Faouzi Khoury puts Daimler Chrysler in the dock
Beirut-based automobile distributor Faouzi Khoury and Sons last month filed a lawsuit in the US state of Delaware against car manufacturing giant DaimlerChrysler Corporation and Chrysler International Corporation.
The dispute, for which court hearings began on April 21, arose after Faouzi Khoury accused DaimlerChrysler of reneging on several contracts. These included the delivery of 90 specialized Dodge Ram pick-ups, converted to military field ambulances and destined for the US Army in Iraq.
In late 2005 and early 2006, Faouzi Khoury had won several contracts with the US military in Iraq. It now alleges that DaimlerChrysler not only failed to deliver the 90 Rams necessary to fulfill one of those contracts, but also made a direct and “unauthorized” bid for a separate contract to supply 151 specially armored Dodge Durangos to KBR, a subsidiary of the US-based Halliburton company.
“We discovered that DaimlerChrysler undercut us for the Durango contract from their Dubai regional office, with the tacit approval of head offices,” Elie Khoury, General Director of Faouzi Khoury and Sons, told EXECUTIVE.
“This was against the guidelines of their office presence in Dubai, from where they are not allowed to distribute armored Dodge, Jeep or Chrysler vehicles. They knew that we were making a bid, and had even given us a complete quote to supply the cars to us. They then used our contacts and connections to win the bid themselves – losing us a margin of $8.5m”
Khoury says his firm was effectively cut out, losing valuable customers built up over a number of years. “Our relationship with DaimlerChrysler goes back to 1991 and has been excellent,” he says. “We’ve even won awards for our performance in the region.”
Michael Palese, a spokesman for DaimlerChrysler, rejected the accusations in the lawsuit, which was filed jointly by Faouzi Khoury and its US partner, Khofaz USA.
Palese claimed that DaimlerChrysler never accepted the contract for the 90 Rams, adding that the firm was already involved in legal action with Faouzi Khoury to receive payments of some $5m for over 800 field ambulances that had already been delivered.
Elie Khoury calls this accusation “totally absurd and untrue,” saying that DaimlerChrysler’s arrangement was to be paid directly by the US Army, not through the Lebanese distributor, and that police vehicles, not ambulances, were involved.
A ruling from the Delaware Chancery Court is expected in the near future.
Kefraya on the move
It has been a good 2006 so far for Chateau Kefraya Lebanon’s second biggest producer. The winery’s flagship wine, Comte de M (which first came to the world’s attention in the late 90s when it was championed by the great Robert Parker) has received a new plaudit, this time from Frenchman Michel Phaneuf in his Le Guide du Vin 2006, in which it is the only Lebanese red to be awarded five stars as well as the only Lebanese wine to be nominated as one of the elite Les Grappes D’Or. Elsewhere the winery is also upgrading its viticultural infrastructure in what what sales manager Emile Majdalani calls, “a quantitative and qualitative expansion.” According to Majdalani, the winery, which was founded by Michel de Bustros in 1978, now ready to exploit the 60 ha (600,000m2) of noble grape varieties, such as a Syrah, Chardonnay, Viognier and Muscat Petits Grains, planted in 2002.
He also confirmed that Les Bretèches, Kefraya’s (and possibly Lebanon’s) best-selling wine is undergoing, “a constant yearly improvement,” modifying the blend to phase out the increasingly out of favor Cinsault grape and replace it with Syrah and Tempranillo. Furthermore, Majdalani announced that more sophisticated lab work had resulted in the better grape analysis which would be reflected in a better quality wine by the time it reaches the consumer.
Majdalani admitted that overall sales for 2005 had dipped by 9% on 2004 but said that sales of the high end labels such as Château Kefraya and Comte de M remained stable, “showing the local great level of loyalty to the brand’s upper-range products.”
The good news is that Kefraya’s export strategy became focused in 2005, especially in the UK, after the winery retained the services of respected distributor ENOTRIA, giving it greater clout in the mainstream market. Kefraya, which exports to 35 countries, also punched above its weight in Russia and the Czech Republic. The result was that overall exports increased by a record 15% in 2005.
Raising standards
While overall Lebanese exports for 2005 increased by around 8%, in Syria, Iraq, the UAE, Saudi Arabia, Switzerland and Turkey, exports to Europe have declined primarily because Lebanese goods, especially canned food, are failing to meeting the EU’s stringent import regulations. “Around 70% of rejections were for canned food, 15% sauces and spices and 8% dairy products and fruits and vegetables,” said Dr Ali Berro program director at the Economy and Trade Ministry, adding that many items, around 38% of rejections, were discovered to contain unsafe additives and colorants, salmonella, and pesticides.
Enter the Economy and Trade Ministry’s Quality Program, funded by a Euro15 million EU grant and designed to upgrade the quality of Lebanese products and services for export to EU nations.
“We are working on 3 levels,” explained Berro. “The first is to establish a national quality policy to align our rules with international norms and more specifically with those of the EU, while in the area of food safety, we have finalized, with UNIDO, a draft law on food safety. When we talk about quality, we are talking about 5 major pillars: standardization, testing, accreditation, metrology, market survey inspection.”
The second, according to Berro is institutional. Lebanon has been granted Euro6 million to spend on lab equipment for testing and calibration. “The bulk of our activities are supporting laboratories, private and public. There is a condition that those laboratories commit to get international accreditation, or else they will not get our support. There is only one laboratory, the industrial research institute, which is accredited by the German accreditation board. We are working to get the rest of the laboratories accredited internationally.” There is also training for technicians and participating in a European inter-laboratory comparison scheme, whereby from the tests (called proficiency testing), samples are sent to European accredited laboratories and the same samples are sent to Lebanese laboratories.
The third pillar involves the private sector as the ministry offers support for those companies seeking ISO accreditation and training and rehabilitation of factories. We will be providing a technical information center where we supply the private sector with all information about export requirements of international countries.
The latter could not have come soon enough. A staggering 52% of items rejected in Europe, the US and Australia were for nothing more than labeling and packaging irregularities mostly caused by ignorance on the part of Lebanese manufacturers.
Chickening out
Lebanon’s poultry industry is losing about $9 million a month because of lingering consumer concerns about avian influenza and recent reports that the virus has killed birds in a host of countries in the region, according to Nabil Shuman, general manager of the Lebanese Poultry Company.
January was the worst month for poultry growers, Shuman said. That month a drop in sales of 70%, compared to pre-bird-flu-scare levels, was registered. Today, the decrease stands at a still deadly-earnest 40% to 50%. Shuman believes that a protracted campaign is needed.
“The campaign will have to last a year or two, not two or three months because you need to continuously educate and remind the public. We will always have fears in the media and in neighboring countries – and we might have problems in our country. In developed countries, where people are well-educated about the problem, where there are government education campaigns, like in France, the drops in poultry sales are less drastic and of shorter impact. That’s what we need to achieve here.”
Shuman said he had already launched a small educational advertising campaign in January but had discontinued it because of a lack of funds. The chronically-illiquid Lebanese government has pledged the poultry farmers indemnities for losses already incurred, as well as $150,000 for a future communications campaign, Shuman said.
He added: “So far we have promises, words, but nothing has been put into action yet.
Besides, he went on, “it’s not clear how much they will be giving us. The losses are huge.”
Meanwhile, supermarkets are also recording bird flu-related losses. At the Hazmieh Monoprix outlet, it has been one long downhill slide. “Sales have dropped for the last four months, beginning with 25% four months ago, growing to 30%-35%, and now we’re almost at 50%,” said Peter Ward, food purchasing manager for ADMIC – the company that runs BHV, Monoprix and Geant Casino in Lebanon. “Meat sales are up by 30%. But we’re still losing around 10%.”
“The bird flu problem won’t be solved in a few months,” warned Shuman. “Producers and consumers are going to have to learn to live with it. It’s going to be a bumpy year.
“We’re all in danger of shutting down if we’re not able to increase consumption. Many of us have already shut down and the remaining few are in a difficult situation.”
Cashless Card returns
After 19 years, Cashless Card, the original and only Lebanese credit card, has been given a new face lift following the acquisition of 65% of its shares by the Canadian company, Skymark Financial Group, which has identified the potential for growth within the business. Local partners include Audi-Saradar Group, Lebanese Canadian Bank and Federal Bank
The take over will enable Cashless Card to establish an international portfolio of products to include credit, debit and repatriation cards. It becomes Cashless Card International.
“There will be greater focus on the features and services as well as the use of state of the art technology to provide our current and new customers with added benefits and flexibility,” said Khalid Ataya, Cashless Card’s Chairman. For its part, Skymark will be investing, “significant” resources and funds into developing the cashless card business and brand during 2006.
“We recognized and have designed a totally flexible card program that provides issuers and cardholders maximum flexibility and choice in how their cards are able to be used,” said Sallam Ayache, Vice-Chairman of Cashless Card. “Each card program is able to be issued by different partners but can also be restricted to certain merchants, products or geographical regions or even designed for specific banking solutions as loan-financed accounts or Islamic accounts.”
The Cashless Credit and Debit Cards will be available in four value groups, starting with the highest as the Ambassador, then the Platinum, followed by the Gold and the Regular.
New products – such as insurance – will be available to offer greater value to the consumers – the card offers lower interest rates and cheaper annual fees – to allow them more flexibility in spending and management of finances. Some of the special services and products will be targeted at the frequent traveller or business men to provide them with peace of mind.
At present, there are around 5,000 points of sale in Lebanon excepting Cashless Card as more than 300 ATMs all around the country.
Cashless Card was formed in 1987 as a local market credit card solution by Charles Sassine. He is currently Vice-Chairman and credited with playing a key role in the partnership between Cashless Card and Skymark Financial Group.”
Coffee mania
Over the last few years, Lebanon’s coffee market has grown by more than 400%, as entrepreneurs attempt to emulate the success of coffee-shops like Starbucks and Dunkin Donuts, and predominantly young customers continue flocking to the ‘trendy’ hang-out spots.
Against this backdrop, coffee product and machine provider Nestle Nespresso is launching its new business-to-business Nespresso Business Coffee Solutions machines, which range in price from $295 + VAT to $495 + VAT and are expected to be snapped up by offices – which account for around 80% of Nespresso’s out-of-home business.
Also hitting the market in Lebanon is Nespresso’s Gemini Generation of coffee machines – price-wise, though, they aren’t for the faint-hearted. The Gemini will be retailing at around $3,500. That’s because it’s a chrome-finished, fully-automated, programmable, double-head brewing and extraction system affair.
Needless to say, the Geminis will target high-end restaurants, hotels and cafes, high-end event caterers and luxury retail outlets.
“The Lebanese are very big coffee drinkers and the hotel, restaurant, and café sector is becoming more sophisticated,” said Jean Zoghzoghi, director of DIMA sal, exclusive distributors of Nespresso products in Lebanon. “Hotel, café and restaurant owners are becoming more and more quality-conscious. They want the best coffee. They want the best machines. With such a rich market, the market for premium espresso is growing.”
Zoghzoghi expects double-digit annual growth in sales of the new machines, despite competition from seven or eight providers of other brands, and a type of consumer some coffee sector insiders say is more interested in hanging out in a trendy coffee shop than savoring the aroma, acidity, body and flavor of the coffee.
“Yes, you have the trendy aspect of going to a coffee shop, but you also have more and more people who really enjoy a nice coffee and more and more people are aware of the difference in the quality of coffee,” Zoghzoghi said. “They look for the flavor taste and body and aroma. That’s why they are willing to pay a premium to have good coffee at home.”
Not everyone is convinced. “The Lebanese don’t know what a good coffee is,” countered Adib Maksoud, operations manager for coffee providers The Roaster. “They see things in terms of coffee shops and restaurants. They look for special offers. They don’t look for quality coffee.”
Money for votes
Elections and cash have always been cosy bedfellows, but some enterprising minds have been recently been drawing up their own imaginary polls – and making a handsome buck or two in the process.
While the presidential question continues to preoccupy the country’s political leaders, it has also spawned internet and SMS campaigns to find out which presidential “candidate” can garner the most support amongst the general public.
Voting began back in February, when the first such website, www.lebanonvoting.com, was launched with the simple premise of allowing surfers to cast their vote online for one of seven political figures.
The poll closed in late March, and according to the site’s developer, Rabih Kanaan, enjoyed an overwhelming response. “In total we’ve had 470,000 attempted votes from all around the world,” says Kanaan, “but due to people trying to vote twice through the same e-mail address, only around 90,000 have actually counted towards the final result.”
So seriously did many political supporters take the online poll that they set up new e-mail accounts or even domain names to be able to submit multiple votes. “We’ve got a long blacklist of IP addresses [the ID of an individual computer] and domains that have tried to vote more than once,” says Kanaan, who adds he was even contacted personally by a number of political parties regarding the site.
Now, some bright spark has taken the idea a step further. Thousands of SMS messages have been dispatched to Lebanese mobile phones, urging the public to reply, register their preference for a future president and pay up to a dollar for the privilege. Whilst EXECUTIVE was unable to identify the creator of this inbox-terrorizing scheme, it seems that he or she is generating easy money.
“It’s a relatively simple system to set up,” says Madonna Kmeid, IT manager of Actel, a regional firm which provides mass SMS mailing services. “Contracts vary from case to case, but to send out 10,000 text messages, let’s say, a client can expect to pay around 6 cents per SMS. When someone texts back with their vote, that costs them either 90 cents if they’re an MTC Touch subscriber or $1 for Alfa.”
Of this end-user cost, says Kmeid, a healthy 40% is taken by the mobile firm, with the remainder split 80-20 between the client (the person who had the idea) and the SMS mailing company.
This means that whoever dreamt up the SMS presidential poll is making up to 40 cents profit on every vote submitted. A lucrative affair, and a marketing method which is becoming increasingly popular for companies, individuals and even the Internal Security Force, who are releasing traffic contravention warnings by SMS.
Booming downtown
Fans of Solidere have had plenty to cheer about. For starters, Gulf investors from the Abu Dhabi Investment House presented a plan to develop the downtown’s biggest project yet, the $600 million Beirut Gate complex adjacent to Martyrs’ Square. With 178,000 square meters of built-up area, the new project would not only be a substantial addition to Beirut construction activities, the financing method via a $158 million second tranche in a private placement demonstrated that regional investors indeed are ready to substantiate their faith in the Lebanese real estate market.
Then came Solidere’s profit announcement for the last year. The company in charge of the development of the Beirut Central District announced record results, achieving net profits of $108.5 million in 2005, more than double of its profits in 2004.
On top of these results that continued Solidere’s performance trajectory of good growth years after the meager days of the recession between 1998 and 2003, the company’s chairman, Nasser Chammaa, could announce new land sales in downtown Beirut to the tune of $1.1 billion in the first three months of 2006, which outclassed the 2005 sales of $253 million booked by the company.
For the future, Solidere would emphasize on optimizing its income from leasing of properties, with the Souks finally nearing completion, and it would seek to branch out into projects elsewhere in Lebanon and even internationally, as consultants and planners for high-profile urban projects.
But even these enormously improved results were not the last word. In late April, a Kuwaiti group said that it would build a project in Lebanon that was again worth almost double the amount of the Beirut Gate project heralded at the start of April. Located on a 20,300 square meters sea-view property to the northeast of the Annahar Building, this development would be valued at about $1 billion.
How much good these Gulf investments and other new projects in the center of Beirut will do for the local construction and job market, is anybody’s guess. But they vindicate the validity of the concept behind the reconstruction of the Beirut Central District and are certain to not only bring money to Solidere.
While local observers expect that the latest good fortunes of the downtown would drive Solidere shares into new regions that hitherto were only dreams, the profit and new sales announcements at least in the immediate term didn’t do much for Solidere’s share prices, which continued to fluctuate in the $21 to $23 band on the BSE for the two weeks after the profits announcement.
Cheap calls
The Lebanese Telecommunications Ministry last month offered the nation’s phone users a rare nice surprise by announcing a tariff cut for international calls. The new tariff environment sets per-minute rates for major international phone destinations at LL 700 during the day and LL 500 for nighttime calls. These rates apply to Arab countries, Europe, the US and Canada, as well as Japan and Australia, according to the website of the Telecommunications Ministry.
Rates to most other countries, including African and Latin American nations, were adjusted to LL 900 (day) and LL 700 (night) while daytime calls to a small group of countries, for example island nations in Oceania, are priciest at LL 1,200 per minute.
As the rate adjustments reflect a lowering of communications costs to key countries by 35 to about 44%, the revision of international phone tariffs was welcome news to corporations in sectors such as trade, finance, and media for whom high connectivity costs have long been an impediment against operating from Lebanon. However, the same corporate customers were left wondering why Lebanese authorities were unable to make true on announcements that the rollout of high speed internet access via digital subscriber lines (DSL) would start in late March.
The promise, made in February during the signing of a memorandum of understanding between the Telecommunications Ministry, sector firms, and service providers, was replaced last month by estimates that deployment of DSL lines could start around September. This reminisced of earlier telecommunication technology initiatives, most specifically the establishment of an ISDN service that was delayed ad nauseam.
But the country’s poor track record in implementing consumer-friendly telecommunications is nothing compared to the other pain which ghosts from telecoms past caused in April when the Lebanese government had to cancel the cash components in planned new Eurobond issues in attempts to ward off court action to freeze Lebanese government assets in Europe and the United States.
This was due to claims by LibanCell, former operator of one of Lebanon’s two cellular networks, who tried to coerce the government to pay some $266 million which international arbiters had awarded the company as compensation for the government’s premature cancellation of its BOT contract for the LibanCell mobile phone network.
Lebanese politicians and finance experts were quick to assure that the country’s credit situation was not going to suffer under the cancellation but the whole affair smacked strongly of the same kind of embarrassment that the government suffered last year when European bankruptcy administrators had temporarily impounded an MEA jet to obtain payment of a much small arbitration debt from the Lebanese state.
Keeping with the market
Changes in the global economic climate will impact investment and financial markets in 2006 and 2007. Individual and institutional investors should be aware of these “turning points” and expect that “fundamentals rather than liquidity will drive asset prices,” Michala Marcussen, the chief economist for Paris-based Societe Generale Asset Management (SGAM), told Lebanese investors and clients of SGBL Bank and the Fidus financial firm.
Focusing on development forecasts for the US, Japanese, and European economies, Marcussen presented expectations for increased inflation risks, an end to the global excess in liquidity, and renewed depreciation of the US dollar which SGAM expects to stand at $1.30 to the euro by end of the year.
European companies recently could improve their profits even as employment outlooks for the Euro zone countries remain subdued, US corporations are set to increase investments and the Japanese economy is moving into a new virtuous economic cycle of growth driven by domestic factors, according to the assessments by SGAM’s chief economist. And with China being the largest single contributor to world GDP growth in 2006 and 2007 in percentage terms, “the Asian producer will become the Asian consumer”.
As external surpluses will continue to shift from Asian producers to the Middle East and Russia, Marcussen predicted that Middle Eastern oil producing countries will assume greater roles is matching the continuously increasing current account deficit of the United States. But beyond these increases in the influence of Middle Eastern oil producers, the region’s capital markets are still of marginal attraction for international investment houses and asset management firms, as the presentation by SGAM showed, which is the asset management arm of leading European banking group, Societe Generale. SGAM representatives focused in their promotional presentations on funds which the firm manages in the United States and said that assets under management by SGAM are based to 61% in Europe, 32% in the US, and 7% in Asia.
