Commodity markets by French Chamber of Commerce in Great Britain

I N F O the magazine for anglo-french business french chamber of commerce in great britain

november / december 2012 www.ccfgb.co.uk

commodity markets in this issue

axelle lemaire

intercultural trophy

paul deighton

rupert scofield

dinner with raymond blanc

Reflections on London 2012

French Londonersâ&#x20AC;&#x2122; new MP

Providing finance for the poor

French Radio London makes waves

at Le Manoir aux Quatâ&#x20AC;&#x2122;Saisons

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Arnaud Vaissié President, French Chamber of Commerce in Great Britain, and Chairman & CEO, International SOS

editorial

his issue of INFO is focusing on commodities. As we live in a planet of more than 7 billion people, commodities have become even more of a scarce resource. Indeed, the price of commodities over the past 10 years has increased threefold. The positive side is that it is encouraging massive investment and therefore increased production in all types of commodities including foodstuff. On the negative side, commodities price increase has an inflationary impact, which could be quite damaging in particular for the poorest countries lacking natural resources. Beyond financial speculation, what really got our attention in this issue of INFO magazine is the impact the commodities market can have on business cycles and individual decisions. I hope these contributions will be both enlightening and useful food for thought. With regard to the Chamber’s activities, we are reporting on many successful events that took place recently including the Luxury Club Dîner des Chefs at Le Manoir aux Quat’Saisons as well as the very popular International Wine Tasting with five Chambers of Commerce, the Franco-British Intercultural Trophy, which was won this year by French Radio London, and the Luxury Club cocktail reception celebrating the best of British and French luxury with Walpole and in association with the Financial Times. As far as Chamber news is concerned we are now launching the 2013 FrancoBritish Trade Directory with a new online version. Our trade directory helps its readers find all the practical information and contacts they need, and facilitates even more trans-channel projects. Ultimately, this will benefit us all. I

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Contents issue 203 / November - December 2012

Axelle Lemaire: a new kind of MP

recent news

which took place four days after my election in unusual conditions. I was live on air on a very popular French TV show, Le Grand Journal, on Canal Plus. During the break, the producer came to me with his mobile phone and said: ‘I think you have to take this call’. The name ‘François Hollande’ appeared on the screen. The show hosts, Michel Denisot and Jean-Michel Apathie, were intrigued to see me taking this call minutes before the new government was supposed to be announced. I went into a small room, we talked and I declined the offer. I did not have much time to make a decision but I thought about my young children, my partner and my recent election. I believe that being an MP is the most beautiful job in the world, maybe because of the five years I have spent in parliament working for a British MP. It was clear to me that the time was not right. I had to prove myself in parliament first. I had to make my mark and work for the voters who had just elected me. I have never regretted that decision. This is a completely new role you have taken on: what are the expectations you must meet and to what extent are you carving the role out for yourself?

My role as an MP at the National Assembly is similar to that of my 576 colleagues and 296 Socialist party members. I believe it is important to count in parliament. This is what MPs are elected for. I am Secretary of the Law Committee (Commission des Lois) and a member of the Committee on European Affairs, which has given me the occasion to embrace fully the core of legislative work in parliament. The challenge for me is the novelty of the constituency role. I try to be as useful as possible. I have started meeting many of the key actors of the French community in Northern Europe – schools, associations, head of networks, entrepreneurs, French companies and of course our diplomatic and economic services. I raise concerns, unlock situations, put individuals in contact, flag problems in Paris or promote initiatives that need visibility, support associations and those who need to be supported, and try to open up the political debate in France. I remain at the disposal of all my constituents, in confidence; those who have a problem to raise or would like support or advice. Serving, being useful and close to my constituents, and at the same time counting in parliament and changing society for the better: this is how I envisage my function. What does your day-to-day job entail?

I share my weeks between Paris, London and the rest of the constituency. In Paris, the rhythm is quite intense, with days starting at 8am and finishing usually at 3-4am, when laws are debated during ‘Séances de Nuit’ at the Assembly. When I don’t sit, there are numerous meetings with my colleagues of the Law Committee and the EU 10 - info - november / december

Committee – I chair a working group on Laicite with MP Philippe Doucet, and I am Vice President of a unique mission on the parliamentary control of the French intelligence services, under the presidency of JeanJacques Urvoas, President of the Law Committee. I also meet with my group and other MPs, advisors, ministers, and key interlocutors in Paris for my mandate. In the constituency, I visit schools, associations, influencers, voters and our services abroad – Embassy, Consulate, Institut Français, Alliance Française. I listen to their concerns, and share my knowledge of institutions and other actors to help them address their problems. How do you represent constituents across Northern Europe, whilst living in London and working in Paris?

Visits, emails, phone and personal surgeries as well as Skype conferences. I will be holding a regular surgery at the French Consulate in London on Saturday mornings where I invite constituents to meet me in person and discuss their concerns. I have teams in both London and Paris to support me in these tasks. I imagine that we will adapt in the coming five years and fine-tune the best way to meet and represent my constituents, but I feel that the logistical challenges we overcame during the campaign can similarly be overcome now. What issues will you be taking up for your overseas French constituents?

The election of seven Socialists in overseas constituencies shows that the French population abroad is diverse, varied, politically balanced. It is our duty to represent them for what they are, with no exclusivity, disregarding their social condition or geographic location. This has been one of the key engagements of my campaign, and I intend to fulfil it fully. There are also specificities. The French people abroad have a more distanced opinion of France, influenced by their country of residence and their personal history. I intend to represent this view. My constituents’ trajectories are made through travelling and openness to other cultures, and France should be inspired by this. Their economic role is key as well and should be better recognised. It is not about asking the French abroad to return to France, but to facilitate their relationship with their country and open up new opportunities. In France I believe the absolute priorities are creating jobs, improving competitiveness, making sure that entrepreneurship is rewarded and that businesses create value. In that regard, France could probably find great inspiration in the UK. My constituents here are good ambassadors of this view and of the dynamism that we find in Northern Europe. My intention is to relay this dynamism, their ideas, to conciliate points of view and foster the conditions for positive change. I KF

recent news

Six partner companies to support the work of Centre Charles Péguy An initiative spearheaded by outgoing consul general Edouard Braine has resulted in corporate support for the services Centre Charles Péguy provides for young French jobseekers in London

ach year, thousands of young French people cross the Channel, arriving at London’s St Pancras station with little more than a steely determination to better themselves and learn English through work and life experience in the UK. Called ‘les Oubliés de Saint Pancras’ by the outgoing Consul General of France, Edouard Braine, they symbolise dynamism and international development of skills. About 10,000 of them make their way to the Centre Charles Péguy in London every year, where they find essential information and support, as well as access to potential jobs and help in securing them. As a non-profit organisation the Centre is mainly financed by the French government and subscription fees, but resources have been strained by the increase in applicants in recent years. This prompted Edouard Braine to launch an ‘Employment Plan’, gathering together the main actors of the French community in London, including representatives of the Assembly of French People Abroad such as Oliver Cadic and Pierre Dagonnot, as well as Guillaume Dufresne, President of the Centre Charles Péguy. Supported by the French Chamber of Commerce, their combined efforts have culminated in a partnership with six companies, which was formalised in a ceremony at the Institut Français on 27 September. The partner companies, EDF Energy, International

SOS, Bouygues UK, Société Générale, TLScontact and Eurotunnel, all recognise the value of supporting these open-minded young people, most of them non-graduates who, while highly motivated, lack the social, educational and business networks that more affluent sectors of the French community abroad enjoy. Thanks to the new funding, the Centre’s weekly ‘Café de l’emploi’ and ‘Atelier de l’emploi’ have been maintained and an additional employment adviser has been recruited. Volunteers from the partner companies will also provide expertise, advice and skills development. As a result, through the Centre Charles Péguy, more than 1,000 young French people are expected to find jobs in the UK this year, and gain Info mag portrait:Layout 1 11/10/12 12:54 Page 1 invaluable language and life skills. I KF & VR

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Supporters of Centre Charles Péguy at the ceremony info - november / december - 11

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Entente Cordiale Scholarship Trust: investing in bilateral ties of the future Lord Robin Janvrin, Chairman of the UK Entente Cordiale Scholarship Trust, tells INFO magazine about its vision and long-term investment in strong Franco-British relations

‘W

hen the UK and France are in to move into more senior positions in their agreement they present a formidable careers and become influential in their combination,’ says Lord Janvrin, Chairman of fields, so within the next five to 10 years, the UK Entente Cordiale Scholarship Trust. the networks and contacts that they have He is speaking of the vision that inspired the forged along the way will start to bear fruit. founders of the programme in 1995 – French All Entente Cordiale scholars become part of President Jacques Chirac and British Prime a widespread alumni association, giving them Minister John Major – who took a longcommon ground to build on relationships and The R.t Hon. Lord sighted view of Franco-British relations by Robin Janvrin contacts, and develop career opportunities. seeking to build up over time a group of The scheme is wholly funded through future leaders and decision-makers who had benefited corporate sponsorship and private donations, and with from direct experience and education in each other’s the Trust administered by the Cultural Department of countries, and acquired a long-lasting knowledge of and the French Embassy in London and the British Council affection for the other country. in Paris, all monies raised go towards the support of Seventeen years on, and the scheme, which funds scholars. Some major private donations have protected a period of study across the Channel for a selection of the Trust through straitened economic times, but it also outstanding post-graduate students, has seen close to relies on the on-going sponsorship of companies such 400 French and British scholars take bold steps towards as EDF, AXA, Veolia and BP, which have a vested interest fulfilling that vision. Between 15 and 20 scholarships are in strong bilateral ties and share the scheme’s long-term awarded each year, the number depending on the calibre aims, and gaining new corporate sponsorship. of candidates applying and funds available, but the Lord Janvrin, who has been Chairman of the Trust emphasis is on quality rather than quantity. Candidates since 2008, is a passionate proponent of the Entente go before a selection committee comprising two Trustees Cordiale Scholarship vision, stemming from ‘a lifetime’s (one an Emeritus Professor at UCL), an academic (Professor interest in and love of France’ through personal ties and of French at Oxford) and two members of the Cultural going back to the earliest days of his diplomatic service. Department of the French Embassy in London. He is in no doubt that the experience afforded by For full postgraduate and short term scholarships these scholarships will play a vital role in building and there are no set fields of study, enabling scholars to entrenching firm foundations for lasting relationships pursue a diversity of disciplines ranging from Renewable between France and the UK. I KF Energy to Theatre, from Biophysics to Urban Design in educational institutions of their choice. In addition, several language bursaries are awarded in the UK for If you would like to learn more about the Entente Cordiale students to undertake intensive month-long French Scholarship Scheme, please contact Lord Janvrin on courses before taking up their post-graduate courses. robin.janvrin@hsbcpb.com or Thomas Riley at the Institut Although it is too early to judge whether the vision Français on thomas.riley@diplomatie.gouv.fr is being realised, the very first scholars are just starting info - november / december - 13

p o rt l a n d p e r s p e c t i v e

George Pascoe-Watson Partner at Portland Communications and former political editor of The Sun

Franco-British relations under the new French government D

avid Cameron’s relationship with Francois More reasons to pull together than pull apart Hollande got off on the wrong foot. The British The political differences are significant. M. Hollande Prime Minister endorsed Nicola Sarkozy – his ‘friend’ is seen by the British government as positioning – in the run-up to the French presidential election, an himself as the new leader of a resurgent European act which M. Hollande will find it impossible to forget. Left. No doubt, Britain’s Opposition party leader Ed The signs are that the two leaders will never enjoy the Miliband will put himself in M. Hollande’s slipstream. kind of entente cordiale shared by Mr Cameron and Belgium’s Prime Minister is a socialist who attended M. Sarkozy. But the two men are smart enough to all of M. Hollande’s election rallies, and the new know they must and can do business together. Slovakian leader also leans the same way. Diplomats characterise the relationship between Yet there are more reasons for the two men to work the new French President and British Prime Minister as closely together than to keep their distance. Britain’s ‘fairly cordial’ and ‘businesslike’. And that’s after a string Premier believes the relationship with France is one of bilateral meetings both in London and in Paris. So of the key bilateral partnerships for his time in office, they’ve had every chance to hit it off. both in EU and wider international affairs. This is a very long way from the relationship with Our two countries have rubbed along with one M. Sarkozy which was forged through both personal another for more than 1,000 years and know each adversity and international crisis. The leaders stood other inside out. Wars can do this to countries. Both together, in defiance of virtually countries recognise they are all other world leaders, to lead the serious players and respect each military campaign to oust Libyan other’s reach in the world. They There are more reasons for the dictator Colonel Gaddafi. Such are also the only European states two men to work closely together with the ability – and will – to courage binds men together. And it was M. Sarkozy’s act than to keep their distance. use physical force. This binds us of incredible kindness which Britain’s Premier believes the in a fairly unique way. ensured Mr Cameron was able relationship with France is one of The British government to spend precious time with his the key bilateral partnerships for believes France still has a father before he passed away in his time in office, both in EU and deep-rooted suspicion of the a French hospital. The President wider international affairs City of London, Anglo Saxon ordered his staff to check on capitalism and an approach to Mr Cameron senior’s condition the EU which leaves a lot to be when news reached him of a desired. Ministers fully expect collapse. It was he who told the Prime Minister that suspicion and mistrust to continue and for the that time was short, and laid on private planes and government of France to work tirelessly to dilute the helicopters to ensure Mr Cameron would be there power of Britain’s financial services sector. in time. It was not lost on the French President that Mr 14 - info - november / december

p o rt l a n d p e r s p e c t i v e

Cameron invited France’s mega-rich to move to London to ply their trade rather than face 75% marginal rates of income tax at home. But France remains the key partner for the UK on defence and foreign policy matters.

Key partnerships being forged William Hague, Britains’ foreign secretary, has formed a very strong friendship with Laurent Fabius his opposite number. It is worth noting that M. Fabius was on the ‘no’ side of the French debate about signing the EU Constitution. That makes him a political ally of Mr Hague. Together they are pushing the UN Security Council for sanctions on Iran. They George Osborne and Pierre Moscovici at Number 10 are co-ordinating international reaction to Syria, Libya and African problems. It is Mr fees are about to become the hot topic of debate on Hague who is helping to pile pressure on the UN to both sides of the English Channel. back African Union military intervention in the former Moves toward a ‘United States of Europe’ are still very French colony Mali, as it falls to Islamist extremists. much on the agenda of certain countries, never more so Relations between Britain’s finance minister than during the eurozone crisis. But M. Hollande is wary, George Osborne and his French opposite number suspicious and nervous of Germany’s position. He’s Pierre Moscovici are also being quietly celebrated in judged by UK officials not to be ready to throw France Whitehall. On paper the two men should not get on. into full scale political and economic union. M. Moscovici is a serious character who is not known Europe continues to pose Mr Cameron a problem for his light-hearted, fun approach to life. Mr Osborne with his own Conservative Party MPs back in London. boasts great strengths as a wit and raconteur. Yet the He must show some strong eurosceptic credentials to Treasury in London says the pair are working well his party in the next 18 months as Britain prepares for together on issues like banking union. the 2014 European Parliament elections. And he will face Britain’s home secretary Theresa May is working well demands from his own side to promise a referendum with her opposite number Manuel Valls on immigration on EU membership – something which Labour’s Mr and counter-terrorism. Their cooperation was notable Miliband could offer the British public. during the recent Olympic Games in London. This will be a tough test for Mr Cameron’s relationship And there is scope, UK ministers believe, to develop with France’s President. I by George Pascoe-Watson close partnerships on industry around science and innovation so neither country loses out to the growing educated might of China and India. About Portland

Economic divergence and shared strategic interests Economically there are difficult differences of opinion between the two nations. France is more protectionist, suspicious of free and open markets. Its economic doctrine of réciprocité in trade agreements underlines her approach. Non EU countries who want to trade with France are told they must adhere to EU employment law, environmental standards and other measures. The UK government sees this as protectionism by another device. Our approaches might be different, but strategically we share an interest. M. Hollande is not keen to throw French taxpayers’ money at the European Commission and membership of the EU. Membership

Portland is a leading communications consultancy, trusted by some of the world’s most successful organisations and high-profile individuals to advise on communications, engagement, and public affairs. With an 80-strong team recruited from the highest levels of the media, politics and government; offices in London, New York and Nairobi; and a global partner network; we have a track record of helping our clients achieve their goals in the UK and internationally. For more information about Portland’s services please visit www.portland-communications.com, email info@portlandcommunications.com, or telephone +44 (0)20 7842 0123.

info - november / december - 15

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n e ws i n t h e ci t y

Banking regulation: needing a pause for thought? New rules and regulations have been coming out thick and fast, but amid signs that all may not be working quite as intended, some are calling for a rethink or at least a thoughtful assessment

here has been a rush to re-regulate banking in the wake of the financial crisis. On top of Basel III, the new global rulebook for banks, more regulations, reports and recommendations continue to pile up. However, questions are starting to be asked about how new regulations in different countries will marry up, whether they are working as intended, whether there has been enough time to work out the unintended consequences, and what their effect on recovery and growth will be. The UK’s Treasury Select Committee has begun its scrutiny of the Banking Reform Bill, which will implement the Vickers Commission reforms to ring-fence ‘safe’ retail and commercial banking activities, while the EU’s recently released Liikanen Report* calls for a different approach in creating separate legal entities out of risky banking activities such as trading and investment. Liikanen’s EU plan is intended to have ‘harmonised implementation across member states’, but will it be compatible with Vickers, and which takes precedence? The Vickers ring-fencing idea has also been criticised as ‘difficult to sustain’ by Paul Volcker, former Federal Reserve Chairman who advised President Obama on bank restructuring, and recently addressed the Parliamentary Commission on Banking Reform. As the architect of US regulatory changes to bank structures, he has come up with the Volcker rule, which bans banks from proprietary trading on their own account. In his view, trading activity without any customer relationship or fiduciary duty was a root cause of the breakdown of banking culture and growth of greed in the system. He supports the internationalisation of basic regulation, and told the Commission that ‘it’s not ideal to have Volckers in the US and Vickers here.’ But global regulation is hard to get right. Already there are questions about the credibility of Basel III, the post-crisis regulatory regime that was supposed to create a global level playing field for risky assets and how banks deal with them. In a discussion between Vincent Boland and Richard Stovin-Bradford of the Financial Times’ Lex column, they note a lack of trust in the risk-weighted assets calculations that banks are using, which ‘throws Basel III into questionable territory’. So exactly how do you create a transparent basis across a global banking

The Bank of England

sector that is increasingly interlinked? Regulators need to have a rethink about how they set their rules in the first place, they conclude, before the baby gets thrown out with the bathwater. Looking at the bigger picture, Paul Tucker, Deputy Governor of the Bank of England, does not see Basel III regulations as resilient to another financial shock. In a recent address to the British Bankers’ Association he said they were ‘not calibrated for the kind of the end of the world risks that lie within the realms of the possible at the moment.’ And then there is the question of whether regulation is hampering growth. The Financial Services Authority has quietly relaxed capital and liquidity rules to stimulate lending, dropping requirements for UK banks to hold extra capital against new loans that qualify for the Funding for Lending scheme. Are other tweaks going to be needed to kick-start growth? ‘This is a once-in-a-generation change. No industry has gone through such wide-reaching and rapid regulatory reform… We have to get this right because getting it wrong could seriously damage the economy and destroy jobs,’ writes Anthony Browne, Chief Executive of the British Bankers’ Association in City AM (4 October, 2012). He suggests taking a step back and assessing whether reforms already implemented or in the process of being introduced actually do what they are intended to do. In the race for much-needed regulatory overhaul, more haste, less speed seems to be the message all round. I KF *The Report of the European Commission’s High-level Expert Group on Reforming the Structure of the EU Banking Sector is a set of recommendations published in October 2012 by a group of experts led by Erkki Liikanen, Governor of Finland’s central bank and ECB council member

info - november / december - 17

news in the cit y

Profile

Jean-Noël Mermet Jean-Noël Mermet is the founding Managing Director of Frenger International, a merger and acquisition consultancy for french companies investing in the UK and beyond, and a Patron member of the French Chamber of Commerce in Great Britain

budding entrepreneur at the age of 22, Jean-Noël Mermet was laughed at in France when he told people he was starting his own business and advised to ‘get a proper job’. Undeterred, he looked to the UK where he knew entrepreneurs were welcomed and supported, and it was there he set up Frenger International in 1983. His merger and acquisition ‘boutique’ as he calls it, is a small but highly focused company that helps its clients acquire businesses primarily in the UK. It has built its reputation on client satisfaction Jean-Noël Mermet and trust. ‘We play a long-term game which is to build strong relationships with people so they come back to us regularly,’ says JeanNoël, who adds that their most long-standing client has been with them for 22 years, a collaboration that yielded eight acquisitions in three different countries. His clients fall into two main categories: French companies looking for a first foothold in the UK, and those who want to strengthen their existing presence by making acquisitions. Despite talk of French companies moving to the UK because of their unhappiness with the business environment and current fiscal policies, Jean-Noël observes that in practice few completely relocate their businesses. ‘Companies invest in the UK to find new growth opportunities and to expand their international operations,’ he says. ‘It is not about transferring what they have in France. ‘ ‘What I have seen is medium to large French companies deciding that the French market will offer limited growth opportunities in the next few years and looking to invest instead in foreign markets. And the UK is a market close to home with a good reputation overall.’ Frenger International helps French companies do this through UK mergers 18 - info - november / december

and acquisitions or through the setting up of UK subsidiaries. But while the UK is still its core business and where its expertise lies, Frenger International is now helping long-term clients move into other markets too. ‘Once we’ve established trust with a French client by helping them to invest in the UK, they tend to ask us to help them do the same in other markets where we don’t have the same expertise, but they know how we work and they do not want to start from scratch with somebody new.’ These developments have proved very successful: Frenger has managed six acquisitions in the US market for an automotive company whose UK and Ireland business it had previously helped develop, and now over half of that client’s group revenue comes from the US. With the current uncertainty in the European market, Jean-Noël is looking to diversify his activities even further afield in Asia and South America. ‘Making my European business a fully global company is my next challenge,’ he says. ‘The US has about 40% of the world’s volume in terms of merger and acquisitions activities so we have to be there. And Asia is clearly where growth is happening. Since our clients are going to these markets we have to follow them there.’ There may be many uncertainties in the business environment, but Frenger International is starting the new financial year with the best order book it has had since 2007. ‘I admire my clients for being so positive and confident enough to invest millions in a new project with the lack of visibility that we have,’ says Jean-Noël, ‘but they realise that they are stuck in this low growth environment for a while so they have to move outside their own markets and make acquisitions. This is probably why we are so busy; we are in the right place at the right time and it is very exciting to develop new markets.’ I KF

news in the cit y

Scotland set for independence referendum, as business leaders question the implications ||| British Prime Minister David Cameron and Scotland’s First Minister Alex Salmond have signed an agreement setting out the terms for a Scottish referendum on independence. This paves the way for a vote in November 2014, when Scottish people, aged 16 upwards, will have the option of answering yes or no to the question of whether they want independence from Great Britain. Before the vote takes place, business leaders from CBI Scotland and the Institute of Directors Scotland have demanded that politicians address questions about the implications of Scottish independence for business and the economy. These include the terms of its EU membership, defence policy and energy, transport and telecommunication connections, currency, and issues regarding financial regulation and financial services. The cost of doing business in an independent

Scotland is another major concern, as higher costs may drive companies out, but the Scottish National Party argues that an independent Scotland would have lower business taxes. Many larger companies, particularly banks, life assurers and fund managers, operate UK-wide, have a customer base predominantly outside of Scotland, and rely on UK market access and unified regulatory and taxation regimes. They are amongst those who are not convinced that Scottish secession from the United Kingdom is in the best interest of business in Scotland. Other businesses are neutral, but a growing number support independence. Ultimately it will be people not businesses casting the vote, but setting out a clear business case for or against independence may help voters make up their minds one way or another. I KF

London takes top financial city accolade But it is not just a city for financial services. London excels in cultural areas too, as we saw in this summer’s Olympic and Paralympic Games, which really shone a light on what we do so well here in infrastructure and the cultural life of our city.’ But there is certainly no room for complacency, according to David Snell: ‘If we are to continue to be a high-performing city we need to consider whether we are planning adequately for the challenges that lie ahead, looking at major infrastructure improvements and connectivity to maintain our edge… We need to look at what more we need to do to support new and established businesses, to help them grow and thrive and to create an environment conducive to both people and industries making their homes in this city.’ For the complete report go to www.pwc.com/cities I KF © flcikr/rakugo (Jon Robson)

||| In Cities of Opportunity, a major study by PwC, London comes out top, tying with New York. The social and economic performance of 27 of the world’s leading cities was examined, and London made the top 10 in eight of the 10 indicators, scoring highly for its economic clout, ease of doing business and attraction as an international gateway. It also ranked well for being a city of great cultural vibrancy, intellectual capital and innovation, and for having a strong transportation network and infrastructure. Looking forward to 2025, London retains a high ranking for its connectivity. ‘This study shows that 2012 really has been an extraordinary year in the history of our city,’ says David Snell, partner in PwC’s London practice. ‘There is no doubt that London continues to be a leading global financial centre and an easy place to do business.

The UK economy returns to growth ||| Britain’s economy grew a better-than-expected 1% in the third quarter of 2012, ending the double-dip recession. Although this was the strongest quarterly growth rate for five years, economists have warned that it may have been unusually boosted by the Olympics and the fact that it followed a second quarter affected by the Jubilee bank holiday, suggesting that underlying growth remains flat. Positive figures came from the service sector, which grew

1.3%, and industrial output, which rose 1.1%. However, output from the beleaguered construction sector fell 2.5%. Some expect a fourth quarter contraction, pointing to gloomy purchasing managers’ index surveys and thinning order books, but on the upside, retail sales have been picking up, the employment rate is healthier than it has been for a while and inflation is 2.2% compared with 5.2% a year ago. I KF info - november / december - 19

5 m i n u te s w ith ...

Rupert Scofield A founder of microfinance company FINCA, President and CEO Rupert Scofield describes how, as a mission-driven business, it profitably helps a million poor people build wealth

What are the origins of FINCA and how did you come to be involved?

In 1971, I volunteered for the Peace Corps and was sent to Guatemala as a credit officer in an agricultural cooperative. All we did was make $50 loans to small peasant farmers in the form of fertiliser and improved seed, but the result was that their production tripled, giving them a marketable surplus. It really made a huge impact on them – and on me. Nothing I did after that excited me nor did I feel as passionate about anything as I had about my work with the Peace Corps. One day I saw John Hatch’s advertisement for former Peace Corps volunteers who could speak Spanish. I applied and was hired. John Hatch and I had the same philosophy – we wanted to work at the grassroots and empower people rather than get involved in big infrastructure projects. Over the years our consulting firm, Rural Development Services, was hired for projects with the World Bank, US AID and the UN. But then we decided to set up our own foundation and put our beliefs into action. I never imagined it would turn into this huge global organisation with a million clients and 10,000 employees.

What interest rates do you charge?

It differs from country to country, but there are three components. The first is what we pay for our money. The second is our operating cost, which is the biggest because our clients are spread over different countries, often in rural areas, and the loans are small. The third is the return for investors. Inflation also has to be factored in. The 21 programmes we have are in a holding company, which has a target return on equity of 15%, achieved with a blend of different returns because some programmes like Haiti and Afghanistan are still losing money. What percentage of your funding comes from capital investment, interest income and donations?

When we started, we were totally dependent on donations, but at that stage we weren’t pricing our loans to be sustainable or cover our costs. Then we began to cover our costs just from interest income and today we are completely sustainable at all levels. We still have some programmes under water but if you put it all together we earn over $200 million in interest every year, which has allowed us to reach over 950,000 clients, and get about $30 million from charity donations.

Do you view yourself as a mission or a business?

We are a mission-driven business. Looking at it on a continuum, at one extreme is the predatory consumer lender who lends to poor people to make a huge amount of money and is completely indifferent as to whether that loan leaves them better or worse off. At the other end is the not-for-profit charitable organisation that may not care if it is economically sustainable as long as it covers its costs. In the middle is an organisation like FINCA, which is in business to help poor people build wealth. We don’t want to lend them so much that they get indebted or charge them so much that they can’t save. We have evolved into a hybrid structure: we own, together with five social investors, a bank holding company and most of our programmes are commercial entities, but we purposely and continuously lower our interest rates as we become more efficient and gain economies of scale. Rather than letting our profits go up, we keep them flat. Last year we made a sizeable profit of $30 million so this year we reduced interest rates in most of our markets. 20 - info - november / december

How is FINCA different from other microfinance companies?

Unlike standalone microfinance organisations we are a network, so none of our affiliates has to go it alone. We exchange resources and our capital markets group raises money when an injection is needed. More stable programmes in countries such as Azerbaijan and Mexico allow us to take risks in places like Afghanistan. The most important thing is that we truly price loans and set returnon-equity targets to be a socially responsible lender. Where in the world do you operate?

We have programmes in Latin America, Africa, Eurasia (from Eastern Europe to Central Asia). We plan to enter Pakistan in 2013, which will be our first foray into the huge South Asia market. We had hoped to enter the Middle East in a major way, but right now much of the region is too unstable. Why go to places like these with all the danger and risk, both financial and physical? This goes back to the mission: we want to help poor entrepreneurs improve

5 m i n u t e s w i t h R u pe r t S cof i e l d

How do you select candidates for loans?

In the early days, we went to poor communities, urban or rural, and started what we call a ‘village bank’ - a group of 20 to 30 who borrow $50 each and are jointly responsible for the repayment. When these were seen to be successful, people from the surrounding community would ask to join. Now there are numerous competitors in the market and you actually have to advertise, and constantly redesign your products, just like any bank, to make them more flexible and useful for your clients. For small loans we use the group to vouch for people. How would you answer the criticism levelled at microcredit by someone like Milford Bateman who likened microfinance companies to heroin peddlers addicting people to credit?

Rupert Scofield

their lives and provide the unemployed alternatives to picking up a gun and joining the chaos. The only thing that can stop us is when governments create a regulatory environment that makes it impossible for us to operate. That’s what happened in India. There were some very abusive lenders in Andhra Pradesh, who over-indebted people, and it became a huge political disaster, to which the local government responded with very restrictive laws that essentially put microfinance out of business. Do any cultural or social factors predicate success?

The more entrepreneurial people are, the more they are likely to diversify their businesses and succeed. In Georgia we had a client who took a loan to buy some cows, her husband then borrowed money for his car repair workshop and then they diversified their little farm, putting in fruit trees and vegetables. You get people who naturally move into the available niches. In the worse case scenario what happens if a business fails and is not able to repay its loan to FINCA?

The first question to ask is why. It may be because of ill health, in which case it is just bad luck. If it’s a group loan, the group will often repay for them, and we would work with an individual. In the case of a natural disaster we reschedule and refinance the loan. And then there is the person who never intended to repay us; in that case, even if it’s a small amount, we take them to court – if there’s a functioning justice system. We don’t threaten or harass people. In most cases what is required is credit counselling. Frankly, if there is not an element of bad luck or bad faith, then I view it as our fault: we lent that person too much. We try to collect it but we don’t always succeed, so we write off a small amount of our loans.

There is some basis to the criticism if you look at those predatory lenders in India. But it simply is not true that all microfinance is bad and doesn’t work. My view is if you do it right, it works. You get close to your client, you know their needs, you have a pretty good idea of how much money they can handle. You analyse the local economy, the family’s sources of income and cashflow. We have over 25 years of experience working with these people and we’ve trained our staff to be sensitive to that. What have been your greatest success stories?

I could point to Azerbaijan – big outreach, sizeable profit, very low delinquency. As a business success you can’t do much better than that. But what really counts for me is when individual clients overcome astonishing adversity. My favourite is a Muslim woman in Uganda, twice divorced because she only produced daughters. She cleaned people’s houses and fed her family with the table scraps they gave her out of pity. Friends invited her to a village bank meeting and with her $50 loan she began buying tomatoes and selling them in the market for a profit. Now she’s got a restaurant and has been able to put her daughter through university and build a house. There are lots of people like her. It’s very empowering: once a person gets on the ladder, their confidence rises because they have made a business deal, not accepted a hand out, and the cycle of poverty is broken. What is the future for microfinance?

For one thing, more growth in new frontiers like Pakistan and Nigeria. For FINCA, another is reorienting the foundation to bring other non-financial services to our clients – we call it FINCA Plus. We don’t know the ins and outs of health, education, solar energy, and so on, but other NGOs and agencies do, and we can get synergy between them and our clients. I KF To find out more about making a donation to FINCA, contact Costanza Beltrame at FINCA UK: info@FINCAUK.org

info - november / december - 21

Olympic Section

Looking back with pride and forward with confidence the london 2012 olympic and paralympic games have been hailed a resounding success. paul deighton, ceo of locog, tells INFO magazine just what it took to make it so, how the legacy is unfolding and what happens next

Do you look back with a sense of accomplishment, a feeling of anticlimax, or a bit of both?

My overwhelming feeling is one of pride. Pride in my hard-working LOCOG team. Pride in the British public who gave such passionate support. Proud of our brilliant volunteers who made the Games. And proud of the world’s greatest athletes who we believe will inspire a generation. What have your six years at the helm of LOCOG involved?

In 2005 when the opportunity came up to join LOCOG as CEO, I just couldn’t resist it. London is my city and the chance to be a part of the organising committee putting on the London 2012 Games was a once-in-alifetime opportunity that I simply had to grab. My job at LOCOG has been to lead the team to deliver all operational plans according to the terms of the Host City Contract signed with the International Olympic Committee (IOC). I’ve been in charge of the day-to-day operations of LOCOG, from raising the

£2 billion budget from the private sector to working closely with the Olympic Delivery Authority to ensure the Olympic Park venues and other new infrastructure were delivered on time and met the requirements for a successful Olympic and Paralympic Games. I have also led LOCOG’s relationships with key stakeholders including the Government and all its agencies, the Mayor of London, the British Olympic Association and the British Paralympic Association. What has been so wonderful with this job is the fact that every day is completely different – whether it’s visiting a school to see how students have been inspired by the London 2012 Games, marking a big milestone such as the launch of the volunteering programme, visiting the venues on the Olympic Park to see the progress or actually witnessing the brilliant execution of all our plans during the Games themselves. Was the success of the Games all down to painstaking logistical masterplanning or did you gamble on an element of ‘je ne sais quoi’?

We spent seven years at LOCOG planning meticulously to welcome the world to London in the summer of 2012. Our success was absolutely down to the planning and the commitment of our teams. However, the magical atmosphere at the Games would not have been possible without the boundless enthusiasm of the British public for sport – something that future cities may find hard to replicate! With the benefit of hindsight, is there anything you would have done differently?

Paul Deighton, speaking at the French Chamber’s Annual Gala Dinner 2011 22 - info - november / december

Not really, no. We delivered on the promises we made to win the bid – to connect young people with sport. Young people came to the

Olympic Section

Games, watched the Games on television and online, and engaged via social media. The challenge now is to harness the passion for sport and drive participation amongst this generation and the next. What were the main challenges – the things that kept you awake at night?

Naturally we had day-to-day challenges in delivering the largest project in the UK in recent history. However, we constantly focused on making sure the London 2012 Games were the best possible and that athletes, spectators and visitors had the best experience possible. I also had a great team to work with. We wouldn’t be where we are today without the fantastic work, dedication and commitment of all our staff and volunteers working at London 2012, and at Games-time the whole city and country who welcomed the world so warmly. The logistics were dictated by some hefty figures: 26 Olympic sports; 20 Paralympic sports; over 10,000 athletes from 204 countries; 70,000 volunteers; 100,000 contractors; 8 million spectators and 20,000 media. How did you plan for a project of this scale?

This was certainly a massive project. However we were aware of the scale and the requirements from the outset. LOCOG teams worked extremely well to draw up and execute the detailed plans and contingency plans which allowed us to deliver a huge project so successfully. Did you balance the budget or produce a surplus?

Our revenue-raising efforts through domestic sponsorship, ticket sales and our licensing programme have proven successful. We have always said we would strive to deliver the Games to a balanced budget and are now in the process of working through our final accounts. We remain confident we will achieve our goal. What do you think the legacy of the Games will be and how do you think the momentum of the Olympic spirit can be sustained in London and Great Britain?

The eyes of the world have been on London this summer. We need to ensure this great publicity is harnessed to generate growth – in business, in tourism, in investment. The Games has transformed East London. The goal is now to ensure this new urban quarter in the East End, with new transport, housing and world class sports facilities, thrives. We also have a valuable volunteering legacy to protect. 70,000 Games Makers gave their time and we should work to translate their enthusiasm into inspiring lasting change.

Has London become a better city for disabled people thanks to the Paralympic Games?

When London won the bid seven years ago, we said we wanted the Games to change attitudes towards people with a disability, and they have. You could see anecdotal evidence of this every day during the Games, but we have also been tracking this with research. At the conclusion of the Paralympics, 1 in 3 UK adults said that the London 2012 Paralympics changed their attitude towards people with disabilities. 65% agreed the Paralympics have delivered a breakthrough in the way disabled people are viewed in this country. At the height of the Games you presided over a team of 6,000 people, and worked with a core 1,500 in the preceding years. What happens to LOCOG – and its people – now?

I have had the honour of working with a brilliant team over the years at LOCOG. I have no doubt that they will now go on to continue their great work both in the events industry and other sectors at home and abroad. What is the link between past, present and future Olympic host cities?

There is certainly a strong link between Olympic Host Cities, and strong relationships between each city and the International Olympic Committee and International Paralympic Committee as overseers of the staging of the Games. The Olympic and Paralympic movements are constantly looking to improve and refine their Games, and the transfer of knowledge between cities is a key part of this. At LOCOG, we benefited greatly from the knowledge passed to us by both the Beijing 2008 and Vancouver 2010 organising committees. Later this year, representatives from LOCOG will travel to Brazil to pass on our learnings to the Rio 2016 organising committee. Congratulations on your new appointment to the Treasury in January 2013. How do you think your experience at LOCOG will inform your brief to help deliver major infrastructure projects and stimulate private investment?

As Commercial Secretary to the Treasury, I will, amongst other things, be responsible for delivering infrastructure projects across the public sector and facilitating private sector investment from domestic and international sources into UK infrastructure. Over the last 7 years I have seen extraordinary British companies and incredibly talented British people deliver on the building, staging and hosting of the London 2012 Games and learnt a lot about delivering a national project with public and private sector collaboration. Applying this experience to the broader UK economy is a challenge I am looking forward to. I KF info - november / december - 23

Olympic Section

advert

24 - info - november / december

Olympic Section

Olympic legacy: what future for the Olympic Park? ||| After staging the biggest sporting event in the world this summer, London is embarking on one of the biggest European construction projects as it begins transforming the Olympic Park into the Queen Elizabeth Olympic Park. The redevelopment, which began on 22 October, will involve clearing temporary structures built for the Games, designing new roads and paths to connect the Park with the surrounding areas, and creating a new community park and visitor destination in London. All 560 acres will be regenerated with recreational, The South Plaza will become London’s newest public space when it opens in 2014 cultural and sports areas alongside green spaces, residential and commercial districts. centre, its landscaped area will be used for diverse events, Reopening in phases from summer 2013, the site will cultural programmes and pop up street stalls. have two distinct areas. North Park will be inaugurated This 18-month transformation programme of the first on 27 July 2013, a year to the day after the Olympic Olympic Park is the first phase of plans for further Opening Ceremony, as a community hub of green development across East London over the next 20 years. parklands, playgrounds and footpaths with the Multi-Use By 2016 the Queen Elizabeth Olympic Park is expected Arena marked out to be a major indoor entertainment to be attracting 9.3 million visitors a year. The project complex for sports and concerts. Then in Spring 2014, should create up to 8,000 permanent jobs by 2030, in the South Plaza will open with icons like the Aquatic addition to the 2,500 temporary jobs the redevelopment Centre adapted for everyday use. In addition to a visitor generates. I

Fewer visitors but bigger spenders during the Olympics ||| Although London retailers and visitor attractions suffered from a drop in footfall during the Olympics as the usual summer crowds stayed away, those who did visit the UK proved to be bigger spenders. According to data from the Office of National Statistics (ONS), 3 million overseas residents visited the UK in August, a 5% fall on August last year, but overall they spent a hefty £2.4 billion, which is 9% more than the amount spent in the same period last year. What’s more, the increase in spending can be attributed to the Olympics. ‘The average amount of money spent by those people who either made their visit for an Olympics or Paralympics purpose, or attended a ticketed event, was almost twice as much as the average spent among other visitors,’ the ONS said. Out of all the visitors to the UK in July and August, some 420,000 came specifically for the Olympics and Paralympics,

and a further 170,000 visitors who came for another reason ended up going19/1/09 to ticketed events. I 1 Delahaye_Ad_82_62 17:13 Page

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info - november / december - 25

news Compiled by Talya Mekki

Potential merger of BAE Systems and EADS is called off ||| Following announcements made on 12 September 2012 in relation to a possible combination of their businesses through a dual listed company structure, BAE Systems and EADS decided to terminate their discussions. BAE Systems and EADS believed that the merger was based on a sound industrial logic and represented an opportunity to create a combination from two strong and successful companies greater than the sum of their parts. The merger would have produced a combined business that would have been a greater force for competition and growth across both the commercial aerospace and defence sectors and which would have delivered tangible benefits to all stakeholders. Discussions with the relevant governments had not reached a point where both companies could fully

disclose the benefits and detailed business case for this merger. From the outset, both BAE Systems and EADS were clear that they would proceed with a merger of their businesses only if a transaction structure could be created that aligned the interests of the parties’ stakeholders and received their strong support. BAE Systems and EADS worked constructively to deliver such a structure but it became clear that the interests of the parties’ government stakeholders could not be adequately reconciled with each other or with the objectives that BAE Systems and EADS established for the merger. BAE Systems and EADS therefore decided it would be in the best interests of their companies and shareholders to terminate the discussions to focus on delivering their respective strategies. I

Eurostar’s direct ski services to the French Alps start in December

||| This season, Eurostar’s direct ski services from St Pancras International and Ashford International to the heart of the French Alps will run from 22 December (day services) and 21 December (night services) until 13 April 2013. The services carry ski and snowboarding enthusiasts direct to the popular French ski towns of

Eurostar

26 - info - november / december

Moûtiers, Aime-La-Plagne and Bourg St Maurice, with return fares starting from £149. These stations offer easy access to a variety of top ski destinations in the French Alps, such as Courchevel, La Plagne, Tignes, Meribel and Les Arcs, allowing people to choose a resort that matches their needs. For added convenience, Eurostar allows ski passengers to carry onboard an extra item of luggage in addition to the normal luggage allowance – such as a pair of skis or a snowboard – at no extra cost. Eurostar’s Director of Communications, Mary Walsh, commented; ‘French ski resorts are some of the most popular in Europe, and more and more travellers are seeing that high-speed rail is the perfect way to reach them, with a minimum of stress and limited impact on the environment. On average, a Eurostar journey accounts for just one tenth of the carbon emissions of an equivalent flight and allows travellers to arrive close to their resort, relaxed, refreshed and ready to hit the slopes.’ I

news

New joint venture company Asendia appoints former La Poste UK head as its UK CEO ||| Asendia, the joint venture company equally owned by Swiss Post and La Poste that was launched in July, has announced the appointment of Frédéric Petton as CEO of Asendia UK. Formerly Managing Director of La Poste UK, Frédéric Petton is part of a nine-strong management board at Asendia UK, with members appointed from three global mail providers BTB Mailflight, La Poste UK and Swiss Post International (UK). Frédéric explains: ‘By working together our customers will profit from the same quality, innovation and flexibility they are used to, but will also benefit

from the shared knowledge and practical expertise of two global mail experts.’ Asendia aims to be a quality provider in international business to consumer mail and plans to significantly expand its work in e-Commerce and direct mail, as well as bring to market new and innovative products for press and publishers, and develop its upstream and downstream services. Offering an end-to-end customer service means that Asendia is prepared to grow through acquisitions and partnerships in order to offer its customers the very best service. I

Deezer outlines plans to transform access to music with its new US$130m funding ||| At a press conference at London’s Abbey Road Studios on 10 October, Axel Dauchez, CEO of leading music subscription service Deezer, outlined plans for investing new funding from Access Industries totalling US$130 million. The plans are designed to accelerate Deezer’s global expansion and transform the way in which music fans across the world access and enjoy a catalogue of 20 million tracks. To support its vision, Deezer announced the live launch of the service in 76 countries throughout Africa, the Middle East and Asia. This brings Deezer’s geographical reach to 160 countries worldwide – more than any other digital music provider. Deezer will continue to focus first on growing music markets, rather than the US, where customer acquisition costs are high and market conditions do not currently allow for sustainable expansion. Deezer also showcased its new, personalised user experience built on people-powered music discovery. Now live on Deezer’s web-based service and mobile application, the experience champions Deezer’s unique focus on editorial curation, giving its users the best recommendations worldwide. Founder Daniel Marhely, said, ‘Innovation has

been core to the Deezer DNA from its birth. People fall in love with Deezer and it becomes part of their lives: the average subscriber listens for two hours a day.1 To put that in context, average daily Internet use worldwide is just over half an hour.2 Today we’ve unveiled a new user experience that makes it easier for Deezer users to discover and share music in their daily lives, regardless of time, place, location or activity. I 1

Source: Deezer Premium+ subscribers in France, 2011 www.go-gulf.com/blog/online-time

info - november / december - 27

news

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news

Chivas Regal launches Chivas Brothers’ Blend ||| Chivas Regal has launched the Chivas Brothers’ Blend, its first product launch since 2007, which will be available only in travel retail outlets. With its distinctive purple packaging, the blend is named after founding brothers John and James Chivas who established the Chivas Brothers’ Emporium in Aberdeen in the mid1800s, selling fine foods and whiskies. Made from a carefully selected range of malt whiskies, Chivas Brothers’ Blend has a rich amber colour and ripe, soft fruit flavours, including peach and pear, with honey, marmalade and soft candy accents. James Slack, Global Brand Director of Chivas Regal, says, ‘We are delighted to launch The Chivas Brothers’ Blend and offer a new Chivas Regal product which focuses on our heritage and craftsmanship blended with a modern twist. The result is an ultra-smooth whisky for today’s travellers.’ I

BNP Paribas launches ‘Diversity Week’ in the UK ||| BNP Paribas hosted a ‘Diversity Week’ across its offices in October, the first of its kind within the Group. Comprised of a number of educational events for all staff, Diversity Week was aimed at engendering understanding and learning around diversity issues and further encouraging a culture of openness. BNP Paribas recognises the importance that diversity plays in the success of its business in a changing world. This initiative illustrates the Group’s commitment to developing an inclusive environment for all whilst investing in and supporting its employees. Diversity Week will serve as an awareness-raising

forum, bringing together discussion on gender, ability, sexual orientation, ethnic and religious backgrounds. Ludovic de Montille, UK Chairman of the BNP Paribas Group, commented: ‘BNP Paribas is committed to being a responsible bank and we recognise that a diverse work force can bring real business advantages. Over the past few years we have launched a number of employee network groups that have really helped to put equality, diversity and inclusion at the heart of our workplace. The next and logical step was the creation of a UK wide forum ‘Diversity Week’, supported by our networks and senior management.’ I

||| Bernard Arnault, CEO of the prestigious French luxury group LVMH, is to be knighted in London, the Foreign Office has confirmed, although the date for the ceremony has not yet been set. Arnault will become a Knight Commander of the Most Excellent Order of the British Empire in recognition of his contributions to the luxury industry in Britain, where LVMH employs 3,000 people. With the knighthood, Arnault will join such personalities as Bill Gates, Steven Spielberg and Placido Domingo, all of whom have been similarly honoured. I

©wikipedia/nicogenin

LVMH head Bernard Arnault to be knighted in London

Bernard Arnault CEO of LVMH

info - november / december - 29

news

York University awards £6 million contract to VINCI Construction UK

||| The University of York has awarded a £6 million contract to VINCI Construction UK to design and construct a new undergraduate teaching and green chemistry research building. The project includes the construction of a two-storey building on the site of a former chemistry research building that is currently being demolished. The facilities are part of a £29 million phased investment in chemistry which includes new research and undergraduate laboratories. This next stage of development will provide a large teaching laboratory to accommodate 160

students, using 80 two-person fume cupboards. Keith Shivers, Regional Director, VINCI Construction UK, Building Division-North East, said: ‘We are thrilled to have been awarded this contract with the University of York and we look forward to working closely with the client to help them reach their short and long term objectives. The new chemistry block will be a great addition to the department and provide teachers with professionalstandard facilities to educate their students.’ The project is due for completion in late 2013. I

Thales’ new hardware security modules support encryption without compromising performance

||| Thales, a leader in information systems and communications security, has announced the introduction of nShield Connect 6000+ and nShield Solo 6000+ hardware security modules, which deliver the fastest available support for elliptic curve cryptography, helping organisations embrace the latest encryption and security capabilities without compromising performance. With constant attacks on sensitive data and increased regulation, it has become increasingly critical for 30 - info - november / december

organisations to implement strong encryption and digital signatures to ensure the confidentiality and integrity of their critical data. This often places more strain on an organisation’s existing public key infrastructure, or triggers the deployment of new systems to support specific issues such as mobility, cloud computing or device security. Elliptic curve cryptography provides a viable alternative to traditional algorithms where performance is critical or where processing power is limited, such as in a portable device. I

news

UK Regional Review

Chanel acquires Scottish cashmere knitwear company ||| Chanel has agreed a deal with administrators KPMG to purchase the business and assets of cashmere knitwear manufacturer Barrie Knitwear. The acquisition secures the jobs of all 176 employees and safeguards a historic brand known for the manufacture of high quality cashmere for some of the world’s most prestigious couture houses, department stores and private label outlets. Bruno Pavlovsky, Chanel’s Fashion President, said: ‘The acquisition of Barrie business by Chanel is all the more natural as the factory has worked with us for more than 25 years, producing cashmere knitwear including Chanel’s iconic two-tone cashmere cardigans. Through this acquisition, we reaffirm our commitment to traditional expertise and craftsmanship, and our wish to safeguard their future and support their development.’ Blair Nimmo, head of restructuring at KPMG in Scotland and joint administrator of Dawson International Trading Ltd, said: ‘With the sale to Chanel, we believe we have secured a sustainable future for a business which is of both historical significance to the textile industry and of local importance as a major employer in the Scottish Borders.’ The current management will continue to manage the company. Barrie will pursue its partnerships with all major luxury brands, with no exclusivity, and grow the presence of its own brands throughout the world. I

Hats off to... Ian Fisher appointed Head of Coverage and Investment Banking Division in the UK at Société Générale Corporate & Investment Banking Ian Fisher has been appointed Head of Coverage and Investment Banking Division for the UK, replacing Fiona Paulus. He retains his role as Group Country Head for the United Kingdom and Head of Corporate and Investment Banking. In his new role he will continue to develop Société Générale Corporate & Investment Banking’s platform and to support his clients across the investment banking division, including mergers & acquisitions, equity capital markets and broader advisory services. Ian Fisher is also a board member of the French Chamber of Commerce. I

Ian Fisher

info - november / december - 31

news

hello, goodbye...

Estelle Brachlianoff

Bertrand Michaud

Estelle Brachlianoff takes over from Jean-Dominique Mallet as Chief Executive of Veolia Environmental Services UK ||| Estelle Brachlianoff started her career leading a team managing infrastructure projects and constructing highways and tramways within the Val d’Oise region of Greater Paris, before being appointed Advisor to the regional government in Greater Paris responsible for transport and development. In 2005 she joined Veolia Environment Group as Special Advisor to the CEO, later becoming Managing Director of Cleaning Services. She succeeds Jean-Dominique Mallet who took up the position of Senior-Vice President of Veolia Environmental Services based in Paris. I

Bertrand Michaud, Managing Director Hermès (GB) Ltd, replaces Thierry Outin ||| Bertrand Michaud has worked for Hermès for the past 20 years. Prior to his most recent appointment as Managing Director of Hermès GB in September 2012, he held the position of Regional Managing Director of Hermès India, Middle East and Southeast Asia based in New Delhi, responsible for Hermès in India, Middle East, Singapore, Malaysia, Thailand, Australia, Indonesia, Vietnam, the Philippines and Africa. Before his four year appointment in New Delhi, Michaud spent 11 years in Hong Kong as Regional Managing Director of Hermès Asia Pacific. Michaud is a graduate of the University of Paris with a Master of Law, a Master of Political Sciences and a pre-doctoral degree in Defence Studies and attended the Institut des Hautes Études de Défense Nationale. He is a board member of the Invest in France Agency and is a member of the Légion d’honneur. I

Mike Simms

Mike Simms, CEO of Altran UK, replaces Xavier Dupeyron ||| Mike Simms is a graduate of Harvard Business School with qualifications in Electronic Engineering and Global Strategic Management. He is currently studying for a diploma in Company Direction at the Institute of Directors in the UK (IoD). His career experience encompasses the aerospace, defence and telecommunications sectors as well as the IT industry, and he has worked extensively in Europe and Asia Pacific. Before joining Altran, he held the position of Vice-President in charge of UK Sales for Cassidian, the defence and security division of EADS. I

Frédéric Bourgeois

Frédéric Bourgeois appointed Managing Director of Coface UK and Ireland, replacing Xavier Denecker ||| Frédéric Bourgeois joined Coface in 2004 after seven years as a financial analyst at Natexis Bleichroeder, covering French, German and Swiss banks and insurance. At Coface, he was initially in charge of investment and reinsurance, later adding treasury and refinancing responsibilities, as well as the trading desk specialised in foreign exchange guarantees on behalf of the French State. In 2011 he became Group Finance and Reinsurance Director. Frédéric Bourgeois takes over from Xavier Deneker, who is retiring after 22 years at Coface. I

32 - info - november / december

news

Pierre Jeanjean

Olivier Rauch

Olivier Chambard

Pierre Jeanjean, member of the French Chamber of Commerce Advisory Council, joins EMA Partners as Director ||| Pierre Jeanjean began his professional life working on IT research projects before moving on to Electricité de France – Gaz de France (EDF/GDF). Joining JCDecaux in 1991, he was appointed Managing Director of the UK branch in 1995. Earlier this year, Pierre Jeanjean announced his decision to leave JCDecaux after 23 years and has now taken the position of Director of EMA Partners. Pierre Jeanjean has been replaced at JCDecaux by Helena Kavanagh. I Olivier Rauch, Headmaster of the French Lycée Charles de Gaulle, takes over from Bernard Vasseur ||| With an ‘Agrégation’ in Geography, Olivier Rauch has lived in places across the globe as diverse as New Caledonia and French Polynesia. He has headed several prestigious high schools in France including the Lycée René Cassin in Bayonne and the Lycée Pierre de Fermat in Toulouse, and was headmaster of the French Lycée Descartes in Rabat (Morocco). Replacing Bernard Vasseur, Olivier Rauch became the new headmaster of London’s French Lycée in September 2012. I Olivier Chambard, Consul General at the French Embassy in London, replaces Edouard Braine ||| Olivier Chambard has been appointed Consul General at the French Embassy in London. After graduating from La Sorbonne and the National Institute for Oriental Civilisations and Languages, he began his career in the Asia Department at the French Ministry of Foreign Affairs and has since worked for the French Embassy and Institut Français in London and Jakarta, with intervening periods in Paris at the Ministry of Foreign Affairs and Association Internationale des Maires Francophones. Olivier Chambard has been honoured with the Chevalier de l’Ordre National du Mérite (France), Member of the Royal Victorian Order (UK), Officier de l’Ordre du Mérite (Ivory Coast) and Médaille de la Francophonie (International Organisation of La Francophonie). I

Schools

Loïck Roche appointed Dean of Grenoble Ecole de Management ||| Under a new governance structure at Grenoble Ecole de Management, Loïck Roche has been appointed Dean, effective as of 1 July 2012, while Thierry Grange, former Dean, becomes President of the Strategic Board of Grenoble Ecole de Management. A graduate of ESSEC with a Ph.D in Psychology and Philosophy as well as a post-doctorate degree (HDR) in Management Sciences, Loïck Roche began his career as a consultant in HR and Organisations in 1988. He joined Grenoble Ecole de Management in 1995 as a research faculty member, becoming Management and Technology Department Manager in 1996, Faculty Dean in 2001, Associate Director in 2004, Director of the Doctoral School in 2006 and Vice-Dean in 2011. The new governance system put in place is based on a model of international schools similar to GEM. It has been implemented to ensure the school’s

Loïck Roche

legacy and anticipate the changes that might impact its environment and future. The structure comprises an existing Board of Directors and a new Strategic Board in order to associate operational and strategic planning and leadership. I info - november / december - 33

news Schools

The Financial Times ranks French business schools amongst the world’s best ||| For the eighth year running, the Financial Times has presented its ranking of the 70 best Masters in Management programmes in the world. The 2012 list shows French business schools and their ‘Grandes Ecoles’ programmes dominating the upper echelons. Out of the 19 French business schools making the cut, 11 are in the top 25 and seven of these are Chamber members. Among them, ESCP Europe is ranked second, moving up from third place last year, and ESSEC Business School is in fifth place, having been eighth last year. EDHEC Business School has moved up to twelfth place, closely followed by Grenoble Graduate

School of Business in thirteenth. Overall, French and British business schools dominated almost half of the ranking with French schools tending to rank higher than their British counterparts. The annual worldwide ranking is based on a survey carried out among business schools and their alumni who graduated in 2009. The ranking is based on specific criteria such as the diversity of careers followed by alumni, their salaries three years after graduation, international exposure and diversity or achievement rates. I

Rank

Previous Rank

Average of rank over 3 years

School

Country

Programme

1st

2nd

University of St Gallen

Switzerland

Master of Arts in Strategy and International Management

2nd

3rd

2nd

ESCP Europe*

France, UK, Germany, Spain, Italy

Master in Management

3rd

2nd

Cems

Global alliance of academic and corporate institutions

Masters in International Management

4th

HEC Paris

France

HEC Master of Science in Management

5th

8th

7th

ESSEC Business School*

France

Master of Science in Management

12th

15th

14th

EDHEC Business School*

France

Master in Management

13th

9th

Grenoble Graduate School of Business*

France, UK, Singapore, China

Master in International Business

23rd

21st

Audencia Nantes*

France

Audencia Master in Management

25th

33rd

26th

Reims Management School*

France

Master in Management

27th

32nd

29th

Skema Business School*

France, USA, China

Global Master of Science in Management

* French Chamber members

ESCP Europe scholarships to boost social diversity of MBA ||| Over the past six years, ESCP Europe Business School has made efforts to increase the social diversity of its Master in Management (Grande Ecole) programme, aware that many professionals do not have access to prestigious MBA programmes mainly because of auto-censorship or difficulties finding adequate sources of financing. The school is now offering 10 scholarships of €10,000 each to facilitate access to its Executive 34 - info - november / december

MBA. To meet the criteria for these scholarships, applicants have to be either a women leader, or an executive working in an emerging market company, an NGO or a non-profit organisation. A fourth type of scholarship will be offered to SMEs (small and medium sized companies) to help them finance the management training of a high-potential executive. Applications for the next intake close in December 2012. Full details are available from ESCP Europe. I

news

Edouard Husson appointed Dean of ESCP Europe Business School ||| Edouard Husson has been appointed of the Brazilian Academy of Philosophy. Dean of ESCP Europe Business School, In 2009-2010, when General Secretary succeeding Pascal Morand who had been of the Council for the Development of Dean since 2006. Humanities and Social Sciences, he was A graduate of La Sorbonne and the Advisor to the French Minister of Higher prestigious Ecole Normale Supérieure, Education and Research, and in August Edouard Husson has had substantial 2010 became Vice-Chancellor of the international research and teaching Universities of Paris. experience, working in the German Edouard Husson will continue ESCP academic system for many years, including Europe’s evolution as a business school the Institute of Contemporary History in with a truly European identity across its Edouard Husson Munich, and spending time in the US on five campuses in France, United Kingdom, several research stays. He holds an honorary doctorate Germany, Spain and Italy. I

EISTI launches Master in Quantitative Finance and Risk Management

A S no pp 20 ept w f ly e 13 m or in be ta r ke

||| The Ecole Internationale des Sciences du Traitement de l’Information (EISTI) has launched a new postgraduate programme, leading to a Master’s diploma in ‘Quantitative Finance and Risk Management’. The programme, which will be taught in English, promotes the school’s intellectual quality

and makes the most of its partnerships with excellent establishments such as Dauphine University. The Master’s Quantitative Finance and Risk Management programme is expected to attract international students, ‘free movers’ and exchange students from associated universities. I

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Societe Generale is a credit institution and an investment services provider (entitled to perform any banking activity and/or to provide any investment service under MiFID except the operation of Multilateral Trading Facilities) authorised and regulated by the French Autorité de Contrôle Prudentiel («ACP») (the French Prudential Control Authority) and the Autorité des Marchés Financiers («AMF»). This communication is issued in the UK by the London Branch of Societe Generale. Societe Generale is subject to limited regulation by the Financial Services Authority («FSA») for the conduct of its business in the UK. Details of the extent of its regulation by the Financial Services Authority are available from us on request. Societe Generale benefits from the EC passport authorizing the provision of investment services within the EEA. This material has been prepared solely for information purposes and does not constitute an offer from Societe Generale to buy or sell any security or financial instrument, or participate in any trading strategy. Not all financial instruments offered by Societe Generale are available in all jurisdictions. This communication is not intended for or directed at retail clients. It is for professional clients only. Please contact your local office for any further information. 2012 Societe Generale Group and its affiliates. © GettyImages - FRED & FARID 36 - info - november / december

focus

Commodity markets: a lot of attention but little understanding T

Trading in finite resources and uncertainty Interestingly, the sudden drop following the 2007 crisis did not last long, which can be seen as sign of the resilience of commodity prices, as if the trend were irreversible. It revives an old debate about The Limits to Growth, the title of a famous book published under the

Figure 1: Commodity indexes (15/10/1992 = 100) Source: Datastream; S&P GSCI Commodity PRICE INDEX

700

600

Volatility

(annualized standard deviation of price changes)

500

Non-Energy:

10.5%

19.3%:

Energy:

37.5%

38.7%

400

300

200

100

97 0 15 /199 /1 0/ 8 1 15 999 /1 0/ 15 200 /1 0 0/ 15 200 1 /1 0/ 15 200 2 /1 0/ 15 200 3 /1 0/ 15 200 4 /1 0/ 15 200 5 /1 0/ 15 200 6 /1 0/ 15 200 7 /1 0/ 15 200 8 /1 0/ 2 15 00 9 /1 0/ 15 201 0 /1 0/ 15 201 1 /1 0/ 20 12

/1 15

oday, commodity markets, where agricultural, metal or energy commodities are traded, seem to be a source of concern. Why is that so? Figure 1 provides an answer. Over the last two decades, after a first period of 10 years with a flat trend, we observe a dramatic change in the behaviour of commodity prices from 2002 to the present. Starting from a commodity price index of about 100 â&#x20AC;&#x201C; that is the price level of 1992 â&#x20AC;&#x201C; both indexes have increased significantly to 230 for nonenergy commodities and 347 for the energy commodity index, which is an annual average growth rate of 8.7% and 13.2% respectively. Furthermore volatility has also increased. From 10.5% during the first phase for non-energy commodities, to 19.3%. Energy commodity prices, which are usually more volatile, also display larger fluctuations with a volatility index increasing from 37.5% to 38.7%. Higher volatility affects the risk exposure of many economic agents, consumers as well as corporations.

initiative of the Club of Rome in 1972 to warn decision makers and politicians about the unsustainability of growth in a world with finite resources. With China eager to keep on growing at 8% per year and India following a similar trend, it is not surprising that the debate has resurfaced, particularly at a time when fears seem to be a major driver of economic behaviours. However, some would argue that the same commodity boom occurred in the seventies, and was then followed by a long period of decreasing commodity prices, coming back to the 1980 real-term

ÂŠ Sto c k f re ei m a ge s . com

info - november / december - 37

focus

market participants will buy forward contracts to pay a lower price at the delivery date. As a consequence demand for forwards will increase until the forward price reaches a level which corresponds to anticipations. Types of transactions This is key to understanding and analysing volatility. If the market environment is highly complex with a very To discuss the volatility issue, one needs first to consider uncertain future, anticipations are not well founded the types of transactions taking place on commodity and subject to frequent and rapid changes, resulting in markets. On the spot market goods are sold for cash and a high degree of volatility on the market. Considering delivered immediately, while both forward and futures the prevailing global economic situation, characterised contracts allow participants to buy or sell a specific by geopolitical risks, social tensions, regulatory and type of asset at a specific time at a given price. However, technological uncertainties, it is not surprising that forwards are customised and traded over the counter volatility is high. (OTC) whereas futures contracts are standardised and Many like to stigmatise speculators; with pure exchange-traded with a lower counterparty risk. financial goals they treat commodities as a new asset Indeed there is a relation between spot and forward class and by doing so generate prices. Letâ&#x20AC;&#x2122;s assume that a buyer volatility to the detriment of needs to have a given quantity participants with physical of a commodity at a known Considering the prevailing global needs. But should they be future date, the alternative is to economic situation, characterised blamed? Indeed, in such buy now and hold the product by geopolitical risks, social tensions, a perturbed and complex until it is needed, or, buy a regulatory and technological environment rogue behaviours forward contract. In one case uncertainties, it is not surprising driven by greed may exist, but he has to pay the spot price that volatility is high. speculation is not what most and incur inventory holding people believe. It is a technical costs, otherwise he can decide necessity to create liquidity to pay the price stipulated in and contribute to market efficiency. the forward contract at the due date. The solution with What are the factors influencing supply and the lowest cost will then be preferred. If there are many demand of commodities, and what can we anticipate? participants on the market, the difference between the What is the role of the dominant market players, two solutions will disappear inevitably since arbitrages financial institutions in particular, and how can they will take place. In other words the spot price will just contribute to more stability? What can we expect be the forward price minus the cost related to an early from new regulations? How can companies mitigate acquisition and storage, forward prices are driving spot their risk when exposed to excessive volatility of prices. However, if the good cannot be stored â&#x20AC;&#x201C; such as commodity prices? What are the strategies of investors electricity â&#x20AC;&#x201C; or if the spare storage capacity is very low, taking commodity markets as a new playing field? then the relation is no longer that simple. The following articles provide some answers to these So what drives forward prices? The answer is clear: important questions. I Patrick Gougeon, UK Director of anticipations about future spot prices. As long as a ESCP Europe Business School forward price is lower than the anticipated future price, level only recently. It all depends on the future demand and supply of commodities and both are very uncertain, hence the concern.

focus contents Part One: Global Overview 40 Commodities and their main drivers 42 The role of banks in the commodity markets: bridging the expertise gap

44 Regulatory and accounting issues:

a focus on energy commodity markets

46 Should we blame the speculators? 47 In defence of commodity markets

38 - info - november / december

Part Two: Risks and Rewards for businesses and investors 48 Risk exposure and challenges facing commodity producers 50 Michelin: a commodity-based industry 52 EDF Energy: a utility view of commodity risks 53 Commodities: a new asset class for many types of investors 54 A focus on commodity indexes

commodities timeline

17 30

1848

1864

The Dijoma Rice Exchange is officially licensed for the trading of rice contracts and futures in Osaka, Japan

The Chicago Board of Trade is founded

The Economist’s Commodity Price Index is one of the first to be published

1882

187 7

1872

The Butter and Cheese Exchange becomes the New York Mercantile Exchange when it begins selling dried fruit, canned goods and poultry

The London Metal Exchange (LME) is established. The LME is now the world’s premier non-ferrous metals exchange

The Butter and Cheese Exchange of New-York is created by a group of dairy merchants

1933

194 4

195 7

The COMEX, which merges the National Metal Exchange, the Rubber Exchange of New York and the National Raw Silk Exchange, is established

The Breton Woods System is adopted. This sets up an international monetary system, fixing exchange rates by tying currencies to the US dollar, which was itself indexed to gold

The Commodity Research Bureau (CBR) Index is established, tracking spot commodity processes

1992

1991

The PAC (Politique Agricole Commune – Common Agricultural Policy) is created, helping to stabilise commodity price volatility for a period

The first generation of investable commodity indexes appears when the Goldman Sachs Commodity Index (now S&P GSCI) is introduced

1994

1998

2000

The Uruguay Round exposes European farmers to higher and higher price volatility

Dow Jones-AIG Commodity Index (now Dow Jones-UBS Commodity Index) and Rogers International Commodity Index (RICI) are launched

The World Bank convenes an International Task Force to explore new, market-based approaches to help developing countries better manage their vulnerability to commodity price volatility

1976 The Jamaica Agreement ends the Breton Woods System by allowing the managed float of the price of gold with respect to the US dollar

2009

2007

The ‘third generation’ Summer-Haven Dynamic Commodity Index is introduced: it includes 14 equally weighted commodities out of a total 27, rebalancing its futures portfolio every month

The ‘third generation’ UBS Bloomberg CMCI Active Index is introduced: component weightings of the index are adjusted using a discretionary approach by research analysts

2010

2012

The Dodd-Frank financial reform bill is approved. It contains provisions to increase transparency and reduce position limits to prevent the domination of markets by a few firms, helping to moderate, if not prevent, extreme volatility in food and energy prices

The European Parliament’s Committee on Economic and Monetary Affairs adopts its report on the review of the Markets in Financial Instruments Directive. This piece of legislation is critical to achieve stronger regulation of commodity derivative markets and limit harmful financial speculation on food

info - november / december - 39

focus

Part One: Global Overview

Commodities and their main drivers Expect higher prices to be the new normal in a growing consumer world says Jean-François Lambert, Managing Director and Global Head of HSBC’s Commodity and Structured Trade Finance Department

ommodity markets have entered unchartered territories, but they have not done so in an isolated fashion. As the world economy slows down, most markets from securities, to bonds, to real estate, are learning how to cope with a new reality – the end of an era of unlimited liquidity and ‘forever growth’. Despite this, commodity prices are still more expensive than 10 years ago. The question we have to ask is whether this is a short-term phenomenon, or whether commodity prices look set to hold their value over the longer term? A lot has been said about the influence of financial speculation and development of the commodity market as a new ‘asset class’. Some hold the view that such speculation is driving up prices and that over the long term the value of commodities will fall. Commodity trade finance practitioners take a different view.

BRIC economies 40 - info - november / december

In stark contrast with other asset classes, commodity prices are built around the moving and delivering of physical assets. Financial commodity market instruments are key tools for suppliers, merchants and large buyers to protect their prices on future deliveries, and lock in key strategic supplies. At maturity, each ‘financial trade’ gives rise to the delivery and the offtake of a commodity cargo somewhere in the world. Does this mean that the speculation of some financial players has failed to exert any influence on commodity prices? Of course it has. We have seen a greater volatility of commodity prices over recent years and undoubtedly some of this influence is due to speculation. However, nobody has put it better than Professor Philippe Chalmin, a major commodity market specialist, when he compared financial speculation to the ‘foam over the wave of the fundamentals’. This is because commodities are driven by strong fundamental trends – that of supply and demand. These fundamentals will prevail over the longer term, because world growth remains the main driver of commodity prices: in short, people will continue to want, and need, energy and food. Yes, we have seen a slowdown in the world’s economy, chiefly driven by a drop in China’s GDP growth in the last few months from over 10% growth, a fall we predicted to stabilise at around 8%. However, today, China still represents over 40%

focus

The city of Shanghai has become a symbol of China’s rapid economic expansion since the 1990s

of all commodity market requirements, and, even at were a decade ago when the commodity ‘super cycle’ 8% growth, will de facto be the engine of commodity began. While some argue that this cycle is a mere growth. catching-up after the 1980-90 decade when prices So, even if current market conditions are were abnormally low, one thing is certain – there uncertain in the short term, epitomised by the is still a long way to go before we can say the super fact that spot commodity prices are showing some cycle is over. volatility triggered by fundamental or speculative Perhaps the best way to understand how commodity views, by and large future markets are driven nowadays is prices remain unaffected and to imagine a corridor capped broadly neutral. at one end by anticipation of China still represents over With the growth of the world world growth and floored at the 40% of all commodity market population – it is estimated the other by the resilience of China. requirements, and, even at 8% planet will be home to eight Indeed, HSBC contends that growth, will de facto be the billion people by 2025 – and China has enough fire power, by engine of commodity growth the emergence of new heavily way of policy intervention, to populated economic powers re-energise its economy if and such as China, India and Brazil, when needed. securing supply of soft commodities such as wheat, If this proves to be the case, then commodity soybean and sugar, energy products such as oil and prices should not significantly decline and are well gas, and base metals, will remain at the very top of supported in the medium term. In fact, our view the agenda for most economic and political leaders is that prices will likely remain as much as 30-60% for many years to come. higher in real terms than during the latter decades of It is interesting to note that whilst commodity the 20th century. prices have come off recently, most if not all If this is the case, then we should expect the new commodities are still much more expensive that they normal to be more ‘super’ and ‘less’ cycle. I info - november / december - 41

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The role of banks in the commodity markets: bridging the expertise gap Nic Brown, Head of Commodities research, and Pierre-Yves Hug, Senior Energy Sales, Fixed Income, Commodities and Treasury at Natixis, trace the evolving role of banks in commodity markets from financiers to major players, and post-2008

or centuries, banks have provided finance for companies wishing to produce and trade commodities. Traditionally, finance would have been extended to suppliers of commodities against letters of credit secured upon the goods they were shipping, with both vessels and cargo protected by insurance contracts. This trade finance and insurance was the lifeblood of the early financial markets, and helps to explain why, for many years, the Bank of England used a weather vane to assess the likely need for credit in Londonâ&#x20AC;&#x2122;s money markets (depending upon whether the prevailing wind would be holding vessels back or bringing them into the port of London). In time, this trade-based credit was expanded to include project finance for overseas companies, including explorers, prospectors and mining companies. In relatively recent times, the role of financial intermediaries in the commodity markets changed significantly. After the deregulation of financial markets in the 1980s, banks expanded their activities into a range of new markets, offering their clients both broking and market-making services in markets including the London Metal Exchange, International Petroleum Exchange, MarchĂŠ Ă Terme International de France and Chicago Mercantile Exchange. This

Gold

42 - info - november / december

allowed banks to help their clients, whether producers or consumers of commodities, to hedge their potential exposure to unexpected falls or rises in the price of a wide range of commodities. In the 1990s, following the repeal of the US GlassSteagall Act, commercial banks were encouraged to leverage up their own balance sheets in the same manner as a new breed of aggressive trading firms, and they became major players in the rapidly expanding markets for crude oil and other commodities, using proprietary trading strategies which had been developed in the foreign exchange, money and interest rate markets. During this period, investors too gained a new interest in these expanding commodity markets. Encouraged by research from Gary Gorton and Geert Rouwenhorst, which demonstrated how commodities offered a brand new asset class with returns equivalent to equities but with zero correlation, a further surge of interest in commodities was generated. Since the financial crisis struck in 2008, much of this financial edifice has been torn down. Proprietary risk is once again being separated from traditional banking activities, and the capital needed to support it is being more prudently assessed. Concerned that the decentralised networks of over-the-counter (OTC) derivative transactions could become a systemic problem, just as they did in the wake of the Lehman bankruptcy, regulators are encouraging clearing and settlement via fully collateralised central counterparties. The effect of speculation upon commodity prices is being questioned by politicians, concerned at the dangers of unacceptably high food and energy prices. As a result of these factors, many banks are returning to their roots as hedgers of risk and financiers of trade and investment projects, acting on behalf of customers rather than pitting themselves against them. Some banks have chosen to refocus on core businesses; downsizing, closing or selling their

focus

Banks became major players in rapidly expanding markets for crude oil in the 1990s

commodity businesses. Others have pulled out of trading exposure, since price risk becomes outweighed by an in agricultural commodities. For most banks, proprietary unacceptably high liquidity risk. In this environment, trading in commodities has become a thing of the past. banks can mitigate much of the liquidity risk for their But it would be wrong to shut down entirely many clients by running trading books in which hedging positions for producers and consumers broadly balance of the useful services that banks can provide to their out against each other. clients in commodity markets. We at Natixis firmly believe that there is a role we can play in commodity Overly complex derivative products may have been partly to blame for the financial markets which not only benefits our crisis, but it would be wrong to clients, but also offers a wider public good in terms of fostering greater Many banks are returning to discard entirely the use of OTC and structured products. For many market and economic efficiency. their roots as hedgers of risk clients, their exposure cannot be Trade finance remains an and financiers of trade and hedged by simplistic positions in essential part of the macroeconomic investment projects, acting system. In project finance, we are underlying commodity futures, particularly where risks relate to more easily able to lend to our on behalf of their customers clients if we and they are protected rather than pitting themselves physical aspects of their business that cannot easily be replicated by by an adequate hedging strategy against them liquid futures contracts. In these versus unexpected falls in the circumstances, banks can add price of underlying commodities genuine value by tailoring risk solutions to their specific being produced. Similarly, end-users of commodities clientsâ&#x20AC;&#x2122; needs. Where clients are exposed to the risks of are more secure if their businesses are protected from inflation, for example, a commodity-based product may unexpected increases in the price of key commodities which they consume. offer a simple and elegant solution. The last decade has taught us much about the In the world of fully collateralised, centralised commodity markets, and we remain committed to clearing and settlement, companies are deterred from implementing adequate hedging strategies due to the putting this knowledge to good use for the benefit of need to provide cash margining against their hedged our clients. I info - november / december - 43

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Regulatory and accounting issues: a focus on energy commodity markets Wendi Farrell, Executive Director, Shane Henley, Senior Manager, and Rida Rahmani, Manager, of FAAS Commodity Trading Risk Management, Ernst & Young, provide relevant and timely insights into the important regulatory and accounting changes facing commodity and energy markets

he two important changes facing commodity and energy markets are market regulation and accounting developments for Liquefied Natural Gas contracts.

ÂŠ f l ic k r /Shel l

A wave of regulation is on its way â&#x20AC;&#x201C; will it create a sea change for traded commodity markets? In response to the 2008 global financial crisis, both US and European regulators embarked on a significant shake-up of the way in which regulators would like to see traded markets regulated and supervised. These changes are likely to have a significant impact not only on financial markets, but also on traded commodity and energy markets. With the Dodd-Frank legislation leading the way in the US, Europe duly proposed similar regulation in the form of MiFID2 (Markets in Financial Instruments Directive) and EMIR (European Market Infrastructure Regulation). The former builds on existing regulation and seeks to further tighten the rules regulating

Liquified natural gas plant, Qatar

44 - info - november / december

trading venues and participants in financial markets, while the latter introduces new requirements including the mandatory clearing of over-the-counter (OTC) derivative trades. The lack of transparency of the OTC derivative market is considered to be a major contributor in enabling the financial crisis. Greater transparency over these derivatives at an aggregate level is viewed by many to be a key component in helping to avoid similar failures in future. Both regulations, MiFID2 and EMIR, currently progressing through the EU legislative process, may carry significant implications for European commodity and energy market participants which were largely exempt from existing regulation. In parallel with the enhanced financial market regulation, pan-European regulation has been introduced that specifically aims to regulate traded wholesale electricity and gas markets. Regulation of Energy Market Integrity and Transparency (REMIT) shares a number of similar objectives of the financial market regulation. This includes ensuring market transparency and the prevention of market manipulation across an ever-increasingly integrated European energy market. Although introduced at the end of 2011, the impact of this regulation is likely to be felt over the next 12 months as the main operational and compliance requirements are implemented. The collective impact of these regulations on commodity and energy markets is not yet fully understood by the participants. Market participants have expressed concern over the adverse or unintended consequences of the regulations. These include the potential for increasing capital requirements, reduced market liquidity and the heavy operational

ÂŠ f l ic k r /s que a k s25 6 9

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Liquified natural gas plant, Arizona

and technology investment required to report derivatives for financial reporting purposes. Over recent years, however, LNG trading has gained trading activity to the various regulatory bodies as proposed under the regulation. It is crucial, however, substantial momentum to become one of the more that over the next few months, actively traded commodities. Due to the increased liquidity in the market participants dedicate the necessary resources to identify European, Asian and US markets, The collective impact of these there has been a significant rise what these changes might mean in spot contracts which are now for their organisations and to regulations on commodity becoming a core feature of a put in motion an appropriate and energy markets is not response. Our market intelligence commodity traderâ&#x20AC;&#x2122;s portfolio. yet fully understood by the indicates a surprisingly large As the LNG market is participants ... it is crucial transforming from a niche, highnumber of organisations have yet they dedicate the necessary cost activity focused on specific to approach this in a concerted resources to identify what markets into a core feature of the way. these changes might mean for global gas trading strategy, players are reassessing their accounting Accounting for LNG contracts: their organisations approach. With the increased fair value or accrual account? liquidity in the market and The Liquefied Natural Gas (LNG) market was previously characterised by LNG being traders capturing regional arbitrage opportunities and optimising their positions across the global contracted on fixed long-term agreements with LNG market, it may not be long before most LNG pricing formulae indexed to other commodities. These trading contracts fall comfortably within the scope contracts were primarily used as equity purchase of IAS 39. However, the valuation of these contracts agreements in the portfolio. Therefore, most of these might remain challenging, given the lack of available contracts were scoped out of International Accounting quoted prices. I Standard (IAS) 39 as they did not meet the criteria of info - november / december - 45

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Should we blame the speculators? Before pointing a finger, David G Stack, Managing Director of commodities consulting firm Agrimax, challenges preconceived ideas and definitions of who the speculators actually are

n some ways this is like trying to find a medical doctor guilty of malpractice. To proceed successfully we must try to find either some kind of negligence or conduct considered to be outside the generally accepted code of practice of the profession. This of course presumes that we are pursuing an individual engaging in some kind of rogue behaviour and not an entire profession. Today, with the world’s greatest economic decline at our feet, we are looking for answers and someone, or some group of people, to blame. The view of what constitutes speculation and its impact on market processes varies widely among academics, politicians, the media and the general public. Academics generally view speculators as a group of individuals who trade primarily based on an individual asset’s standalone, expected risk– reward trade-off. In contrast, in the public, the mass media and the political arena, speculators are often considered less important or less noble than other market participants who trade financial futures or commodities solely as an indirect (e.g. hedging) part of their ordinary business activities. Whatever the separation between hedging and speculation, the popular concern is the degree to which either hedgers

or speculators have direct influence on market prices above and beyond their primary market functions. Within the trading community, speculation is viewed primarily as activity in markets which you do not fully understand and have not made a sincere and professional effort to apply the customary analyses and perform the due diligence required by your organisation to put money at risk. At this point we note the successful operation of names like Tiger Capital run by Julian Robertson and Centaurus run by John Arnold. Both were highly successful and effective funds for their investors, which ultimately made a sufficient return on investment to close their doors to outside investors. There are many more examples of successful speculators, some of whom are household names like Warren Buffett and George Soros, just as there are those like the infamous Amaranth Advisors, which closed with spectacular losses and did not return the expectation to their shareholders. By the naïve definition in the preceding paragraph they were all speculators. So is our definition lacking? Clearly it is too narrow and simple. The Utility which over-hedges or under-hedges its exposure is speculating. The Pension Fund which tries to protect its pensioners and invests in new markets is speculating. We don’t mean new markets in the sense of ones being discovered, but more importantly ones in which they have little or limited experience. A regulator which hypothesises on markets and market players it does not understand is speculating. The oil company which drills wells in the expectation of finding oil is speculating. The same oil company speculates when it under-invests in infrastructure or environmental safety. As a matter of record Milton Keynes ran two hedge funds and widely engaged in highly leverage activity. In short, speculation is rife and commonplace. I A speculator by some definitions, Warren Buffett with President Obama 46 - info - november / december

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In defence of commodity markets In 2011, the French Government and the European Commission jointly organised an international conference on commodity markets. Pierre Noël, Senior Research Associate at Judge Business School, University of Cambridge, attended it, and reflects here on some of the issues raised

r Sarkozy’s speech was a passionate plea for Europe to lead the world in regulating global commodity markets, which he characterised as without rules, opaque, immoral and a financial catastrophe in the making. That the oil price could, in 2008, collapse 50% in a few weeks while demand contracted by just a few per cent was proof to him that something was fundamentally wrong. With the oil derivatives market representing 35 times the physical market (46 times for wheat) he pointed to ‘financialisation’ and speculation as the cause, calling for rules to limit positions, improve transparency, and make it more expensive to trade in futures and derivatives. Anti-market rhetoric resurfaces each time commodity prices go up. What is worrying is the apparent unwillingness of policy-makers to distinguish between market manipulations, which public authorities should indeed have the power to investigate and prosecute, and politically unpleasant market outcomes. The temptation to ban the latter is futile and can have consequences far worse that the targeted ‘problem’. This risk is often overlooked because the functions performed by commodity markets are not properly appreciated. Let me mention three such functions, particularly important in today’s globalised world. First, global ‘financialised’ commodity markets are the only practical means to peacefully allocate scarce resources. They make resource wars redundant, hence much less likely. This is not a theoretical point. Mr Chavez has realised that selective oil embargoes are impractical while the Chinese are finding out that they do not need to control producing regions politically or militarily in order to get the oil they need. There is a growing acknowledgement in Beijing that China’s oil security rests on a well-functioning global commodity market, not attempts to bypass it. Secondly, international commodity markets are a very important supply crisis management tool. It is not a sense of responsibility but suppliers’ and traders’ profit motive that redirected cargoes of liquefied natural gas (LNG) away from Europe towards Japan after the Fukushima disaster. The LNG market is now commoditising quickly, which further increases security of supply for all. Conversely, the lack of proper gas transport capacity trading in Europe

prevented spontaneous reallocation of supply to areas of shortage during the Russia-Ukraine gas crisis of January 2009. Had traders been able to ‘profit from the crisis’ markets would have transformed localised shortages into a pan-European rise in prices, alleviating the pain for the most impacted countries. Unfortunately the REMIT (Regulation of Energy Market Integrity and Transparency) legislation put forward by the European Commission will constrain the commoditisation of European gas, harming both competition and security of supply. Thirdly, ‘financialised’ commodity markets help producers manage risks by selling all or part of their production at known and guaranteed prices long before they actually produce. A delegate from the Brazilian farm industry explained how access to the deep and liquid markets on the Chicago Mercantile Exchange was critical to running their business and that increasing capital ratios would make it more costly for them to hedge risks. Not everything is fine with international commodity markets. Here is a list of possible actions for G8 and G20 governments to consider: • Stop subsidising biofuels. Paying people to turn crops into fuel artificially links the poor’s need for food and the rich’s willingness to drive. • Put forward international initiatives to combat export restrictions and commodity cartels. • Remove implicit government guarantees to financial institutions so that they face the true risks of their trading activities, including commodity derivatives. • Transfer money to poor countries when commodity prices rise. • Reward governments that replace fuel and food subsidies by direct cash payments to consumers, which do not destroy incentives to conserve. What of the 2008 oil price crash? I tried to explain that when the demand curve crosses the supply curve in its very steep section, even a small leftward shift can send the price plummeting. It holds, by the way, even if you were to put all greedy speculators into jail. Global commodity markets should be acknowledged as useful economic institutions. If commodity traders make too much money out of them, simply tax them heavily at the margin. I info - november / december - 47

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Part Two: Risks and Rewards for Businesses and Investors

Risk exposure and challenges facing commodity producers Commodity producers must grapple with considerable risk factors, as Othman Cole, Assistant professor of Finance at ESCP Europe Business School explains, citing recent events at South African mines

n the current global epoch of complexities and uncertainties, commodity producers are increasingly faced with a myriad of risk factors. These include major fluctuations in market prices, movements in exchange rates, changes in interest rates, as well as operational risks and environmental hazards. They are also exposed to security of demand risk, quantity risk, inflationary cost risk for their key inputs, and also very importantly political risk. While each of these risk factors deserve adequate assessment, this article focuses primarily on price risk and, related to that, highlights the recent operational and political risk events experienced by mining companies in South Africa. It can be argued that commodity prices are inherently volatile due to the cyclical nature of investments: oversupply, followed by price collapse, underinvestment, lack of adequate supply, and then price rises. According to the IMF, crude oil and copper are the most volatile across asset classes (see Figure 1 below).

Figure 1: Price volatility across asset classes Barclays Aggregate bond index US$ trade-weighted index US$ to U.K. sterling Japanese yen to US$ US$ to euro CRB spot S&P500 equity index MSCI All-Country World equity index Exxon Mobile equity price MSCI Global Energy equity index Copper spot price Crude oil APSP

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A major development that is expected to have a significant impact on crude oil prices in the mediumto-long term is the increase in production in Iraq. It is expected that Iraq’s output will more than double by the end of the decade, and it will become the world’s second largest oil exporter after Saudi Arabia by the 2030s. According to the International Energy Agency (IEA), Iraq would account for 45% of the anticipated growth in global oil supply in the current decade. At present, Iraq oil exports have risen to 2.6m barrels per day, the highest in more than three decades. The IEA’s central scenario predicts Iraq would more than double its exports to 6.1m barrels per day by 2020. It is expected that 80% of these exports will go to Asia, primarily China. Another factor expected to impact on crude oil prices is shale oil. According to the US Department of Energy, weekly crude oil production in the US is at the highest level since 1996, primarily due to shale oil.1 Volatility in metals is currently evident in iron ore prices, which collapsed by 36% to less than $90 a tonne in just two months as Chinese traders and steelmakers decided to step away from the market and run down Last 15 years (Jan 94 to Feb 09) their existing stocks. Prices have Last 5 years (Jan 04 to Feb 09) since recovered rapidly, reflecting Source: IMF the major fluctuations inherent in most commodity prices. For example, prices for benchmark Australian iron ore jumped 12.4% in just two days to the highest level in three months at $120.25 a tonne. Iron ore prices are expected to rise even further in the next six months, as the Chinese government has recently approved in September plans for

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Commodity producers are also faced with significant operational and political risks

Rmb1 trillion ($158 billion) in infrastructure spending, which analysts believe will have a significant impact on the short-term demand for iron ore. It is argued, however, that such an increase in demand from China and elsewhere will not be sufficient to support prices in the medium term, and it is unlikely prices will reach their previous highs of almost $200 a tonne. Aluminium, the world’s most widely used metal after steel, is facing paradoxical supply and demand dynamics. Demand is growing faster than for almost any other commodity and customers are paying record premiums to secure supplies in the physical market. However, analysts argue that there is still a vast overhang of stocks that were built up during the financial crisis (see Figures 2 and 3 below). It is believed that total global stocks stand at 10m-12m tonnes, enough to build more than 150,000 Airbus 340s. Analysts argue that these large inventories have not triggered a price collapse because the banks and trading houses that largely own them are using them

to finance long-term deals, and in effect remove them from the market. But since this will not go on forever, the question remains of what will happen when these financing deals come to an end, and what the impact will be on aluminium prices. Commodity producers are also faced with significant operational and political risks, which is currently evident with escalating industrial unrest in South Africa. In August, Aquarius Platinum, the world’s fourth-largest platinum producer by volume, experienced serious clashes at its Kroondal mine between security staff and former employees, in which three people died and at least 20 others were injured. This followed significant strike action at another mine owned by Lonmin, another major platinum producer. In early October, Amplats, the world’s biggest producer of platinum, formally dismissed about 12,000 illegally striking workers, about a fifth of its workforce. The ongoing strikes and clashes by the unions had already cost the company about Rand 700 million ($80 million) in lost revenue. The strike action has also spread to Xstrata with 400 of its 886 employees at its Eland platinum mine going on strike. It is estimated that more than 100,000 workers throughout the industry are involved in the industrial action. Commodity producers therefore have to grapple with various risk factors to a greater or lesser extent, in which operational and political risks generally translate to revenue risk. For commodity consumers on the other hand, fundamental supply and demand dynamics as well as speculation and hedging contribute significantly to fluctuations in market prices. This has been evident across a number of commodities, as price changes since January 2007 show copper increased by 32.4%, Brent crude increased by 98.2%, and iron ore increased by 185%. I 1 ‘Brent spread over WTI widens to year-high’, Financial Times, 8 October, 2012.

Figure 2: LME aluminium stocks jump to record levels...

Figure 3:...while global aluminium production rises Annual change (’000 tonnes)

Million tonnes 5

600

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1 0

-400 2005

July 2009

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Michelin: a commodity-based industry Eric Le Corre, Managing Director of Michelin UK tells Patrick Gougeon, UK Director of ESCP Europe Business School, how a company manages its risk exposure when it is as dependent on a single agricultural commodity as tyre manufacturer Michelin is on rubber

Your company is exposed to commodity risk, which commodities?

Michelin spends €7 billion per annum on commodities (2011 figure), to be compared to €21 billion net sales. The bulk of that is spent on rubber: Natural Rubber accounts for 42% of the total spend, synthetic rubber for 24%, the remainder is fillers, chemicals, steelcords and textiles So, rubber purchases amount to about €3 billion, that is nearly 15% of sales. How is the rubber market organised?

Worldwide Natural Rubber production amounted to 10.7 million tonnes in 2011, and the supply grows at a 3% per annum pace. Tyre manufacturers purchase 70% of the world’s natural rubber production. On average a passenger car tyre contains 15-18% Natural Rubber, a heavy truck tyre 40%. Southeast Asia is the

Figure 1: Evolution of rubber

Compiled by mongabay.com using figures from World Bank Commodity Price Data 473.1 Rubber, Singapore price chart c/kg 363.1

253.1

143.2

33.2

1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 20112012

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main producer – Thailand, Indonesia and Malaysia account for close to 70% of the world’s production – and contrary to a common perception, 85% of plantations are very small with only few hectares, and belong to small village farmers. This industry employs some 6 million people directly around the world and some 20 million indirectly. Natural Rubber, once collected from rubber trees, is transformed through remilling plants that wash it (removing leaves, insects, dirt, etc.), blend it (to ensure consistency), dry it and package it before selling it on in the form of either smoked rubber sheets (SSR) or bales of rubber (TSR). Rubber prices (see Figure 1) are volatile and influenced by many different factors. How is your business impacted and how do you handle the risk?

Over the past decade natural rubber prices have increased three to four fold, from less than $1 per kilogram to above $4.5 at some point. In addition to the increase we have also witnessed increased volatility of the prices. A recent study from the European Tyre & Rubber Manufacturers’ Association (ETRMA) has actually highlighted that the current imbalance between supply and offer on a worldwide basis cannot fully explain the volatility of prices. As a company, Michelin’s main objective is to guarantee a 100% on-time delivery of Natural Rubber to our manufacturing plants around the world, whilst respecting the specified quality. We aim to achieve the best cost but also do factor in the long term: we do not necessarily go for the cheapest price – which may jeopardise delivery – nor do we go for

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short term ‘coups’ which may endanger our sourcing. We really emphasise visibility of our supply. Natural Rubber has, of course, an impact on the cost of manufacturing a tyre, but the more sophisticated and technical the tyre, the less natural rubber represents of its total cost. So premium tyre manufacturers are proportionately less impacted than budget ones by the natural rubber price rises and volatility. Do you have an organisation in place for real time assessment of your commodity exposure?

Since 1927 we have had a dedicated subsidiary, SMPT (Société des Matières Premières Tropicales), based in Singapore, which acts as sole supplier of Michelin Group’s Natural Rubber needs. It buys on all markets and guarantees our manufacturing plants across the world a one hundred per cent on-time delivery of their needs. Since 2012 it has also housed Michelin Group’s rubber tree agricultural expertise pole. In order to be effective in our buying it is critical for us to know all the players in the industry, be they farmers, remillers, states or manufacturers. Michelin also aims to help make the market more transparent (by supporting the International Rubber Study Group, IRSG) through better information on supply and demand. It also promotes socially responsible farming through the promotion of a Green Label for the Natural Rubber filière, for instance. To what extent can you pass changes in commodity prices through to your sales price?

Given the use it makes of Natural Rubber to enhance the performance of its tyres, Michelin is able to pass Natural Rubber price increases through to its customers. Do you consider hedging too expensive and just accept the risk?

It is not that it is too expensive, but simply given the size of the market and the share of the world production of Natural Rubber that we purchase, it is simply not possible from a practical standpoint… Through better transparency of the market, knowledge of all players and stakeholders and acting responsibly and with anticipation we can somewhat smooth out the volatility of prices. Could vertical integration be a natural hedge?

Very few tyre manufacturers own Natural Rubber plantations and these only account for a small proportion of their needs. Out of the three global tyre manufacturers, Bridgestone controls approximately

Rubber being extracted from a tapped rubber tree

40% of its needs through its plantations in Liberia and Indonesia. Given the price of farm land today acquiring plantations would be very expensive and would not bring a significant competitive advantage. Could you deal with the risk on this commodity through substituting Natural Rubber with other commodities?

Natural Rubber comes from latex, a liquid that flows from the bark of the rubber tree when it is cut. Many plants produce latex, whose function is to protect them, but so far only Natural Rubber lends itself to economically efficient farming and provides the right level of performance we are looking for. The many properties of Natural Rubber cannot be fully reproduced in laboratories. We obviously explore the different ways likely to help us reduce our dependency on Natural Rubber through using renewable natural resources. Our objectives are at the same time technological, environmental and economical ones. The aim is to properly master performing raw materials at competitive market prices. Diversity of supply is of course a factor that will help us stabilise prices, and reduce volatility. I info - november / december - 51

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EDF Energy: a utility view of commodities risk EDF Energy’s Director of Strategy and Corporate Affairs, Paul Spence explains how an integrated energy company manages risk, balances supply and demand, and meets consumer requirements

lectricity is a peculiar form of energy. We have become dependent on it for all aspects of our daily lives, yet often pay scant attention to its characteristics. It is difficult to store or transport long distances; it is the ultimate local and ephemeral form of power. Yet the commodities on which it depends are exactly the opposite – the coal, gas, oil and nuclear fuel markets are fundamentally global and long term in nature. They are subject to some of the fiercest environmental, geopolitical and macroeconomic forces imaginable. Will the wind blow? Will conflict disrupt oil supplies from the Gulf? How will gas markets be affected by political events in Russia? These are the factors that any energy company has to negotiate on a daily basis. When one considers the expectations that consumers in most of the Western world have of the reliability and predictability of their electricity supply, the scale of the issue becomes clear. Once the fluctuating demand between different times of day, different days of the week and different seasons of the year are factored in, the gargantuan task of managing risk and balancing supply and demand is cast into even sharper relief. Customers rightly do not want to be exposed to this risk. Our job is to make sure we have the right capacity, the right plant flexibility and the right risk management techniques to deal with it for them. The UK consumes 50 million tonnes of coal a year and 1,000 TWh of gas, while managing the output of more than 4,000 wind turbines. We also depend on large amounts of nuclear fuel, biomass and other fuel sources. Our job is to manage all the associated risks. We must look to both the short and long terms to deliver the consistency and benefits our customers require as well being able to shield them from the price volatility in wholesale markets. We must also do so profitably and sustainably so we can manage our own business for the long term. As an integrated energy company supplying both domestic and business customers and generating power for the grid, this takes two separate but closely correlated activities. When we sell power to a domestic or business customer for a particular period, we must then buy the 52 - info - november / december

Hartlepool nuclear power station

corresponding electricity to fulfil that contract. That period may be as long as three years, so we need to take a view on how all the different markets will look over that period and how each will contribute to the supply we need. To protect ourselves from fluctuations in those calculations, we then need to buy financial products, or hedges, to make sure our own risk is managed. Conversely, when we plan our own generation, we need to judge whether the demand will be there to purchase our own output. This is even more important when drawing up plans to build new power stations, which will have a generating life of 60 years or more. These massive infrastructure projects, such as Flamanville in France or Hinkley Point in the UK, require even more risk assessment. We need to allow for raw material price changes, movements in carbon markets and the variable exchange rates in play. Risk management is a key skill for integrated utilities. Functioning and efficient markets – both physical and virtual – are therefore essential for the management of our business and ultimately for our consumers. It is only by ensuring the broadest participation in the energy market, and its proper organisation, that we can hope to harness the challenges of commodity risk and ultimately deliver a positive societal impact for all our stakeholders. I

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Commodities: a new asset class for many types of investors François Combes, Commodities Global Head of Trading at Société Génerale describes how commodities have become an important asset class with highly liquid and transparent markets

ard assets have always been important in an investor’s portfolio, historically taking the form of land, property and precious metals. Commodities, such as oil, corn and copper, while also being hard assets, have historically been the concern primarily of producers and consumers. To deal with output and input price and timing risks, commodity futures markets were developed, starting with rice futures trading in Japan around 1730 to the corn and wheat trading in Chicago from 1865 – the world’s oldest commodities futures market. What risk wasn’t taken from producers by consumers, and visa versa, was and still is left for investors to take.

First generation It wasn’t until 1991, with the introduction of the Goldman Sachs Commodity Index (now the S&P GSCI), a broad long-only index of energy, base and precious metals, agriculture and livestock commodities, that commodity futures became more broadly available to investors. The Dow Jones-AIG Commodity Index (now DJ UBS) was launched seven years later. These remain the main first generation benchmark indexes. Academic research helped increase demand for these indexes, with strong empirical evidence that broader commodity indexes should help lift risk-adjusted returns. But the indexes saw critical limitations as investments continued to rise, due to design construction. Specifically, these passive indexes took long positions on nearby contracts and rolled them on a specific schedule to the next nearby contract as they moved closer to expiration. The roll proved generally profitable when most contracts were in backwardation (nearby contract higher than the deferred contracts). However, with key markets like oil moving into more prolonged contango structure (nearby contract lower than the deferred contracts), this construction started to underperform. Also, the similar 59 business day rolling period and a known roll schedule for the benchmarks resulted in trading losses by creating opportunities to exploit these predictable trades.

Second generation Second generation commodity indexes continue to be designed to address these shortcomings. By creating non-discretionary rule-based rolling, newer indexes can move out of the forward curve in commodities that are in steep contango, minimising losses, and stay close to the first nearby contracts that are in backwardation, to maximise gains. Moving away from nearby contracts reduces traditional correlation to equities, but increases expected returns while also reducing expected volatility – net improving the gain in risk-adjusted returns to both the commodity index as well as the broader investment portfolio. Also, by choosing different rolling schedules, predictable trading losses could be avoided. Third generation The third generation of commodity indexes looks to exploit time-varying information within commodity markets as well as better exploit curve information to position indexes, across commodity forward curves and also across commodities by changing relative weights. Commodity investors have moved from being solely specialised investors who take near-term speculative positions to more passive retail and institutional investors who are looking for long-term diversification. Private banks, pension funds, endowments, insurance companies, and institutional investors are looking for improved riskadjusted return in an increasingly low yield market. Here, interest is increasingly in second and third generation indexes, including both long-only and absolute return indexes. On the active side, hedge fund, commodity trading advisors (CTAs) and institutional investors may still look to first generation indexes for short-term risk management, given the higher volatilities and still likely stronger negative correlations with other parts of their portfolio; however, here too investors are looking increasingly at second and third generation indexes to improve expected risk-returns, especially within the context of their overall investment portfolio. I info - november / december - 53

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A focus on commodity indexes Kostas Andriosopoulos, Assistant Professor in Finance at ESCP Europe Business School, examines the new style investment that commodity indexes represent, and how they complement traditional portfolios

ommodity indexes have been around for many invests in the front of the curve is sub-optimal, especially years and as is the case with all early equity indexes, in recent years, because many commodity futures curves they were used mostly for benchmarking and to track have been experiencing steep contango (a state when spot commodities processes. One of the first published the futures price curve is upward sloping) at the front commodity indexes is the Economistâ&#x20AC;&#x2122;s Commodity Price end of the curve, thus also diminishing the returns of Index that started in 1864. Then, in 1957 the Commodity the various investment products that are based on the Research Bureau (CRB) Index was established, tracking respective index. Nonetheless, correlations among these spot commodity processes, and after undergoing early indexes over long periods of time are quite high, major revisions in its composition it is still published even though they have many differences in terms of their today. Nevertheless, it is in the past 20 years that the construction methodology. development of commodities indexes has witnessed The latest addition to the family of commodities tremendous changes. The first generation of investable indexes is the so-called third generation indexes that commodity indexes appeared only in 1991 when the S&P attempt to improve the returns of the previous two GSCI (originally the Goldman Sachs by incorporating commodities Commodity Index) was introduced. selection; overweighting or A few years later, in 1998, the including only commodities that Dow Jones-UBS Commodity Index Commodity indexes attempt to are expected to deliver higher (originally the Dow Jones-AIG replicate the returns equivalent returns in the near future, while Commodity Index), and the Rogers to holding long positions in underweighting or omitting International Commodities Index various commodities markets completely commodities that are (RICI) were both launched. Both the without having to actively expected to perform poorly. The S&P GSCI and the RICI are heavily manage the positions UBS Bloomberg CMCI Active Index weighted towards the energy sector, introduced in 2007 and the Summerwhile the Dow Jones-UBS, because Haven Dynamic Commodity of the rule that no sector can weigh Index introduced in 2009, are two more than one-third of the index, has energy at its limit; examples of the third generation commodity indexes. The in many instances this limit is exceeded between the latter index includes 14 equally weighted commodities annual rebalancing periods. from a total of 27, rebalancing its futures portfolio every The common characteristic, and a major disadvantage month using basis and momentum to identify the of these early indexes is that they invest in commodity greatest possible risk premium. The former index uses futures contracts that are close to expiration, thus they a discretionary approach of its research analysts who, roll forward their futures positions more frequently according to their view adjust the component weightings which makes it very expensive to follow an index of the index. However, these types of indexes carry with replication strategy using exchange-traded futures. In them a major disadvantage since the method or the addition, holding a long futures position via an index that research analysts used to select the commodities and 54 - info - november / december

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their respective weightings can be unsuccessful, and thus underperform passive indexes. Based on the aforementioned, commodity investing could safely be considered a new style of investment as there is a large number of mutual funds, hedge funds, exchange-traded funds (ETFs), exchange-traded notes (ETNs) and over-the-counter (OTC) return swaps that follow commodities through index investing. Recently, many new energy commodity ETFs and ETNs have come to the market, making it easier for a retail investor to obtain exposure to commodities. There are various types of these Energy Index Funds either based on the construction type of the fund (single- or multi-contract, long-only or Trading commodities bearish ), or based on the energy sector they track (broad energy or sector specific). In fact, in the of each index. It is critical for every investor in the US alone, based on industry estimates, assets allocated to commodities markets to be aware of these differences. commodity index strategies have risen from $40 billion The main differentiations relate to the index sectors’ in 2001 to $320 billion in 2011, with an estimated 70% of composition, constituent commodities selection, rolling these funds invested in the energy sector. According to a and rebalancing strategy, which are crucial and apply 2008 Commodity Futures Trading Commission (CFTC) only for futures indexes, and the methodology used for report, from the total of commodity index investing in US calculating the constituents’ respective weights; such exchanges alone, about 42% is conducted by institutional as liquidity- or production-based weights, arithmetic or investors (pension and endowment funds), 25% by retail geometric calculations. The later has been an important investors (ETFs, ETNs and similar exchange-traded determinant of the indexes’ performance, especially with products), 24% by index funds (a client/counterparty with the recently large weight allocations towards the energy a fiduciary obligation to match or track the performance of sector across all indexes. Nonetheless, these tracking a commodity index), and 9% by sovereign wealth funds. funds have a number of advantages over traditional debt Commodity indexes attempt to replicate the instruments (notes, bonds, certificates). They offer less returns equivalent to holding long positions in various expensive and less risky investment products, while at commodities markets without having to actively manage the same time providing protection against inflation. Also, the positions. Being uncorrelated with the returns of they can provide easy access to a broad range of investors, traditional assets such as stocks and bonds, commodity a simple way to manage accounting and disclosure index investments’ returns provide a significant procedures, and can lead to fewer taxes since in many opportunity to reduce the risk of traditional investment countries index fund returns are treated as capital gains portfolios; thus explaining the economic rationale for and not as income. A commodity ETF can be used by the including a commodity index investment in institutional respective industry market players to complete parts of portfolios such as those of pension funds and university their existing portfolio or to perform tactical strategies. endowments. Currently there are numerous publicly They can be used for hedging commodity investment available futures’ indexes, with different risk and return risk, portfolio diversification, or as a control measure of profiles, offering exposure to commodity markets; each inflation exposure. of these indexes also offers specific exposure to certain To conclude, commodity index investing is still commodity sectors via their traded sub-indexes. relatively ‘young’ compared to other more established The variations in commodity index performance asset classes such as stocks and bonds, but we should across indexes and during different market conditions expect an increasing interest in and innovation by market lie with the differences in the construction methodology players in the coming years I info - november / december - 55

Exhibition highlights Mariko Mori: Re-Birth 13 December 2012 – 17 February 2013 6 Burlington Gardens

Manet: Portraying Life 26 January – 14 April 2013 Main Galleries, Burlington House

Summer Exhibition 2013 10 June – 18 August 2013 Main Galleries, Burlington House Sponsored by Insight Investment

Entertaining opportunities are exclusively available to corporate members. Contact Debbie Stevens for further details on 020 7300 5629 or debbie.stevens@royalacademy.org.uk

www.royalacademy.org.uk )UHQFK &KDPEHU LQGG

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royal opera house ||| This winter, the Royal Opera House presents an eclectic programme of well-known operas and ballets, featuring UK premieres alongside new and original works. The Royal Ballet opens the season with one of the most famous works in the classic ballet repertory – Swan Lake. In it, a dramatic battle between love and the dark forces of the supernatural unfolds, and the pas de deux danced by the twin roles of the White Swan and the Black Swan are considered to test the full range of a ballerina’s skills. Performances run until 24 November. Two works of three pieces each also open in November. The first is Viscera/Infra/Fool’s Paradise, a triple bill of 21st century works, with Viscera a UK premiere. The second is Concerto/Las Hermanas/Requiem, which marks the 20th anniversary of renowned choreographer Kenneth MacMillian’s death. Opening on 10 December is that family Christmas favourite, The Nutcracker. The magical journey of this ballet and the glittering Kingdom of Sweets creates an atmosphere perfect for the festive season. The Royal Opera opens on 13 November with L’Elisir d’Amore, a coproduction with the Opéra National de Paris. Set in the Italian countryside of the 1950s it tells an unusual love Sarah Lamb as the Sugar Plum Fairy in The Nutcracker. Photo by Johan Persson story. Then from 6 December, the Royal Opera will perform for the first time since 1890 March 2013, staging the famous, heart-wrenching story the romantic gothic opera Robert le Diable. Influenced of lovers Rodolfo and Mimi. by French medieval art and architecture, it premiered Celebrating its 35th anniversary, the Greek mythat the Paris Opéra in 1831. inspired and lyrically intense opera The Minotaur will Also on a Parisian theme, Puccini’s romantic opera be performed 17-28 January. I La Bohème opens on 17 December and runs until 12 www.roh.org.uk info - november / december - 57

w h at ’ s o n design museum

t h e n at i o n a l g a l l e ry

Unexpected Pleasures: The Art and Design of Contemporary Jewellery ‘Unexpected Pleasures’ celebrates the work of contemporary jewellers who have challenged the conventions of jewellery design. By presenting over 200 pieces from around the world, the exhibition explores the essential meanings of jewellery: what we value and regard as precious, bypassing traditional perceptions and instead tracing the radical experiments of contemporary jewellers who have redefined jewellery design. I 5 December 2012 – 3 March 2013 Open daily 10am – 5.45pm / Full price: £11

f r e n c h f i l m f e s t i va l Since it was created in 1992, The French Film Festival UK has celebrated the diversity of French and, more widely, francophone cinema, by showing an array of French films, for all tastes, across the UK. This year the event opens with the UK première of Asterix and Obelix: God Save the Queen, directly inspired by the famous comic book of R. Goscinny and A. Uderzo: Asterix in Britain. Films will be shown in cinemas across England and Scotland including London Ciné Lumière, Bristol Watershed, Manchester Cornerhouse, Warwick Centre, Edinburgh Filmhouse, Edinburgh Dominion, Glasgow Film Theatre, Dundee DCA, Inverness Eden Court, Aberdeen Belmont Picture House and Cineworld Union Square and Kirkcaldy Adam Smith Theatre. Hotel Sofitel St James and Edinburgh Filmhouse will also present a ‘photographic odyssey’ of the French Film Festival. I 8 November – 2 December 2012 www.frenchfilmfestival.org.uk

Seduced by Art: Photography Past and Present This is the National Gallery’s first major exhibition of photography, which takes a provocative look at how photographers use fine art traditions to explore and justify the possibilities of their art. Major early works by the greatest British and French practitioners are shown alongside photographs by an international array of contemporary artists, including photography and video specially commissioned for the exhibition and on public display for the first time, as well as works rarely seen in the UK. I 31 October 2012 – 20 January 2013 Open daily 10am – 6 pm; Fridays 10am – 9pm Full price: £12

institut fr ançais

s e r p e n t i n e g a l l e ry

South Ken Kids Festival

Jonas Mekas

The 15th annual South Ken Kids Festival returns for a five-day programme celebrating children’s literature. Children will get the chance to meet famous Franco-British authors and illustrators at more than 30 organised events, including book signings, talks, theatre performances, workshops, live music and lots more. I 21 – 25 November 2012 Prices and times depending on events www.southkenkidsfestival.co.uk

This winter the Serpentine Gallery is showcasing a solo exhibition of film maker, poet and artist Jonas Mekas, who, over a 60-year career, has developed his own style of making films, mingling his poetic sensibility with a documentary film style. The exhibition brings together a collection of new films, videos and photographic works, as well as special events curated by Mekas himself. I 5 December - 20 January 2013 Open daily 10 am – 6pm / Free admission

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w h at ’ s o n r oya l a c a d e m y o f a r t s

somerset house

Burlington Gardens: a new space for art

Henri Cartier-Bresson: A Question of Colour

The Royal Academy of Arts has begun a long term development and renovation plan with the launch of a brand new art space at Burlington Gardens, a Grade II listed building, situated just behind the Academy’s Piccadilly home. The Burlington Project is the Royal Academy’s most important development since its move to Burlington House in 1868, and aims to make the Academy the leading international centre for visual culture for the twentyfirst century, offering an independent voice for art and artists. Besides a new RA shop and an innovative pop-up restaurant, Burlington Gardens has two new art galleries. Burlington Gardens’ inaugural exhibition, RA Now, runs until 11 November. This will be followed by Japanese artist Mariko Mori’s first major exhibition in London for 14 years, Rebirth. Reflecting on mankind’s relationship with the natural environment, Rebirth will be a fascinating multimedia experience. Also open to visitors to Burlington Gardens is Pace London’s exhibition ‘Rothko/Sugimoto: Dark Paintings and Seascapes’ until 17 November. I www.royalacademy.org.uk

It is well-known that French photographer Henri CartierBresson was disparaging about colour photography because of its technical and aesthetic limitations in the 1950s. However, he exerted a powerful influence over photographers who took up the new medium, determined to prove him wrong. This exhibition reflects that ‘challenge and response’, bringing together over 75 works by 15 international contemporary photographers, and 10 Henri Cartier-Bresson photographs never before exhibited in the UK. I 8 November 2012 – 27 January 2013 Open daily 10am – 6pm / Free admission

v i c to r i a

a l b e rt m u s e u m

Hollywood Costume Through an array of more than 100 outfits – from Dorothy’s blue and white gingham pinafore in The Wizard of Oz to the costume design of Avatar – this exhibition highlights the key role costume design plays in storytelling. Montage, film clips and projections reveal how designers work to create the perfect character and emphases their close collaboration with film-makers and actors to bring characters into life, from script to screen. I 20 October 2012 – 27 January 2013 Open daily 10am – 5.45pm, Fridays 10am – 10pm Full price: £14

n at i o n a l h i s t o ry m u s e u m

Veolia Environment Wildlife Photographer of the Year The 2012 edition of the world famous annual wildlife photography exhibition has opened with 100 pictures selected by an international jury of photographers. The competition drew 48,000 entries from both amateur and professional photographers representing 98 countries. Judges selected the best pictures based on elements of creativity, artistry and technical complexity. One of the top awards went to French photographer Grégoire Bouguereau for his ‘Cheetah’s Hunting Lesson’, which captures the moment when life and death cross. I 19 October – 3 March 2013 Open daily 10 am – 5.30pm / Full price: £10

Victoria and Albert Museum, London • The Wizard of Oz • Artist: MGM/The Kobal Collection • Date: 1939 • MGM/The Kobal Collection

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book reviews

Where I left my soul

The Wine of Solitude

by Jérôme Ferrari, translated by Geoffrey Strachan Published by MacLehose Press

by Irène Nemirovsky, translated by Sandra Smith Published by Vintage

||| It is 1957, the savage Algerian War rages on. Captain André Degorce is reunited with Lieutenant Horace Andreani, with whom he experienced the horrors of combat and imprisonment in Vietnam. Captives now pass from Degorce’s hands into Andreani’s: one-time victims have become torturers. Andreani has fully embraced his new status, but Degorce has lost all sense of himself. He only finds peace when he is with Tahar, a commander in the National Liberation Army who is held in a cell that now acts as a confessional, the jailer opening up to his prisoner. I

||| Hélène is a troubled young girl. Neglected by her selfabsorbed mother and her adored but distant father, she longs for love and for freedom. As first the Great War and then the Russian Revolution rage in the background, she grows from a lonely, unhappy child to an angry young woman intent on destruction. The Wine of Solitude is a powerful tale of an unhappy family in difficult times and a woman prepared to wreak a shattering revenge. I

The Confidant by Hélène Grémillion, translated by Alison Anderson Published by Gallic Books

||| ‘I got a letter one day, a long letter that wasn’t signed.’ Camille reads this narration of events from pre-war France, certain that it has been sent to her by mistake. Then more letters start to arrive… They tell of a friendship struck up between a young village girl, Annie, and Madame M, a bourgeois lady. To begin with the women simply share a love of art, but when Annie offers to carry a child for her infertile friend, their lives become intimately entwined. The child is born on the eve of the German invasion of France, and the repercussions of her birth are still felt decades later. I

The new adventures of Sinbad the Sailor by Salim Bachi, translated by Sue Rose Published by Pushkin Press

||| Sinbad the Sailor is reborn as a young, adventurous man in present-day Algeria. Accompanied by a mysterious mongrel, this lover of women and beauty embarks on a journey – from Algiers to Damascus, passing through Rome, Paris, Aleppo, Baghdad – that takes him on a headlong pursuit of happiness and love. A tale of our times – sometimes cruel, often funny and always fascinating – this novel tells the story of a man coming to grips with the stark realities of war within the framework of legend. It is at once a reconciliation of East and West and a resounding judgement on the state of the modern world. I

These books, written in french and recently translated into english, were selected by the Institut Français

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w ine pr ess

Cheese of the month by La Cave à Fromage: Brie Noir ||| When Brie Noir is translated into English, it sounds like something quite different: Black Brie. But rather than a malaproprism reminiscent of that famous eighties television sitcom ’Allo ’Allo, this is a unique and very old cheese. Although there is no record of when and how Brie Noir first appeared, the very noble Brie can be traced back to the seventh or eighth century, when it featured on the tables of kings. There is not even a precise method for ageing Brie Noir – periods range from six months for a pale beige-rinded cheese up to 18 months when it acquires a unique darkness. Brie noir By that time, the cheese has dried, its rind is covered with dust and it is as brittle as a biscuit. Despite a mighty appearance and a distinct smell, it releases aromas of butter and walnuts. Aficionados are said to dip Brie Noir in their coffee – how much more French could it be? I by Eric Charriaux

A wine to enjoy with Brie Noir by Wine Story ||| Our ancestors in medieval times may well have left the ‘Francilian’ region (historic name for the Parisian region) with a Brie Noir in their bag. Its dry texture would have enabled travellers to take it with them on their journeys to the many market towns of the kingdom. What might our ancient cousins have drunk with this cheese? Certainly a wine which could also easily travel, such as a Vin Jaune from Arbois in the Jura mountains of north-eastern France. Vin Jaune is similar to a dry Fino from Spain (but not fortified) and gets its character from being matured in a barrel under a film of yeast, known as the voile, on the wine’s surface. The wine is made from a late harvested Savagnin grapes and acquires its characteristic yellow colour and nutty flavours as it ages and oxidises for the requisite time of six years and three months in open wood casks. The Vin Jaune is then bottled in special bottles called clavelins that hold 62cl. Historically the bottle size alludes to the remaining one litre of wine left over after six years of aging and evaporation. This old cheese would be well accompanied by a wine made by Aimé Rodet from Ménétru-le-Vignoble, who does a very rare but fantastic Vin Jaune. The fact that Aimé is 91 years old suggests that consumption of Brie Noir and Vin Jaune definitely helps you age well. I by Thibault Lavergne

Wine retailers less optimistic about sales this year ||| Sopexa, the French marketing group for food, wine and lifestyle, publishes an annual barometer of the international trade in wines. It shows a decline in overall sales expectations, with 57% of retailers optimistic about sales this year (compared to 67% in 2011) and a return to 2010 levels, but with an anticipation of recovery in 2013. By market, only Japan is upbeat, followed by Russia, while China, Canada, Belgium, Denmark and

Switzerland have strong expectations of declining sales, and the UK is in the middle. Italian wines seem to have suffered less from the downturn than French wines, with 49% anticipating increased sales for French wines against 54% for Italian. Both countries were at the same level (59%) in 2011. Italian wine distributors are especially optimistic about the British market with 68% expecting increased sales, against 55% for French wine distributors. I TL

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LosT in TRansLaTion Le Piège de La RessembLanCe The new bilingual version of the Cross Cultural booklet will be out soon This practical and helpful guide is designed to facilitate business dealings between the French and the British. Based on the real-life experiences of Chamber members, its brilliant insights, sometimes laced with humour, shed new light on the way the two cultures relate to each other, in life as well as business and in English as well as French. Lost in Translation / Le Piège de la Ressemblance will be available to purchase from the Chamber’s website shop for £6.

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News @ the Chamber F

ollowing a summer like no other when London hosted the highly successful 2012 Olympic and Paralympic Games, and Londoners showed their true spirit in welcoming the world, the Chamber has itself had a season of showcasing the best of Franco-British business and enterprise. Many companies worthy of the accolade were shortlisted for this year’s 16th annual FrancoBritish Intercultural Trophy, but the award went to relatively new kid-on-the-block French Radio London, which since its launch in 2010 has become both beloved of French and francophile Londoners and influential in its ambit. Then a unique Franco-British enterprise – Le Manoir aux Quat’Saisons – was the venue of the Luxury Club’s Dîner des Chefs in September, when members joined Raymond Blanc at his restaurant in the heart of the Oxfordshire countryside, dining on the finest British produce prepared in the best French tradition. There was also a cocktail celebration of the best of British and French luxury, bringing together for the first time the Chamber’s Luxury Club members with their British counterparts at Walpole for an evening of networking, conviviality and shared passion for excellence. Wider international relations were boosted by another extremely popular international wine-tasting event with members of the Austrian, Argentinian, Swiss, Georgian, Italian and French Chambers of Commerce who crammed into the famous Chinawhite nightclub in

good spirits, happy to sample each other’s outstanding wines and extend their networks. Standards of excellence were maintained in the forums too, with a series of high calibre speakers who have imparted their knowledge and insights to members on a number of different topics. In keeping with one of the year’s dominant themes, Tim Lawler of SportsAid spoke about engaging staff through sport at the first joint session of the HR/CSR Forum, highlighting how sporting values resonated with those espoused by any business. The Climate Change Forum heard from Hugo Harding of EDF Energy how it was approaching and implementing the government mandate to install smart meters in every home and SME in the UK within the next seven years. Infrastructure financing was the complex and knotty topic the Finance Forum grappled with, with Vincent Policard of KKR, Harry Partouche and Bénédicte Genthon of the French Embassy presenting private and public perspectives. For the Quarterly Economic Update, members were addressed by Stephen Nickell CBE of the UK Budget Responsibility Committee, who spoke about the fluidity and unreliability of forecasts, the employment conundrum and putting it all into perspective within the grand scheme of history. There has been something for everyone in this busy and eventful period, and thanks go to the Chamber team, which has delivered everything with its usual high standards and panache. I info - november / december - 63

new members

3 New patron members:

Hermès GB Ltd: Luxury goods retail & wholesale represented by Bertrand Michaud, Managing Director | www.hermes.com Thierry Hermès, a harness-maker, set up business in Paris in 1837. In 1880, his son transferred the family firm to its now-famous address, 24 rue du Faubourg SaintHonoré, where he expanded into the saddlery business. In 1918, with the advent of the automobile, the founder’s grandson, Émile Hermès, foresaw the changes to come in transportation. He launched a line of fine leather goods and luggage with ‘saddle stitching’. The Hermès style was born and soon extended to clothing, jewellery, silver, diaries, silk scarves, and other items. During the 1950s, Émile Hermès’ sons-in-law, Robert Dumas, together with Jean-René Guerrand further diversified his operations, while taking care to uphold

the brand’s integrity. From 1978, aided by other fifth and sixth-generation members of the family, JeanLouis Dumas brought renewed freshness to Hermès by expanding into new crafts and establishing a global network of Hermès stores. Since 2004, Patrick Thomas has held the position of Co-Executive Chairman of Hermès with the artistic direction being led by PierreAlexis Dumas since February 2009. Today, Hermès is active in 14 different sectors: Leather Goods, Men’s and Women’s Silks, Men’s and Women’s Ready-toWear, Perfumes, Watches, Diaries, Hats, Footwear, Gloves, Enamel, Art of Living, Tableware and Jewellery. International in scope, Hermès has continued to grow while remaining a family firm with a uniquely creative spirit that blends precision manufacturing with traditional craftsmanship.

Paul UK: Bakery / Patisserie represented by Maxime Holder, CEO | www.paul-uk.com PAUL is a ‘Maison de Qualité’ whose values have been perpetuated since 1889. It is also first and foremost a family concern: five generations dedicated to the taste of good bread since opening the first bakery. PAUL’s values have made it a

unique and exciting brand: love for bread, constant concern for quality, the spirit of a ‘Maison de Famille’ and respect for French tradition. PAUL has become a part of France’s culinary as well as cultural heritage. Beyond its native borders, PAUL is the ambassador of a French ‘art de vivre’ that is accessible to all – a small part of France found in some 24 countries worldwide with over 350 shops.

Renault Trucks: Commercial Vehicle Distribution represented by Marc Martinez, Vice President UK Region | www.renault-trucks.co.uk Renault Trucks manufactures commercial vehicles spanning the 2.8 to 44t range. It supports these vehicles via a comprehensive global network, offering a range of services from parts and maintenance to finance and insurance.

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In the UK, the company operates from its headquarters in Dunstable, with a network of over 70 strategically placed dealers. Its products have a reputation for productivity and fuel efficiency, borne out by the company’s increasing market share. Renault Trucks has a strong customer service ethos. Its strap line ‘Renault Trucks Deliver’ says it all; the vehicles deliver, the Company Delivers, the people deliver.

new members 3 new corporate members:

Capita Symonds | www.capitasymonds.co.uk/realestate Real Estate. Represented by Alan Dornford, Director

Our clients can select property services from our extensive offer or we can design a service specifically for them. This approach has built strong relationships with property companies, retailers and the UK’s biggest investment funds for over 30 years. We have a network of UK offices employing some 3,500 staff and benefit from the backing of Capita plc.

Locate Jersey | www.locatejersey.com Promotion of Jersey for business opportunities. Represented by Wayne Gallichan, Director

Locate Jersey is tasked with promoting Jersey business overseas, targeting inward investment, and encouraging new business into the island, enquiry handling, supporting diversification, developing partnerships, providing investor aftercare and creating local jobs.

Mason Hayes & Curran | www.mhc.ie Law Firm. Represented by Jérôme Dupuy, Counsel, Head of French Desk

Mason Hayes & Curran (‘MHC’) is one of Ireland’s premier full service business law firms. MHC’s London office is an important part of the firm’s relationships with the UK, and in conjunction with our dedicated French Desk, unique among Irish law firms, we provide strategic and commercial advice to French corporations and their UK subsidiaries on all aspects of doing business in Ireland.

17 new Active members: BearingPoint Independent management and Technology consulting Represented by Nick Dussuyer, Partner www.bearingpoint.com

BridgeStreet Hospitality Represented by Cecilia Oliveira, Brand Ambassador www.bridgestreet.com

City Green Ltd Design and build/ office fitout Represented by Fabien Lomondais, Sales Director wwww.citygreen.info

Clementine Communications Public relations and events Represented by Clémence de Crecy, Managing Director www.clementinecom.com

Club Gascon Fine dining restaurant One Michelin Star Represented by Emmanuelle Galdin, Marketing and Communication Manager www.clubgascon.com

Gantois Industries

Paper Team

Metal Processing Represented by Arnaud Tricoche, European Sales Manager www.gantois.com

Automatic dispensers of ecological wrapping paper Represented by Karin Obrecht, Director www.paperteam.fr

Halbronn Machine tools Represented by Bernard Bettan, Director www.halbronn.com

Pugnax Fx Capital

My Internship Abroad

Repetto

Placement agency Represented by Yves Perret, Director www.myinternshipabroad.com

Shoe manufacturer Represented by Hélène Franco, Administrative & Financial Director www.repetto.fr

Neotec Developpement

Sum Up Consultancy

Industrial vehicles and engines Represented by Emmanuelle GadauxRoux, General Manager www.neotec-france.com

Business development consultancy Represented by Marion Laleve, Managing Director www.sumupconsultancy.com

NewTownVision Ltd

The Jewellery Editor

Bilingual video production, media training & consulting Represented by Etienne Duval, Director-Founder www.newtownvision.com

Online magazine Represented by Christine Pasquier, Co-founder www.thejewelleryeditor.com

Nexdev Ltd

European business law firm, solicitors & avocats Represented by Stanley Rowe, Partner www.vovan-associes.com

Leading growth advisory service for SMEs Represented by Marc Clavereau, Director

Foreign exchange brokering firm Represented by Christophe Galan, CEO www.pugnax-fx.com

Vovan & Associes

info - november / december - 65

chamber shorties

Renewable Energy Trade Mission On 18-19 October, the Chamber organised a Renewable Energy Trade Mission in partnership with the Chambers of Commerce and Industry of Normandy, Brittany and North of France, aimed at connecting French and British companies in this field. Speakers from leading British energy companies and related fields including EDF Renewable Energy, Areva, Alstom and Atkins Global presented future projects and opportunities for collaboration. In one afternoon 109 B2B meetings were organised between 16 French businesses and 22 British companies as well as representatives of French companies in the UK. The next day the B2B meetings between British and French energy firms French delegation was welcomed in Ramsgate by Thanet & East Kent Chamber of Commerce and its Co-president, Laura Sandys MP, Co-Chair All Party Parliamentary Green Deal Group, Parliamentary Secretary to Greg Barker MP, Minister of State at the Department of Energy & Climate Change. The first offshore wind farm in the world was discussed with presentations from Vatenfall and Dong energy, and mention was made of the new London Array wind farm for which the 177th and final transition piece was installed on Friday, marking the completion of the foundations at the offshore project. I

Coming soon: The Chamber’s new Directory Published annually, the Franco British Trade Directory (FBTD) provides a detailed list of the Chamber’s 600 member companies according to their level of membership (Patron, Corporate or Active) along with useful information and contacts in both France and the UK. From blue chip companies to SMEs and entrepreneurs, the FBTD is a mine of information on the Franco-British business community and a key reference tool for companies looking to develop their networks and business in France and the UK. The FBTD is exclusively distributed to the representatives of Chamber member companies, free of charge, as a membership benefit. I For more information please contact Aude Reungoat on areungoat@ccfgb.co.uk

Welcome to our new Head of Publications & Communications, Keri Fuller Keri Fuller joined the Chamber in September as Head of Publications & Communications. She has worked in publishing for over 19 years, gaining international experience in the educational, academic and financial sectors as well as highend consumer magazines in the UK, Singapore and Southern Africa. Born 66 - info - november / december

and brought up in Zimbabwe, Keri graduated from the University of Cape Town (South Africa) with a BA/ English Honours and obtained a Master of Philosophy in Publishing Studies from the University of Stirling (Scotland). Before joining the Chamber, Keri spent over eight years at an international superyacht media company, initially as a sub-editor and managing editor of magazines and then making the transition to digital as online editor. I You can contact Keri Fuller on +44 (0) 207 092 6647 or kfuller@ccfgb.co.uk

The Chamber’s Business Consultancy team showcases the UK as an e-Commerce leader in Europe Our Business Consultancy team showcased the opportunities and trends in the UK’s e-Commerce sector at a conference during ‘E-Commerce Paris 2012’, France’s leading e-Commerce event, which took place 19-20 September. The UK was presented as the European champion in terms of e-Commerce revenue and practice. Spain, Norway and Germany were also represented. Sabrina Mimid, Head of Business Consultancy, provided an outlook of the market including key figures, trends and opportunities. The Business Consultancy regularly undertakes roadshows in France to promote UK business opportunities to French companies. I

Recruitment@the Chamber The Chamber’s Recruitment Service has launched its new website tab: www.recruitment-ccfgb.co.uk Candidates can now create their own accounts and become part of our database or apply online for the opportunities offered by Chamber member companies. Companies can find out how the Recruitment Service works and what support it can offer them in their search for talent. Member companies can also post their vacancies and will soon be able to access our mini CV database. Our Recruitment Service promotes diversity and focuses on social responsibility with its service dedicated to talented partners and part-time/ work from home/fixed-term contract positions. Within two months of launching, the database has more than 800 high profiles candidates and covers a wide range of disciplines: 40% are recent graduates; 37% come from the commercial and marketing sector; and more than 10% are talented partners of the Spouse Mission. I For more information, contact Véronique Revington on +44 (0) 207 092 6624 or vrevington@ccfgb.co.uk

‘Working in Great Britain’ Conference at the Institut Français The recruitment service of the French Chamber of Commerce, in partnership with ‘Londres Accueil’ and with the support of ‘Mamans à Londres’, is organising a conference on the theme ‘Working in Great Britain’. It is aimed at those trying to find the right job in the UK, looking for a family-friendly position, building a new career or even thinking about setting up a company. HR and law professionals, as well as people who have successfully gone through the system themselves ,will share their advice and experience, helping to demystify the process of achieving a professional life and developing skills in the UK. I When: Thursday 15 November, 10am – 12.30pm Where: Institut Français, 17 Queensberry Place, London SW7 2DT To book, please visit: www.londresaccueil.org.uk

Thank you Thierry! The Chamber wishes to thank Thierry Outin for his chairmanship of the Luxury Club. Having chaired the Club since September 2010, Thierry has been closely involved in many successful and highly memorable Club activities. The Chamber thanks Thierry for his time and leadership, and would like to congratulate him on his recent appointment as Directeur Général of Hermès Suisse. A new chair will be appointed in the near future. I

12 s e p t e m b e r

International Wine Tasting In a reprise of this popular event, French Chamber members got together with members from five other chambers to sample superb wines and network across different borders ||| Love of good wine provided much common ground for members of the Austrian, Argentinian, Swiss, Georgian, Italian and French Chambers of Commerce in Great Britain who gathered at Chinawhite for the fourth edition of the International Wine Tasting event on 12 September. The event was as popular as ever, with over 150 people enjoying an intimate and convivial atmosphere in the famous nightclub, networking with a wide range of nationalities, while quaffing a delightful array of vintages from the various countries. Each country had its own table with a selection of wines for tasting. For the French table, Enologia provided three superb wines, all from Château Plaisance: a Cuvée Alix Bordeaux White, a Cuvée Alix Premières Côtes de Bordeaux and a Tranquillite Rosé 2010. I KF

Members sampling the Chamber’s French wines

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recent event dîner des chefs

11 s e p t e m b e r

Luxury Club Dîner des Chefs at Le Manoir aux Quat’Saisons Set in the Oxfordshire countryside, Le Manoir aux Quat’Saisons is the creation of Chef Raymond Blanc, OBE, who envisaged a hotel and restaurant where his guests would ‘find perfection in food, comfort and service.’ For those members of the Luxury Club who attended the Dîner des Chefs there on 11 September, the whole experience was, indeed, nothing short of perfection

||| Guests arrived in time to enjoy a stroll – glasses of Perrier-Jouët Champagne in hand – around Le Manoir’s fairy tale gardens – of which there are seven altogether – illuminated by the soft, late afternoon light, and were later joined by chef Raymond Blanc, himself a Corporate member of the Chamber and the Luxury Club. Florence Gomez, Managing Director of the Chamber, offered her thanks to sponsors Pernod Ricard UK for the Champagnes and cognacs, and Citroën for transporting guests. She then introduced Raymond Blanc, giving a fascinating account of his arrival in the UK 30 years previously, his eventual acquisition of Le Manoir, the only hotel restaurant to have achieved and maintained its two Michelin star status for 28 years, and the way he had transposed his ‘art de vivre’ to his adopted country. Raymond Blanc then took the floor, speaking about the strong cultural and business ties between Britain and France and how there were great opportunities to make these even stronger. Phil Duffy from sponsor Pernod Ricard UK introduced the two Perrier-Jouët Champagnes – Grand Brut NV and Belle Epoque 2004 – giving a history of the boutique House and noting that it had started exporting to Great Britain in 1815, within four years of its establishment, and had received a royal warrant from Queen Victoria in 1861. Seven delectable courses were set before the diners, beginning with an assiette aperitif of tomato essence. This was followed by confit of Landais duck liver with spiced cherries, almonds and mango chutney, and then Devonshire crab, served with pink grapefruit and buckler sorrel. A risotto of wild mushrooms preceded the roasted grouse accompanied by cabbage, bacon and blackberry jus. Desserts comprised a raspberry and strawberry soup with mint and basil, and ‘our millionaire shortbread’ served with salted butter ice cream. The menu reflected seasonality and impeccable provenance, with many of 68 - info - november / december

Fine dining in the best French tradition

the ingredients coming from Le Manoir’s own extensive vegetable gardens. Carefully selected wines accompanied every course. Between courses Raymond Blanc answered questions and regaled guests with stories of his early days in England and his first unappealing encounter with fish and chips. He acknowledged that the British are now reconnecting with their food, embracing regionality, history and local ingredients. What had initially looked like dilution of food culture in the UK, he said, was in fact an enrichment through multiculturalism, and he praised the up-andcoming British chefs who were doing very exciting things. An investor in that new generation himself, Raymond Blanc has trained over 28 Michelin star chefs. To round off the gastronomic repast, guests were treated to the smooth intensity of the renowned Martell XO cognac, courtesy of Pernod Ricard UK, which was served with café Pur Arabica, petit fours and Le Manoir chocolates. Extraordinary food – created from the finest British ingredients, conviviality and a melding of cultures had made for an exquisite evening in the best French tradition. I KF

recent event f r a n c o - b r i t i s h i n t e r c u lt u r a l t r o p h y

26 s e p te m b e r

Franco-British Intercultural Trophy For the fifteenth year running, members of the Chamber voted for a company they deemed to be at the forefront of Franco-British business relations, and then gathered for a cocktail reception at the May Fair Hotel for the presentation of the trophy to the winner

||| As a large international company, this year’s sponsor, AXA, is itself a great proponent of cross-cultural relations and before the award was made, Jean Drouffe, Group Finance, Risk and Strategy Director at AXA UK, spoke about its ‘Vive la Différence’ campaign. It is about ‘recognising the differences between British and French,’ he said, ‘but rather than saying that one is better than the other we wanted to benefit from each other’s cultures.’ To increase awareness of ‘the French way’ AXA organises for its staff an annual calendar of cultural and social events along the themes of food and wine, national celebrations and language. The award went to French Radio London, and was handed over to CEO Pascal Grierson by David Herbinet

David Herbinet hands the trophy over to Pascal Grierson

Florence Gomez, Pascal Grierson, Jean Drouffe, David Herbinet

who represented last year’s winner Mazars. INFO magazine later spoke to Pascal Grierson about what winning the trophy means to French Radio London, and about what it has been doing to foster intercultural relations. ‘I am deeply proud to have won this award - it is especially rewarding to join such a distinguished list of previous winners, particularly as we are only two years old. We are a small team and as a result everyone works exceptionally hard. Winning has also meant my team feels even more motivated to take FRL to even greater heights. The essence of FRL is all about signposting, promoting and celebrating ways in which our two cultures interact, not only socially and professionally but commercially too. This ranges from bringing brands together for a common cause as we did with our live concert at Koko in Camden, creating promotions/competitions featuring UK brands (Barbican, Pure Radio receivers, Knight Frank) and communicating them to our French and Francophile audience, or vice versa, for example driving Renault’s electric Twizy around London and promoting it to a predominately UK public. Fundamentally though, FRL’s output is always designed to appeal to our combined audience of French, Francophone and Francophile listeners, embracing the Franglais where relevant! Our news, culture, sports, travel, interviews and ultimately our music policy, all serve to underline the deep relationship these two cultures share, have always shared, and will continue to share.’ Asked about the significance of an award like this for developing stronger ties between France and the UK, he said, ‘The CCFGB plays a critical role in developing these ties. To have an award like this bestowed upon us, voted for by the members themselves (who are to a very large extent our core commercial audience) signifies a high level of confidence in FRL’s ability to also contribute meaningfully to this development. As the holder of this award for the next 12 months, it is a unique privilege and opportunity for us to use it to enhance our role in Franco-British cross culture!’ I KF info - november / december - 69

f o r t h c o m i n g pat r o n

Exclusive wine-tasting event for Patron & Corporate members

c o r p o r at e e v e n t s

VIP morning for Patron members at the Royal Academy of Arts

When: 27 November, 6.45pm – 9pm Where: Australia House

When: 30 November, 8am – 10.30am Where: The Royal Academy of Arts

The Government of South Australia will be hosting a wine-tasting evening for the Chamber’s Patron and Corporate members. It will take place at Australia House in the presence of Bill Muirhead, the AgentGeneral for South Australia. Our Wine Master for the occasion, Sarah Ahmed, will present an interactive wine tasting, exploring the differences between Old and New World wines.

The Chamber’s Patron members are invited by the Royal Academy of Arts to a VIP viewing of the fantastic Bronze exhibition, featuring some of the world’s finest bronzes from antiquity to the present. Please register in advance as places are limited.

Ambassador’s Brief for Patron & Corporate members

When: 17 December, 6pm – 7.30pm Where: The Residence of the French Ambassador

Following the European summit on 13 and 14 December, H.E. Bernard Emié will be talking about the outlook for Europe and the challenges for France and the UK. For more information or to register for these events contact Karim Mijal on +44 (0) 207 092 6638 or kmijal@ccfgb.co.uk

f o rt h co m i n g e v e n t s

Franco British Business Awards 2012 When: 21 November 2012, 7pm – 10.30pm Where: The ME London Hotel, 337 Strand London, London, WC2R 1HA Members: £90 + VAT per person / Table of 10: £800 + VAT Non-member: £135 + vat per person / Table of 10: £1200 + vat Co-organised by the French Chamber of Commerce in Great Britain and the Franco-British Chamber of Commerce & Industry in France Sponsored by: Barclays, Eurostar, Mazars Supporting sponsor: MIC Hotel Partners: CCI International, Invest in France Agency, UCCIFE, UKTI Wine is generously supplied by Enologia. The Franco-British Business Awards have been created to encourage and promote the bilateral trade and economic links that exist between our two countries by recognising the achievements of British and French companies. Three Awards will be presented: SME/Entrepreneur Award; Award for Innovation; Jury’s Special Award Join us for a prestigious dinner at The ME London Hotel which will offer opportunities for networking and meeting a wider community of peers in other Franco-British companies. You may also wish to invite clients, guests or colleagues to enjoy this cross-cultural evening with you.

To register or book for these events contact Cécilia Gonzalez on +44 (0) 207 092 6642 or cgonzalez@ccfgb.co.uk 70 - info - november / december

f o rt h co m i n g e v e n t s

Annual Financial Lunch When: 3 December 2012, 12pm – 2.30pm Where: The Dorchester Guest speaker: Benoît Coeuré, Executive Board Member of the ECB Members: £100 + vat per person / Table of 10: £900 + vat / Table of 12: £1000 + vat Non-members: £135 + vat per person / Table of 10: £1200 + vat / Table of 12: £1350 + vat Sponsor: Société Générale Corporate & Investment Banking The Annual Financial Lunch is one of the Chamber’s biggest events of the year. It was created in 1997 and has been sponsored by Société Générale Corporate & Investment Banking ever since. It usually attracts 120 to 150 participants including French and British senior representatives from the international banking, legal, accountancy, industrial and commercial communities. About Benoît Coeuré

Benoît Coeuré became a member of the Executive Board of the European Central Bank (ECB) in January 2012. He is responsible for Market Operations, Research, Information Systems, and Payments and Market Infrastructure. Prior to joining the ECB, he served in various policy positions at the French Treasury, including Deputy Director General and Chief Economist of the French Treasury, co-chair of the Paris Club and G8 and G20 Finance Sous-Sherpa for France, Assistant Secretary for Multilateral Affairs, Trade and Development, and Chief Executive of Agence France Trésor. He also co-chaired the G20 working group on reforming the World Bank and other multilateral development banks in 2009, and the G20 sub-working group on global liquidity management in 2011.

Mr Coeuré is a graduate of École Polytechnique. He has a degree in Statistics and Economic Policy from the École Nationale de la Statistique et de l’Administration Economique (ENSAE) and a BA in Japanese. He has taught international economics and economic policy at École Polytechnique and Sciences Po, and has written numerous articles and books on economic policy, the international monetary system and the economics of European integration. His publications include Dealing with the New Giants: Rethinking the Role of Pension Funds (CEPR, 2006, with Tito Boeri, Lans Bovenberg and Andrew Roberts) and Economic Policy: Theory and Practice (Oxford University Press, 2010, with Agnès Bénassy-Quéré, Pierre Jacquet and Jean Pisani-Ferry).

About Société Générale Corporate & Investment Banking

In London since 1871, Société Générale currently employs approximately 2,600 staff in the UK and is active in Corporate & Investment Banking, Private Banking and specialised Financial Services. Société Générale Corporate & Investment Banking is a leading player with 11,000 professionals in over 33countries across Europe, the Americas and Asia Pacific. The UK is at the heart of Société Générale Corporate & Investment Banking’s European sustainable growth strategy and a key

component of its regional set up. London is an essential component of the dual European product delivery platform alongside Paris. Société Générale Corporate & Investment Banking offers value-added advisory and integrated solutions to help European and UK clients optimise their financing and investment needs. The Corporate & Investment Bank tailors solutions for them by capitalising on its worldwide expertise in Investment Banking, Global Finance, and Global Markets.

Christmas Cocktail When: 11 December 2012, 8.30pm – 12am Where: Institut Français Members: £50 + vat per person / Special Offer: £80 + Vat for 2 people / Non-member: £70 + vat This year, Christmas Time means Cinema and Festivities. Indulge in canapés whilst networking in a festive atmosphere. Join us for a unique evening, featuring a ‘Spécial Cinema’ fancy dress party and a Christmas Raffle with more than 50 prizes to be won, while a DJ plays a soundtrack of classic French and

cinema music hits. Expect glitter and sparkle, James Bond, the Adams Family or Brice de Nice… Come dressed up on your own or in a group. The person with the best fancy dress costume will win a fabulous prize. Come and celebrate the end of the year with us in style! info - november / december - 71

f o rt h co m i n g f o ru m s

clubs

Finance Forum

HR Forum

When: 4 December, 8.30am – 10am Where: The Chamber Chaired by Rose Gledhill, HR Director, Northern Europe, International SOS Guest speaker: Eve Mathieu, Resourcing, Talent and Development Director, EDF Energy Theme: ‘International Mobility’ Open to HR Directors and HR Professionals only

When: 6 December, 8.30am – 10am Where: The Chamber Co-chaired by Patrick Gougeon, UK Director ESCP Europe and John Peachey, Managing Director and Global Head of Financing Solution Group HSBC Theme: ‘The role of rating agencies’ By application only

Climate Change Forum

When: 11 December, 10am – 12pm Where: The Chamber Chaired by Richard Brown, Chairman of Eurostar Theme: ‘Funding the Green Economy’ By application only

forums recent sme

For more information contact Karim Mijal on +44 (0) 207 092 6638 or kmijal@ccfgb.co.uk

clubs

entrepreneurs club

5 september

SME & Entrepreneurs Club On 5 September, the SME & Entrepreneurs Club invited its members to a brainstorming session. The meeting was co-chaired by Florence Gomez, Managing Director of the Chamber and Frédéric Larquetoux, Chair of the SME & Entrepreneurs Club, and was attended by over 20 entrepreneurs and SMEs’ key representatives ||| The aim of the session was to gather feedback from members and to encourage an open and engaging conversation on how the Club fulfills its mission and could strengthen its role as a champion for SMEs and entrepreneurs. It was also an opportunity to suggest new activities and to define the Club’s agenda going forward. Florence Gomez summarised the Club’s history and pointed out that in addition to this platform, the Chamber offers a diverse portfolio of services dedicated to SMEs and entrepreneurs from specific publications to business and membership services tailor-made for their needs. Frédéric Larquetoux presented a list of recent achievements that have contributed to moving the Club forward: inspirational speakers, a choice of topical subjects for the Club’s sessions, a proactive presence on LinkedIn and the set-up of feedback mechanisms – all positive factors illustrating the Club’s dynamism and ability to attract new members. The roundtable gave each attendee the opportunity to express his/her opinion. All agreed that the Club is a critical asset for the Chamber and a fantastic platform for SMEs and entrepreneurs seeking to expand their 72 - info - november / december

networks, to strengthen their expertise and to share their personal and professional journey. The Club’s capacity to attract a diverse audience is one of its strengths but structural efforts will be made to focus on SME and entrepreneur leaders as the target audience. In order to achieve this objective, future sessions will focus on presenting and promoting best practice in the areas of pitching techniques, relations with suppliers, logistics, lessons learned from failures, serial entrepreneurs, etc. The Club will also host a range of new activities and will introduce a ‘Success Stories’ event in 2013 as well as regular gatherings called ‘The Club at the Pub’. Finally, a survey will be produced to reach those SMEs and entrepreneurs who were not able to join this brainstorming session. This very successful brainstorming session highlighted the passion and enthusiasm of so many SMEs and entrepreneurs. It also demonstrates the Club’s capacity to engage positively with its members, as well as the importance of developing new activities to support, promote and celebrate entrepreneurship and to position the Club as the best partner for SMEs and entrepreneurs. I KM

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r e c e n t c l i m at e c h a n g e f o r u m

25 sep tember

Smart metering, smart grid Energy suppliers have been handed a government mandate to install smart meters in the homes and business premises of all residential and SME customers by 2020. How EDF Energy plans to surmount this logistical, infrastructural – and in many ways behavioural – challenge was the topic of Hugo Harding’s presentation at the latest Climate Change Forum meeting. ||| As Retail and Commercial head for EDF Energy’s Smart Metering Programme, Hugo Harding is involved in masterminding the marketing campaign to win the hearts and minds of customers, for ‘putting the consumer at the heart of it’, he says, is key to a successful roll-out. The logistics are ambitious: energy suppliers have to replace over 53 million gas and electricity meters in 30 million homes and small businesses within a period of five years (the mass roll-out starts Q4 2014). That means 35,000 meters have to be installed every single day. Moreover, for energy suppliers this is not a business investment, but a cost – to the tune of £12 billion for the whole sector. Critical to managing this cost and getting consumers to modify their energy consumption behaviour, will be convincing them of the benefits that smart meters will bring. So what is the point of putting smart meters into every home and small business? From the government’s point of view it is a tool to influence consumer behaviour and thereby reduce energy consumption and carbon emissions. Longer term, it is a step towards the vision of a ‘smart’ new world where every home in Britain is technologically enabled and part of a sustainable, economic and secure Smart Grid. No other country has had a smart meter roll-out with this main objective so there are no useful benchmarks, nor has any country attempted anything as ambitious – or expensive. As for the benefits, consumers will first and foremost be presented with their actual energy use and its cost, and thereby empowered to change their behaviour, reducing their consumption and possibly their bills. Those bills will be accurate rather than estimated and there will be a greater choice of tariffs and payment methods allowing bespoke pricing plans. Used together with new technology, such as in-home displays and the Internet, smart meters will help consumers make more informed decisions about energy consumption and sustainability. From suppliers, consumers can expect to be offered desirable smart products that compete on innovation, differentiation and price. This is just as applicable for small businesses, and the buy-in from cost-conscious SMEs is expected to be enthusiastic. Businesses will benefit from staff engagement, tailored packages and personalised account management.

In painting the bigger picture, the Department of Energy and Climate Change (DECC) has set out the quantifiable benefits it expects from the introduction of smart metering. These include a £4.39 billion saving in energy consumption; carbon savings and having to purchase fewer (or sell more) EU Emissions Trading System (ETS) allowances; network benefits from better data and planning; generation benefits in the form of more sophisticated tariffs, which will, in turn, incentivise load shifting that is good for the electricity system; and microgeneration. In addition to design and infrastructural issues, suppliers have four main competitive challenges. The first is striving to minimise the impact on customers’ bills resulting from the negative business case, but without generating concomitant bad headlines and damaging customer good will. The second is dealing with the advantage that suppliers with larger customer bases will have in terms of lower deployment costs and spreading costs. The third is the need for the national programme to be ‘set up for success’ if costs are to be minimised, customer service not compromised and delivery risks not increased. The fourth is increased competition where suppliers will use the roll-out profile to entice customers away from each other, and switching is expected to increase within specific customer groups. So what can the energy suppliers hope to get out of it? The silver lining is that it presents a unique and unprecedented opportunity to speak to every single customer. While this carries its own risks, it is, nevertheless, a platform for the biggest engagement campaign ever. Further down the line, the data from smart meters, if customers are willing to share it, presents new opportunities for marketing innovative services to customers that deliver tangible benefits, and this has potential for business partnerships with product suppliers. It also offers the chance to make a break with the past and the old way of doing things, giving suppliers a pivotal part to play in the industry revolution. The UK smart meter roll-out will be ground-breaking and ambitious. It poses some steep challenges. But for the Government and the energy suppliers involved, the imperative is to set the programme up for success and to get it right the first time. I KF info - november / december - 73

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recent finance forum

clubs

27 s e p t e m b e r

Infrastructure financing: bridging the gap between demand and risk aversion Private and public sector perspectives on the knotty issue of infrastructure financing were presented and discussed at the most recent session of the Finance Forum ||| Quality infrastructure is key to international competitiveness and economic growth, which is why infrastructure build and development is the single largest capital expenditure in many countries. But it is a hungry mouth to feed – OECD countries alone need $50 trillion in capital investment over the next 20 years – and funding flows for such projects have become constricted. Government revenues are squeezed and private sector investment is contingent upon bank funding, made scarce by regulatory and balance sheet constraints. So how can this infrastructure financing gap be bridged? Who are the potential investors? How should projects be structured to meet expectations and mitigate risk? Posing these questions, co-chair of the Finance Forum and UK Director of ESCP Europe Patrick Gougeon introduced the topic at the latest Finance Forum meeting on 27 September. He pointed to figures showing the sharp decline in total investment since 2007 and the concomitant rise in government spending, which, given current economic conditions, is unlikely to be sustainable. His conclusion was that due to the lower contribution of bank loans new financial schemes need to be imagined with a bigger role for capital market funding. However, he noted that projects go through phases when the risk exposure is higher, and current risk aversion may deter investors at those crucial stages. Vincent Policard, Director of Infrastructure at KKR then presented an investor’s perspective of infrastructure financing, defining ‘eligible’ infrastructure as a physical asset with certain characteristics, including a long, useful life, providing an essential public service, high barriers to entry, visibility of future cash flows, correlation to inflation and limited exposure to the economic cycle. He reiterated the point that the global need for infrastructure investment is great – Europe itself requires €2 trillion spent on transport links and energy projects within the next decade. There is an active market for existing infrastructure assets, he noted, even if activity levels are lower than they were a few years ago. Looking at the rationale for an active market place he compared sellers’ and buyers’ perspectives. Sellers include states compelled to seek private financing in challenging times and corporates divesting infrastructural assets because 74 - info - november / december

of changes in the regulatory environment or financial pressure. On the other hand buyers are looking at those characteristics that make infrastructure an attractive asset class, particularly when compared to other under-yielding or underperforming assets such as stocks, sovereign bonds and commodities. He honed in on the challenges of infrastructure financing, which include the size of assets, requiring significant capital commitment upfront or over time, the necessity for a long-term view, low margins of error on pricing and competitive pressure on returns, the risk profile and the aspect of public scrutiny. The European Project Bond Initiative and UK initiatives such as the Pension Infrastructure Platform and UK Guarantees Scheme were scrutinised in terms of their objectives and challenges. While the investment case is compelling, the fine detail throws up challenges about the kind of risk investors are willing to take, pension funds and construction risk being one example of an unlikely match. The public sector was represented by Harry Partouche, Financial Counsellor in the Economic Department of the French Embassy in the UK, who together with Bénédicte Genthon focused on the history and performance of PFIs and PPPs, asking whether they could ever be a win-win for governments and the private sector. UK experience has shown public finances often have to be used to finish projects and the allocation of risk is not fair with investors having to ask for yields higher than the public cost of borrowing, making projects costly for public funds. Governments wanting to move quickly would be better off borrowing to invest in infrastructure than undertaking protracted initiatives. While reforms are in the pipeline, PFIs and PPPs remain problematic ways of financing infrastructure projects. Bringing in different kinds of investment at stages of the project most appropriate to their risk appetite was mooted as a possible solution, with senior debt and pension funds more likely to come in at the end of the construction period. But finding money for the first – most risky – stage remains an issue. Nevertheless, the discussion concluded on an optimistic note, for the demand and the opportunities are huge, and that will surely propel the drive to find workable financing solutions. I KF

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r e c e n t q u a r t e r ly e c o n o m i c u p d at e

4 oc to b e r

Appearance, reality and the employment conundrum The uncertainties and mysteries plugged into the current state of the economy make for flaws in forecasting, but a historical view supports eventual recovery ||| The state of the economy as we the world had recovered. currently perceive it may be quite France’s figures are not too different in reality, but it will be at dissimilar to the UK’s with 0.2% least 20 years before the true picture growth predicted for 2012 and 0.7% becomes apparent, said Stephen in 2013. The big question for both Nickell CBE, who addressed some countries is what is going to happen 50 guests at the Quarterly Economic in the Eurozone, but he foresees Update on 4 October. He is one of a ‘muddling through’ rather than a three members of the UK Budget ‘blowing up’. Nevertheless Eurozone Responsibility Committee which runs weakness will persist, and with 50% the Office of Budget Responsibility, of its exports going to the Eurozone, an independent body set up in 2010 the UK will not be unscathed. to produce the official forecast for Stephen Nickell CBE As for the big puzzle of how a the economy and public finances. million more private sector jobs Such hindsight reviews are largely down to could have been created against the backdrop of a methodological improvements, he explained, which flat economy, the fall in public sector employment now cast a very different light on the early 1990s and negative productivity growth, he proffered recession compared to how it was seen at the time, and four explanations, while remaining unconvinced he also gave the example of fiscal policy in the 1960s by any of them. Incorrect data – GDP rather than being set on the premise that there was a large current employment figures - is one explanation he dismissed account deficit, when in fact exports were not being as inconceivable. The second is labour hoarding counted properly. – firms hanging on to skilled labour so they are well Presenting the OBR’s March figures with the caveat placed when demand recovers. This, he argued does that they were currently undergoing revisions to be not account for new hires, and neither can it be revealed in December, Stephen Nickell was quite frank attributed to an increase in part-timers as the total about the foibles of forecasting. These figures forecast hours worked do not stack up. The third explanation modest growth of 0.8% in 2012 and a return to normal is the rapid growth in self employment, but while this growth of 2.7% in 2014, but negative national data may affect productivity – the self employed generally since will necessitate some changes, with consensus do not earn or produce as much – it cannot explain currently putting annual growth at -0.5%. Most the figures alone. Fourthly, tight credit conditions forecasts have everything getting back to ‘normal’ in mean that dynamic firms are finding it hard to expand three to four years’ time, although, as he pointed while weak firms have kept going, but he questioned out, this default position was a constantly moving how this would increase employment. It remains a goalpost - in 2010 forecasters were bullish about complete mystery for which there is, as yet, no serious 2011/12, not having anticipated how rising inflation explanation, he concluded. and low income growth would hammer consumption. So what will be the triggers for growth? In a Yet, while some believe the time has come to accept word, consumption. But consumers need more a ‘new normal’, he sees no reason why the current disposable income to start spending again and crisis should permanently affect the world, citing the for that, inflation and productivity have to swop Napoleonic Wars and the World Wars as historical trajectories. Working out how to pull that trigger examples of extreme economic shocks from which remains the big challenge. I KF info - november / december - 75

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l u x u ry c l u b c o c k ta i l r e c e p t i o n

10 o c t o b e r

Walpole and the Financial Times join the French Chamber for a cocktail reception to celebrate luxury British and French luxury was the toast at a cocktail reception hosted at the May Fair Hotel on 10 October by the French Chamber of Commerce in Great Britain and its Luxury Club, together with Walpole and in association with the Financial Times ||| The event brought together for the first time an impressive group of chief executives of British and French luxury businesses, who were able to foster connections and network over glasses of Perrier-Jouët Champagne and Chivas Regal 1812 cocktails. Guests were welcomed by Florence Gomez, the Chamber’s managing director, who thanked the May Fair Hotel for the beautiful penthouse venue, complete with amazing views of London, as well as the canapés, and Pernod Ricard UK for generously providing the Champagne and cocktails. She acknowledged that the idea of bringing together the best of French and British luxury brands in mutual celebration was initially discussed with Ben Hughes, Chairman of Walpole and Deputy CEO - Global Commercial Director of the Financial Times, when they first met over a year ago, and thanked all those who had brought it to fruition.

Touching on the importance of the luxury sector to both countries, Florence noted that despite the economic gloom, luxury businesses were forecast to grow between 6 and 9% in 2012, and congratulated those present for successfully weathering the storm. She also spoke about the Chamber’s Luxury Club which was established in 2010 for the significant 10% of the Chamber’s members involved in the luxury markets. These range from iconic brands, high-end hospitality services and prestigious cultural institutions to Michelin-starred chefs - with the aim of encouraging exchange of experiences, best practices and know-how through networking and learning. She then introduced the guest of honour, H.E. Mr Bernard Emié, French Ambassador to the United Kingdom. In his address, H.E. Mr Bernard Emié, French Ambassador to the United Kingdom, noted that the luxury companies represented had made a decisive

Lucia van der Post, Associate Editor of FT’s How to Spend It

H.E. Mr Bernard Emié with Julia Carrick, CEO of Walpole

76 - info - november / december

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l u x u ry c l u b c o c k ta i l r e c e p t i o n

contribution to all economies, remarking that luxury goods companies employ more than 200,000 people in France and around one million in Europe. The French luxury goods industry is the leader in export outside Europe with 75 companies alone accounting for €31 billion turnover in 2012, of which 84% were exports. ‘So the luxury goods sector represents an undeniable competitive advantage for France and European countries in the face of international competition,’ he said. ‘We are today at the forefront of an already dominant European industry with a 70% market share and €440 billion turnover in 2010 that is 3% of EU GDP.’ Numbers aside, ‘Luxury is a factor in France’s influence around the world,’ he said. ‘The products of this industry have a strong symbolic value reflecting the expertise of French artisans. It is no exaggeration to talk about the genuine national industry and cultural heritage, and I know this can be shared in the UK as well.’ He encouraged French and British luxury companies to work together to ensure they remain the best in the sector. Ben Hughes then spoke about Walpole and its role in nurturing and championing British luxury at home and abroad. For those wondering what the connection with the Financial Times was, he explained that the FT was a founding member of Walpole, and that Julia Carrick, CEO of Walpole, had established the FT’s How to Spend It along with Associate Editor Lucia van der Post, both of whom were in attendance. Guests had already familiarised themselves with the exquisite Perrier-Jouët Champagne, 18-year-old Chivas Regal 1812 and sublime cocktails, when Nick Morton from Pernod Ricard stepped up to say what a pleasure it was for Pernod Ricard, an international company whose character is so strongly shaped by its provenance and family roots, to be involved in such an event. He said it felt ‘as if it’s embracing all the differences that make our unique character as companies whilst celebrating the shared qualities that unite us as a luxury industry’. He added that the theme was neatly encapsulated by the drinks – a French wine aperitif and a Scottish whisky digestive – and remarked on how their shared qualities – a proud heritage of over 200 years, the expertise of master craftsmen, a passion for ingredients, the sanctity of terroir – were all elements familiar to luxury companies. ‘The final element is conviviality – the magic and pleasure, which we are all in the business of creating for our consumers,’ he said, and in that spirit of conviviality and shared passion the evening unfolded. I KF

10 o c t o b e r

Left to right: Anthony Lee, Florence Gomez, H.E. Mr Bernard Emié and Ben Hughes

Pascal Aussignac, Chef at Club Gascon

A convivial atmosphere as Champagne and cocktails flowed info - november / december - 77

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csr forum joint session

9 oc to b e r

Staff engagement through the prism of sport 2012’s unprecedented summer of sport unleashed a unique feel-good factor, creating much positive energy and refreshing perspectives. So how do you capture this and use it to engage with your staff, your teams, your affiliates and even beyond to your clients and customers? ||| This was the question posed by Tim Lawler, Chief Executive of SportsAid at the joint HR/CSR Forum held at the Chamber on 9 October. Rather than supporting a charity at arm’s length, he put forward the idea of a ‘joint venture’ with SportsAid, a sports charity that focuses on supporting young sports talent before they get to the stage when they qualify for Lottery funding. He pointed out that five out of the seven young athletes who lit the cauldron in the Opening Ceremony had been supported by SportsAid. ‘We worked with them, we think they are heroes, we’d like to translate that into “an inspiring generation”, but we haven’t got the fire power to do it. We need your collaboration,’ he said. What SportsAid offers is a bespoke package of staff training and engagement, tailored to address the challenges and harness the objectives that each business has. This would pivot on SportsAid’s assets - utilising the language and idiom of sport within a workplace framework (that might include the virtues of sport, the sporting journey, preparation, execution, goal-setting, time management, reaction to failure, mentoring and managing challenge among other things) and the athletes themselves. An organisation would directly support a stock of

Young athletes supported by SportsAid: Jemima YeatsBrown, Jonny Tye, Gemma Kersey, Alex Wright, Fran Brown (front row); Serita Shone, Kaitlyn Lewis, Dawud Issa, Alistair Heselton, Amy Lineham, Joe Lawrence, Tom Barras, Jordan Dalrymple, Kate Curran (back row) 78 - info - november / december

athletes it could call its own (contributing £1,000 per athlete per year). Staff could be engaged from the very beginning in the choice of athletes, and be involved in the interaction with those athletes, which might include visits to the office, blogging, a buddy system (taking responsibility for managing the athletes), volunteering to watch them compete in events and even further fundraising. Rather than being prescriptive about the engagement, SportsAid would work with the company to find a suitable level or framework, be it as a charity of the year, through events or affiliation, as a themed internal training programme or an external marketing campaign. Tim Lawler cited examples of the diverse ways that SportsAid had partnered with companies. Comet devised staff training ‘kit bags’ to help its staff achieve ‘personal bests’ for their individual sales or skills targets, while FedEx launched a strong visual campaign on its fleet of vans and online advertising with the ‘Live to Deliver’ slogan to motivate staff and appeal to customers. Lloyds TSB took its partnership with SportsAid a step further by inviting SportsAid athletes into its branches to meet staff, customers and clients, and get involved with its graduate recruitment scheme. Tim emphasised the role that having or building in ‘fun’ plays in engaging staff successfully and helping to change attitudes and thinking. He acknowledged that this was a new way of working with a charity but pointed to the winds of change – in attitudes, smarter working and relevant focus - that support such an approach now. Trends include collaboration - working together rather than for something; co-creation in the context of a partnership; sharing data to inform decisions and the realisation that realism and ambition need not be mutually exclusive. Answering a pertinent question about why multinational companies should support British athletes, Tim Lawler revealed that SportsAid had worked with GDF Suez, adapting the model for like-minded organisations across Europe. It was a matter of sharing the intellectual property to roll out over other sectors and countries, he said. Whatever the context, ‘backing winners’ is a message that resonates in any business. I KF

Heart attack

mid-fli

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active leaks

radio Threat from

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Stranded in Lib ya

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A South African ex ecutive and his fam ily had been living an d working in Libya for the past three an d a half years. He was shocked when ne ws came of violen ce against citizens. “Th at’s when I realized I had to get out an d get my family to safety,” he says. Hi s company is unab le to arrange for them a flight back home and he waits for the Go vernment to rescu e him and his family .

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