we'd like to go in.
Clearly, all of that has to be on terms that would be acceptable to our shareholders. Ultimately, it is the brand owner, the Beckmann family, who will determine whether they wish to pursue that course of action.
QUEST: And you, of course, for your shareholders in your urge to have a shot of tequila mustn't overpay.
WALSH: I think we've demonstrated that we can deliver acquisitions that are very value-enhancing to our shareholders, so we would not overpay.
QUEST: Anyone who knows Paul Walsh of Diageo knows there's no -- not much risk of overpaying there.
Now, for tonight's Currency Conundrum. Queen Elizabeth II has appeared on the currencies of 33 different countries, more than anyone else. Which currency -- upon which did she appear first? Was it A, the Canadian dollar? B the pound sterling? C the Indian rupee? The answer later in the program.
The euro's a seven-week high, the market suggesting Fed minutes. The pound down a touch against the dollar, and the dollar down against the yen. Those are the rates --
QUEST: This is the break.
QUEST: Now, regular viewers know, of course, I do like to do a spot of traveling. So, imagine my surprise when I found out that cash value has been put on some of Europe's most revered landmarks using an algorithm based on image, branding, aesthetic qualities. So, taking that from the research, from this Chamber of Commerce survey, let me take you through the photo album.
Let's start in Paris. This, the Eiffel Tower, is the most visited paid monument in the world, with more than 200 million people visiting the tower, including, obviously, myself. Its value, $545 billion, approximately, $545 billion. The Eiffel Tower is number one.
As for Rome, here in Italy -- and it was an Italian survey -- they were very annoyed that Italy didn't come out as number one. The Coliseum - - had a picture there when I was enjoying a day out. But that's only worth -- only -- only -- $114 billion.
And finally, on this part, the Tower of London, with its ravens and Beefeaters. London's most valuable monument, more so than Big Ben, the Tower of -- no, I said the Tower of London -- or Buckingham Palace. In monetary terms, it's been valued at $89 billion. Highly subjective, of course. Big Ben, Buckingham Palace were nowhere to be seen.
And as the list may have the French celebrating, we might very well simply say ooh la la, Paris.
Now, some wonderful places to visit. Of course, I had to share my transportation with other people. The great unwashed. Other passengers. If you're like me, and perhaps you'd fancy something a little bit more private and money's no object, which is the big problem for me, private jet travel is still the only way to go. Felicia Taylor gets around in New York the way the rest of us just dream about.
FELICIA TAYLOR, CNN INTERNATIONAL CORRESPONDENT (voice-over): When money is no object and time is of the essence, those who can afford the finest are shunning the hassles of public travel and shelling out for tranquility in the skies.
TAYLOR (on camera): So, we're going to get onboard the amphibious plane and take a little flight.
TAYLOR (voice-over): It's the beginning of an afternoon that I won't soon forget, as I find out firsthand how the wealthy get around.
ADAM KATZ, CEO, TALON AIR: Easy, easy. OK. There you go.
TAYLOR: It starts with a trip up Long Island's stunning coastline by seaplane.
KATZ: This is all Babylon and Fire Islands out there.
TAYLOR: Adam Katz, CEO of luxury charter operator Talon Air, says his fleet his tripled in recent years as demand from the wealthy skyrockets.
KATZ: Three, four years ago, we had eight airplanes. So, it's a great story.
TAYLOR: Three or four years ago, you had only eight.
TAYLOR: And now you have 25?
KATZ: Yes. I added the airplanes in relation to the growth of the company, and the market's exploding, public transportation being what it is and being so difficult.
TAYLOR (on camera): We're just about to set down on the water. As in right now.
TAYLOR: Wow! Oh, my God! Suddenly, it was a plane, now it's a sea boat.
TAYLOR (voice-over): Talon Air is just one luxury jet success story. Gulfstream has delivery backlogs for all of its new aircraft. Overseas, Warren Buffet-owned NetJets announced this spring that it would expand into China. And business in Russia is so strong that Farmingdale, Long Island- based JFI Jet --
TAYLOR (on camera): This would be considered sort of a mid-sized jet.
TAYLOR (voice-over): -- has just opened an office in Moscow.
ARIK KISLIN, PRINCIPAL, JFI JETS: Emerging markets are starting to take a real bite of the apple. The Chinese were the largest orderers of private aircrafts over the last two or three years. For about a year and a half, the Russians took the market before that.
TAYLOR: But it's not just jets that the rich are splurging on.
TAYLOR (on camera): How much does one of these cost?
KATZ: Twelve million.
TAYLOR: Twelve million?
TAYLOR (voice-over): Companies like Talon Air also offer their clients helicopters. I strapped into this six-seat Sikorsky for the return trip into Manhattan.
TAYLOR (on camera): If we drove from Montauk to midtown Manhattan, it would take three and a half hours?
KATZ: At least.
TAYLOR: If not four, sometimes, with traffic.
KATZ: Without traffic.
TAYLOR: In this, 30 minutes.
KATZ: The gold standard helicopter.
TAYLOR (voice-over): Soon, the skyscrapers of Wall Street come into view.
TAYLOR (on camera): When millionaires arrive back in Manhattan, they fly right past the Empire State Building. They're not actually going through the Lincoln Tunnel or crossing the George Washington Bridge. It's all about stepping out of a Sikorsky and putting your foot back on terra firma.
TAYLOR (voice-over): Landing on terra firma is bittersweet, indeed.
TAYLOR (on camera): You don't even know you've landed.
KATZ: I know.
TAYLOR (voice-over): My whirlwind afternoon of luxury travel comes to an end.
Felicia Taylor, CNN, New York.
QUEST: She looked a little too comfortable in that sort of lifestyle. Felicia Taylor, get back on the subway.
Qantas of Australia has announced today it's shoring itself up after posting its first losses since privatization in 1995. The Australian carrier canceled orders for 35 787s and delayed the arrival of other Dreamliner planes. A second half loss of $256 million, the profit of the same amount last year.
Qantas dragged down because of soaring fuel prices, industrial action, and poor performance in its international division. The chief exec, Alan Joyce, is foregoing any bonus or pay. Stock closed up 2.5 percent. Investors like the idea of the cutbacks.
Tough times ahead for one of Spain's most important exports. When we return, why the olive oil industry has to cope with more than just a tough economy. QUEST MEANS BUSINESS, good evening.
QUEST: Hello, I'm Richard Quest. More QUEST MEANS BUSINESS in a moment. This is CNN and, on this network, the news always comes first.
(BEGIN VIDEO CLIP)
QUEST (voice-over): In Berlin, Chancellor Angela Merkel and President Francois Hollande have drawn up a unified message to Greece ahead of meeting. In it, the leaders said the Greek government must do whatever is necessary to stay in the Eurozone. The Greek prime minister, Antonis Samaras, will meet both leaders separately over the next couple of days.
A Syrian opposition group says almost half of the 155 people killed this Thursday died in Damascus in clashes in the Syrian capital (inaudible) escalated this week as the regime and rebel forces fight for control of the capital.
Tropical Storm Isaac is on course to make landfall on Haiti on Friday. Thousands of people there still live in tent camps more than two years after the country's devastating earthquake. Forecasts say Isaac could reach hurricane strength this time by the time it reaches the island.
Monsoon-driven flash floods and landslides have killed dozens of people in Pakistan and northern India. Days of heavy rain have also left hundreds of people homeless. One major landslide in Kashmir damaged almost 400 homes, isolating villages and blocking roads.
QUEST: The leaders in Spain are deciding what to do and they are continuing talks with E.U. and other officials over bringing down the cost of the country's borrowing. And while those talks go on, the country's olive farmers are giving just about everything they can before giving up.
Already hamstrung by a weak economy, now they're suffering a run of bad luck with the weather. And the world's markets are all conspiring against them as our correspondent, Al Goodman, reports.
(BEGIN VIDEO CLIP)
AL GOODMAN, CNN CORRESPONDENT (voice-over): Extra virgin olive oil, golden, savory, top of the line, a proud Spanish calling card around the globe, these bottles headed for China.
But Spain's massive olive oil industry has many problems, including a drought. Jose Madrid has farmed this grove 40 years and never seen it so tough.
JOSE MADRID, OLIVE GROWER (through translator): I never thought I would see in my old age the same kinds of financial problems they had in my youth. It is horribly bad.
GOODMAN (voice-over): The main problem? A production glut across Europe, too much olive oil. Prices are down, industry leaders say. Many small growers can't make ends meet.
MADRID (through translator): I have been losing money for three years. The bank gave me a loan, but for collateral, I had to put up my pension plan, my life savings.
GOODMAN (voice-over): He's among the lucky ones. Europe's financial crisis, deep deficits, bank bailouts and tight credit has made it difficult for growers across the region.
GOODMAN: The olive oil crisis also affects Italy and Greece, big producers as well. But Spain is the largest producer in the world, so the crisis is hitting especially hard here.
GOODMAN (voice-over): Olive growers are hiring fewer farm workers. Spain's unemployment rate is 24 percent, but here in southern Andalusia, it's 33 percent. Here in Priego de Cordoba, the olive industry is practically the only game in town, which is why the local Olive Oil Promotion Board is so worried about low prices.
FRANCISCA GARCIA, PRIEGO DE CORDOBA OLIVE OIL (through translator): Olive oil is being used to get buyers into Spanish supermarkets with offers like two bottles for the price of one. That cut of price across the entire industry.
GOODMAN (voice-over): But Mateo Muela, third generation in his family's olive oil business, says the future is premium extra virgin olive oil for export with higher profits. And mean costs, thanks to technology. One robot already works on the production line. They're installing a second.
MATEO MUELA, MUELOIVE EXPORT MANAGER: We compete with Italian company. We compete with Turkey company. And we'll also compete with Sunshine, this company who do the bottling (inaudible).
GOODMAN (voice-over): But he sees danger close at hand.
MUELA: In the future, in this line operators, we're maintaining the same level, the grower will leave the land because it's not profitable for the grower.
GOODMAN (voice-over): Then his export-minded company would have to buy olives farther away at higher costs. Muela doesn't want that. Neither does Jose Madrid. Here and across southern Europe, market forces and the forces of nature are threatening a once-proud and thriving industry -- Al Goodman, CNN, Priego de Cordoba, Spain.
(END VIDEO CLIP)
QUEST: And in the moment after the break, from countries in need of bailout to football clubs in need of financial advice. We'll meet the football chairman who knows how to rescue a club in distress -- QUEST MEANS BUSINESS (inaudible).
(BEGIN VIDEO CLIP)
QUEST (voice-over): The answer to the "Currency Conundrum," upon which currency did the Queen Elizabeth I appear on? The Canadian dollar.
The young Elizabeth Windsor graced the banknotes at the age of 9 in 1935, 77 years old when it comes to currencies, the Queen's the most reproduced face in the world, possibly a trick question, because we asked which currency did Queen Elizabeth first, not Elizabeth when she was princess. So I might have to give you two points if you didn't get that.
Excuse me. All right. As European sovereigns -- I get it -- as European sovereigns try to cope with mounting debt, so do European football clubs. All this work, we're looking at the business of the beautiful game.
Now this is something that Milan Mandaric knows all about. He's owned three football clubs and rescued them all from financial ruin. He used the same strategies that are now being used to fix sovereign debt. So let's pull the business world together and the football world and show you just how sovereigns and footballs can be rescued. In the library, you'll see what I mean.
Start off with Portsmouth football. The first strategy was stimulus spending, growth. At Portsmouth, he invested in a whole new squad of players and made plans for a new stadium. The stadium never came to fruition, but the investment in players paid off. And it took Portsmouth to the premiership for the first time. Stimulus spending, just what we've seen by countries.
Next, you want management changes, Mandaric at Leicester. Now Greece, Italy and Spain have seen new prime ministers and finance ministers. At Leicester City, he employed six different managers in three years to get them back into the championship.
And finally, at his current club, Sheffield Wednesday, it's all about tackling debt. The Greek private sector initiative wiped out 50 percent of Greece's private sector debt to the banks with a haircut on outstanding debt. He -- now, Mandaric promised that they'd get the money back in Sheffield Wednesday and did something exactly the same.
So debt, management changes and stimulus, they are the ingredients of rescuing a failing club. After turning `round three, the next job for Milan Mandaric is getting Sheffield Wednesday back to the top flight. Our senior international correspondent, Matthew Chance, went to find out how this bit of restructuring is actually working out.
(BEGIN VIDEO CLIP)
MATTHEW CHANCE, CNN CORRESPONDENT (voice-over): It's not easy making millions in football, but Milan Mandaric makes it look simple, buying destitute clubs like Sheffield Wednesday in north England, then turning them around.
MILAN MANDARIC, CHAIRMAN, SHEFFIELD WEDS FC: My ambitions are not different than every supporter of this club. Take this club where it -- the club belongs, what the supporters needed to see it and take it to higher possible levels.
CHANCE: So you should get the club to the premiership, do you then intend to sell it? Is that the plan?
MANDARIC: I told my supporters I was really honest with them from the day one when I came. I told them I wasn't born here. I don't intend to die here, either.
CHANCE (voice-over): Mandaric has a track record of moving on after making his fortune in Silicon Valley, he set up the San Jose Earthquakes, pioneering the transfer of global stars like Pele and George Best to play in the U.S. Professional League. He went on to buy and sell clubs in Belgium and France before moving into English football in 1998.
CHANCE: Well, Sheffield Wednesday is only the latest Milan Mandaric project. He's owned no less than three English clubs, buying them on the brink of collapse and turning their fortunes around. Success in the football business, he says, is about getting the right team in place, and he's built quite a reputation for getting rid of players and managers who underperform.
CHANCE (voice-over): On match day, fans say there's renewed excitement in the stands. After just one season with Mandaric, the once floundering club has been promoted to the championship league. Its debts have been paid off, manager and underperforming players fired and replaced.
MANDARIC: So you've got to run it as a business. It means you have to (inaudible) people, capable people on those positions that are coach (inaudible).
Actually, for any positions, a manager, you have to have manager that really understands the club and the culture of the club, the business that including the players, the game and everything else. And somebody that can really communicate properly.
CHANCE: And if you haven't got those things, if you've got a manager you're not happy with, you've got a receptionist who doesn't answer the phone properly, you've got no qualms about getting rid of them?
MANDARIC: No, I don't, you know, because every decision I want to make, any changes that's a decision to -- for this club, for benefit of this club.
CHANCE (voice-over): There's a joke in football, it's easy to become a millionaire in the game. You just have to start with a billion. But there are some out there proving it can be done the right way around -- Matthew Chance, CNN, Sheffield, in northern England.
(END VIDEO CLIP)
QUEST: (Inaudible) sporting (ph). To the weather forecast, as we are enjoying a fine spell in Europe. Of course, it's not so -- there's not such nice weather elsewhere in the world at the moment.
Jenny Harrison is at the World Weather Center.
JENNY HARRISON, CNN METEOROLOGIST: Yes, Richard, a bit of change actually as well with the heat that's been in place across Europe. It's about to be squeezed into the southeast, but (inaudible) showers across the (inaudible) cloud gives an indication of that and also some thunderstorms across more central areas, the dividing line between the heat and the cooler air.
And again, this Thursday, look at this, nearly 100 degrees Fahrenheit in Belgrade, 37 degrees Celsius, 10 degrees above average. And that's pretty much how it's been looking, of course, across much of the southeast. But it is going to ease a bit, heading in from the west, because we've got that jet stream actually pushing a bit further south.
So you'll see in Prague over the next couple days, temperatures actually coming back down to the average (inaudible) story in Vienna, if anything, a little bit below the average and also eventually into Budapest. It's just that bit further toward the east.
So the heat continuing but being squeezed to the southeast, cooler those scattered showers across many areas in the north and in the last few hours some very heavy thunderstorms through more central and southern areas of France.
So once again, we could see some strong thunderstorms across much of France, again, as we go into Friday morning. So just some warnings there for some strong winds. There may be some damaging hail, but there's that cool air towards the north and there's that warmer air of course across much of the south.
So the next system pushing in, bringing the rains and heavier spells across much of the U.K. and eventually on into France and the low countries.
Temperatures on Friday, you can see here, 21 in London and 27 in Paris. And Richard, I'll be talking, of course, about Tropical Storm Isaac, bearing down on Haiti and Puerto Rico in the hours ahead.
QUEST: We thank you for that. Jenny Harrison at the World Weather Center.
And that's QUEST MEANS BUSINESS for tonight. I'm Richard Quest in London. Whatever you're up to in the hours ahead, I hope it's profitable. MARKETPLACE EUROPE is next.
QUEST: From the heart of London's fashionable West End, this is MARKETPLACE EUROPE. I'm Richard Quest. In this week's program, we look at how retailers and restaurants are trading in difficult times, when everyone, it seems, needs to get creative.
QUEST (voice-over): Coming up, the shop that's tapping loyal customers for loans and offering them sweet returns.
And the die-Hard Rock fans.
QUEST: 1971 you started this, and you've got people coming in here who weren't even born.
HAMISH DODDS, PRESIDENT AND CEO, HARD ROCK INTERNATIONAL: Most of them weren't born, yes, yes. They're coming here because of the aura of the brand.
QUEST: When Charles Schulz said, "All you need is love -- and a little bit of chocolate every now and then doesn't hurt," he might well have had in mind Hotel Chocolat. The company has more than 5 dozen stores in the U.K. and is expanding into Europe. It has a unique way of paying some of its investors -- it pays them in kind. Juliet Mann now reports on the world's first chocolate bond.
(BEGIN VIDEO CLIP)
JULIET MANN, CNN HOST (voice-over): At this factory in middle England, rivers of chocolate ooze out of the machinery. While there's plenty to go `round, there's a drought in bank lending to small British firms.
The Bank of England says lending has consistently shrunk since 2009. That's why Hotel Chocolat has turned to their customers for funding, offering chocolate bonds for an investment of about $3,000 to $6,000, redeemable after three years.
ANGUS THIRLWELL, CEO, HOTEL CHOCOLAT: We want to become better and better at being a chocolate maker. We've got a brand-new machine just arriving, which is all about making ultra-fine chocolate cups that we can then (inaudible) put bits of fruit into and whole nuts and then pipe around it with ultra-soft ganache.
That machine's a multimillion-pound investment. That wouldn't have been possible without chocolate bond capital. We've been able to continue to push ahead in a very, very tough recessionary climate with our sustainable cocoa growing model in Fallujah (ph), and enable us to keep adventurous with our export drive into North America and Europe.
MANN (voice-over): Two years ago, the chocolatier and cocoa grower sold about $6.3 million in bonds. Interest is paid in chocolate. Here they make 1,300 kilograms of chocolate a year in 50 different varieties, turning out 52,000 chocolates per hour. The creative approach to raising capital bypasses the bank and expensive loans.
THIRLWELL: It opens up a new way of making your business have a more medium- to long-term view or maintaining a medium- to long-term view, not being so subject to the short-term quick profit mantra that the recession, and particularly the financial sector has really fostered.
MANN (voice-over): It's catching on. Most recently with Leon, the healthy fast food restaurant chain, issuing mini-bonds which will pay up to 15 percent interest in the form of vouchers to be used in store.
MANN: A bit like the menu here, mini-bonds offer investors variety, but the small print makes it clear there's no guarantee you'll get your money back or any of the returns promised in the deal.
MANN (voice-over): Because these are not ordinary retail bonds that can be traded on the stock exchange. They're unregulated, so there's no safety net if the company fails.
MICHAEL DYSON, RETAIL BONDS, INVESTEC: You are lending money to a company. You are the bank manager. And so you need to think about, have I got enough information there to know that this is a safe place to invest my money, the safe people to lend money to, not just today, but next year or the year after. And if I change my mind along the way, is the bond tradable? Can I sell it?
MANN (voice-over): The mini-bonds the answer is no, but there is scope to build a new market.
JONATHON WALMSLEY, FEDERATION OF SMALL BUSINESSES: In Europe, it's starting to take off, and we certainly think it's potentially a viable means of (inaudible). It's much needed. We do really need to be exploring alternative means of financing given that a lot of the traditional bank finance is not really available for small firms.
MANN (voice-over): As the financial crisis shows no sign of lifting and the loan market no sign of easing, some investors may settle for any kind of return, even if it is one with limited shelf life.
(END VIDEO CLIP)
QUEST: Juliet Mann, tasting the chocolate mini-bonds.
Coming up after the break, we meet the chief executive of the Hard Rock Cafe and discover why people are paying him to advertise his brand.
QUEST: Welcome back to MARKETPLACE EUROPE in London.
You know the name; you've probably got one of the T-shirts. The Hard Rock Cafe is one of the world's best known brands. And after 40 years in the business, Hard Rock is still discovering new ways to grow the brand.
QUEST (voice-over): It started on Olde Park Lane (ph) in London, and since then, it's branched out across 54 countries. There are now 140 cafes and 18 hotels and casinos. At the heart is rock `n' roll sensibility. Once you've had the meal, checked out the collection of music memorabilia, most customers head to buy the merchandise. And that's where they really make the money.
DODDS: This is the original. This is the (inaudible) T-shirt. This is what people are buying, the logo and the city (inaudible).
DODDS: We have the great food and the great environment and (inaudible). Buying merchandise is the thing that gets our brand out. And (inaudible) how many brands will people pay to walk around with your name around every airport, every city and every vacation place in the world? They're advertising for us as well, and they're advertising because they had a great time.
There's a lot of moving parts in our restaurants, when you think about it. You've got the service experience, which is somewhat unique. You've got the memorabilia, you've got music, in many cases we'll have live music as well, which is a new and very important part of our business. You've got the ability to acquire merchandise. You've got a lot of things happening.
QUEST: Of those things happening, can you dissect which is the most important?
Because people will still come even if it's an average meal, if there's the -- if there's a sense of occasion and a sense of the place to be.
DODDS: I think for me the most important notion is this notion of collectability. So that once someone has been to our facility, they want to go again and they want to experience not only the hospitality experience, but also, you know, maybe a T-shirt or maybe something that actually reflects that collectability (inaudible) and different cities.
QUEST: But collectability of the T-shirt from different cities, along with -- I can give you an example. The Starbucks mug from different cities.
DODDS: Not the same.
QUEST: It is.
DODDS: No, it's not the same. There's something iconic, I think, about owning a T-shirt that says "Hard Rock Las Vegas" or "Hard Rock Chicago" or "Hard Rock Jakarta."
QUEST: What things have you seen in your branding strategy that you don't like, that you discarded, you thought we're not doing that?
DODDS: You know, when you look at our target market, we're pretty much trying to be all things to a lot of people. So if you go to a casino, you know, and during the day you may find a lot of older people, and in the evening, you find the young set are arriving. So somehow we've got to think about how our brand can interface against different consumers in different (inaudible).
QUEST: And balancing those brand initiatives between the casino and the hotel and the restaurants, all with the same Hard Rock imprimatur (ph) on it, where -- which -- I know you can't choose between your children. So choose between your children.
DODDS: Today, if we think about our cafe business, it's a pretty mature business. And we're determined not to commoditize it. We don't want to be in every street corner in every city of the U.K. We want to have a few very special locations and keep it special. So if you think about Paris, London, New York, we're already there.
We don't have a lot of growth opportunities in those markets. We do have growth opportunities for hotels or casinos in some of those markets.
So for us, when we think about cafes, there's some global expansion opportunities to, you know, close some countries on the map and some cities on the map, but then we're now moving onto bigger and better, larger revenue boxes, larger profit boxes, potentially based upon the investment, and looking at hotel and casino opportunities in some of those same cities.
QUEST: It must have been a painful learning curve when you start going into hotels.
DODDS: It's different. OK? It's very different. It -- and it takes a lot of time. Gaming in particular, is an incredibly good business, but it's very difficult. It's highly regulated. There are only certain markets you can go to.
And it's very difficult in terms of barriers to entry. Hotels, you've got huge capital outlay. So you have to balance this notion of being a brand, where we're concerned with the intellectual property of the brand, we don't want to make the huge real estate investments, but we do want the relationship with our customers.
QUEST: And you're fascinating, is there a piece of memorabilia that you haven't got that you want?
DODDS: We've got the world's largest collection -- it's around 74,000 pieces. If there's anything that, you know, is out there, it's probably, you know, something probably from John Lennon, but .
QUEST: And you pay for most of it? Or do you -- ?
DODDS: We have a mixture of auction stuff. We get huge amount of donations from the artists, who basically will secure memorabilia as part of an act. So if they're going to play on one of our stages, one of our live venues, we'll, you know, do a deal on the memorabilia (inaudible).
DODDS: So we've got lots of creative ways of doing it.
(END VIDEO CLIP)
QUEST: Hamish Dodds, the chief executive of Hard Rock Cafe.
And that's MARKETPLACE EUROPE for this week. I'm Richard Quest in London. Whatever market you're in, I hope it's profitable. I'll see you next week.