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News2 CITYA.M. 26 JANUARY 2011

BlackRocksprofits soarPROFITS at BlackRock, the worldslargest asset manager, soared 77 percent in the fourth quarter of 2010,beating all expectations yesterday.

Higher hedge fund fees andinflows into its exchange-traded fund business generated earnings of$670m (419m), or $3.42 per share, upfrom $379m, or $2.39 per share, inthe same period in 2009.

The result far outstripped analystforecasts of $2.90 per share and showBlackRock consolidating its perform-ance after a year in which first-quar-ter results missed expectations andthe second quarter was dogged byfears over low fee income and out-flows of capital.

BlackRock, which bought BarclaysUS investment arm for $15bn in 2009,

has $3.6 trillion of assets under man-agement despite another huge capi-tal outflow in the past quarter.

Net fund inflow was $23.9bnexcluding $38.7bn in withdrawalsfrom clients that had held accounts with both Barclays and BlackRockbefore the merger and did not wantall their funds to stay with one firm.

Away from merger-related out-flows, new business was robust, chiefexecutive Laurence Fink said. We believe merger-related outflows arelargely behind us. BlackRock sharesclosed up 2.29 per cent at $198.01.

BYALISON LOCK

ASSET MANAGEMENT

Dont panic over disastrous GDP data

MEA culpa. The dramatic extent of yes-terdays collapse in reported GDP tookme by surprise, though I realised acouple of weeks ago that the slow-down was sharper than previouslythought. That the data confoundedevery professional forecaster polled bynews agencies, as well as the Bank ofEngland and all political parties, isonly a partial excuse.

So why did the ONS say that the UKshrank by 0.5 per cent, led by construc-tion and the snow? And crucially doesthis imply a double-dip recession something I have long argued would

not happen or a largely weather-related blip? We wont know for sureuntil we start getting January figures the first indication earlier thismonth that there was a problem in

December came from the services pur-chasing managers index, whichabruptly collapsed. If the surveyremains negative, we will be in trou-ble; if not, then the fourth quarter willturn out to be what I think it reallywas a bump in the road to recovery,similar to those we always see inupturns, exacerbated by our patheticinability to cope with snow.

Yesterdays data was even more pre-liminary than usual. The ONS admit-ted that much of it was reallyguesswork. I have long thought that itwould be better to wait a bit longer before providing the markets (andjournalists) with absurd, incompletefigures which are always revisedupwards, generally by about 0.2 per-centage points. I well remember thelast shock, for the fourth quarter of2009: the consensus was for growth of

0.4 per cent the first estimate came inat just 0.1 per cent. In the end, however,the data was revised up to 0.5 per cent. This is an almost scandalous indict-ment of current data release practices

and proof that yesterdays data shouldbe taken with a bucket of salt.Even more than the overall figures,

the composition of growth is alwaysrevised drastically. When one looks atthird quarter 2010 numbers in detail,one soon realises that the componentshave completely changed. All the earlyanalysis produced by the City and themedia turned out to be worthless.Business surveys, even for December,do not indicate anything like as muchweakness in GDP as the ONS reports.

The ONS thinks that without thesnow there would have been zerogrowth I suspect that the end resultwill be to show that the underlyingexpansion was a little better thanthat. Another sign of relative strength:government revenues rose to 39.3bnin December compared to 37.8bn theprevious year; clearly, despite the

reversal of the VAT cut, this means theeconomy didnt collapse. Yet it wouldbe wrong to deny the existence of aslowdown: parts of the economy clear-ly paused for breath, probably from

November, the weak employment fig-ures suggest. As the EEF points out, in the few

years following the recession in the1980s quarterly growth rates oscillatedbetween -0.7 per cent and 1.5 per cent.Up until the third quarter of 2010,growth coming out of the recessionwas faster than in the 1980s or 1990s.GDP is now 2.2 per cent higher than it was at the end of the recession aweaker recovery than in the 1980s buta stronger one than the 1990s. The gov-ernment should stick to its austerityplans, which did not cause yesterdayssupposed slump and which are theonly way to prevent a sovereign crisis.It is not (yet) time to panic or predict anew recession but you will be thefirst to know if I change my mind.

[email protected] me on Twitter: @allisterheath

GOVERNMENT minister Ed Daveytold a House of Lords inquiry yester-day that moves to make the big fourauditors less dominant in the marketshould be voluntary before more reg-ulation is tried.

Davey, minister for governmentrelations, said demand-side meas-ures to help mid-sized audit firms togrow should take precedence overregulation to improve competition.

He said the government was veryconcerned about competition in theaudit market but did not want heavyhanded rules such as the EuropeanCommission proposal to force compa-nies to change auditors .

The Lords is investigating whetherDeloitte, Ernst & Young, KPMG andPwC stifle competition in the UK, where they audit 99 per cent ofthe FTSE 100.

Davey added that the governmentsaw no need for a pan-European regu-lator of auditors.

BYALISON LOCK

REGULATION

Voluntary rules for auditors Minister for employment relations Ed Davey Pictures: P

NEWS | IN BRIEF

BofAs Merrill settles SEC fraudBank of Americas Merrill Lynch unit yes-terday agreed to pay $10m (6.3m) tosettle US Securities and ExchangeCommission charges that it fraudulentlymisused customer orders so it could tradefor its own benefit. The SEC claimedMerrill used the order information to

place proprietary trades on a desk it nolonger operates. The SEC also accusedMerrill of charging hidden trading fees toinstitutional and wealthy customers.Merrill did not admit any wrongdoing inagreeing to settle the case.

Airbus and Boeing trade blowsAirbus and Boeing traded blows yester-day ahead of a final World TradeOrganisation ruling on claims Boeingreceived subsidies, in a tit-for-tat casebrought by the European Union oversimilar US claims against Airbus. AnAirbus spokeswoman said in a state-ment that the report would confirmBoeing got massive illegal subsidiesfrom research grants. A spokesman forBoeing said illegal European subsidies toAirbus which the WTO has already iden-tified in a previous case dwarf those inthe counter-suit.

EDITORS LETTER

ALLISTER HEATH

7th Floor, Centurion House,24 Monument Street, London, EC3R 8AJTel: 020 7015 1200 Fax: 020 7283 5334Email: [email protected] www.cityam.com

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BlackRock chairmanand chief executiveLaurence Fink saysnew business wasrobust

RUSSIANS PREPARE FOR LISTINGSPREE IN LONDONFour industrial and mining compa-nies from Russia are set to list inLondon within the next few weeks,the first in a string of companiesfrom the country rushing to raise anestimated $15bn-$20bn (9.5bn-12.7bn) this year. The companies aretaking advantage of a narrow win-dow before the state steps in with itsown capital raisings. Since the startof the week, Hydraulic Machines &Systems, Russias leading pump man-ufacturer, and Koks, a pig iron andcoking coal group, have announcedprice ranges for their upcoming list-ings. Steel pipe maker Chelpipe is toannounce its range as early as today.

NEW VERSION OF IPHONE SET TO HAVEWAVE AND PAY TECHNOLOGY

Apple is expected to install wave andpay technology for the next version

of its iPhone, boosting mobile com-

merce and potentially giving thecompany a big piece of the multibil-lion-dollar transaction industry.

REAL ESTATE FUND PRIMED FORFLOTATIONThe UKs first listed real estate mezza-nine finance fund is being lined upfor flotation later this year to target agrowing funding gap in the debt-con-strained property market. DuetPrivate Equity is in talks withinvestors about backing the listedinvestment vehicle that will buy andoriginate property-backed debt.

CALA CALLS IN ROTHSCHILD TOREVIEW STRATEGYCala Group, the bank-held house-builder, has called in Rothschild toput together a business plan, pavingthe way for debt reduction and a pos-sible sale. The move could herald a

directional shift by housebuildersunder the auspices of the banks.

MOD LAUNCHES ASSAULT ON COSTSWITH INQUIRY INTO CONTRACTSThe Government will announce thefirst big review of its relationship with monopoly suppliers in morethan four decades today as it tries tosave taxpayers money. The reviewwill be led by the Ministry of Defence,which spends about 9bn a year withcompanies on a non-competitivebasis. Equipment such as nuclear sub-marines can usually be bought onlyfrom a single supplier, so contractshave to be negotiated without the benefit of competitive pressure tokeep costs down.

GROSVENOR DECIDES SHARE OF QUIDIS TOO TEMPTINGThe Duke of Westminsters propertycompany has swooped on 350m(303m) of shopping centres being

sold by one of Europes biggest listedproperty groups.

HIGH HEATING OIL PRICES SPARKOFFICE OF FAIR TRADING INQUIRYConsumer complaints about highprices for heating oil this winter haveled the Office of Fair Trading tolaunch inquiry into the UKs domesticmarket. Around six per cent of house-holds rely on heating oil, many inremote areas away from mains sup-plies. The watchdog said it wouldinvestigate heating oil and liquefiedpetroleum gas (LPG) suppliers, whoprovide energy to 2.5m people notconnected to the gas grid.

WORRYING GROWTH FIGURES DASHHOPES FOR JOB RECOVERYFinding a job in todays desolatelabour market is about to get muchharder. Yesterdays disappointinggrowth figures send a very worryingsignal to the 2.5m people already out

of work, let alone those about to bemade redundant.

SIEMENS'S PROFIT RISES ONECONOMIC RECOVERYGerman industrial conglomerateSiemens yesterday said its net profitin the first quarter rose 16 per centfrom a year earlier, as it benefitedfrom a recovering global economyand increased spending on big-ticketitems. Munich-based Siemens, abarometer for the worlds manufac-turing industry with around 410,000employees in 190 countries and prod-ucts that span hospital equipment topower turbines, posted a net profit of1.72bn (1.09bn) for the quarterended 31 December, up from 1.48bna year earlier.

GOLD SLIPS TO 3-MONTH LOWGold futures fell to a three-monthlow yesterday as investors continuedlooking for a bottom amid the

metals ongoing correction. It was themetals lowest close since 27 October.

WHAT THE OTHER PAPERS SAY THIS MORNING

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US health giant Johnson and Johnson(J&J) reported a gloomy outlook for2011 after its fourth-quarter profit washit by a 5.5 per cent decline in sales.

Fourth-quarter profit fell 12 percent to $1.9bn (1.2bn), from $2.2bnin the same period in 2009, whilesales revenue fell to $15.6bn from$16.5bn a year earlier.

It has struggled to recover from aseries of product recalls on its overthe counter medicines and is con-cerned about the weak global econo-my. J&Js sales for the year were down

0.5 per cent at $6.1.6bn, while USsales were down 4.7 per cent.

GEORGE Osborne is planning to waterdown his flagship peace deal withBritish banks, in a desperate bid topush through an agreement beforeUK bonuses are announced nextmonth.

The chancellor had originallyhoped to convince banks to agree 10per cent more business loans this yearthan they did in 2010, as part of theso-called Merlin plan which will seethe government cease attacks on bankremuneration in exchange for higherlending.

But City A.M. understands theTreasury is now working on a scaled-back plan that will see banks increasebusiness lending by more than GDPplus inflation.

According to the Office for BudgetResponsibility, GDP will grow by 2.1per cent this year while inflation willincrease by 2.8 per cent.

That would mean banks would onlyhave to increase business loans bymore than five per cent, althoughinflation which is consistently abovetarget is likely to be much higher.

However, the new agreement is like-

ly to see banks lend less than thechancellor had originally hoped, andgives them more wriggle-room shouldgrowth and demand be lower thanexpected.

The Treasury still expectsSantander to agree to new lending tar-gets, although it will do so under aseparate agreement rather than sign-ing up to the Merlin plan.

The Spanish bank which ownsBradford & Bingley and Alliance &Leicester doesnt want to be part of adeal on bonuses, when most of its UKoperations dont receive a significantpay-out.

The Merlin deal, which was expect-ed to be agreed this week, has beendelayed by a number of factors,including anti-trust considerationsthat prevent UK banks sharing infor-mation on their plans for businesslending.

The recent appointment of LaboursEd Balls as shadow chancellor has alsothrown a spanner in the works.Osborne is expecting his new oppo-nent to scrutinise any agreementmore closely that predecessor Alan Johnson, and wants to ensure theterms of the deal are watertightbefore it is made public.

Osborne set

to scale backMerlin plan

TELEVISION ratings firm Nielsenpriced its $1.6bn (1bn) initial publicoffering above the expected range yes-terday on the back of higher demand.

Private-equity owned Nielsen sold71.4m shares for $23 each, above theplanned price of $20 to $22, as well as$250m worth of subordinated bonds.All the proceeds are expected to go

towards cutting Nielsens $8.6bn debtpile.The ambitious IPO is the first major

New York listing of 2011 and thebiggest private equity IPO since Spirit AeroSystems $1.65bn offering in2006. Nielsen was bought out for$10m in 2006 by a consortium offirms that included Carlyle,Blackstone and KKR among others.

JPMorgan and Morgan Stanleywere lead underwriters for the deal.

Some of our investmentsarent meant to make a profit.

Kali lives in one of Delhis worstslums. Put to work as a smallchild scavenging rubbish, thepittance she made went onabusing correction fluid. Therewas no time or money for school.

Now Kalis life is changing withthe help of Street to School, anAviva project that gets streetchildren into education. Sheattends a local centre whereshes gradually being preparedfor full-time school.

Over the next five years, werecommitted to helping half amillion children like Kali. Shemay never be an Aviva customer,but we think shes a greatinvestment all the same.

youarethebigpicture.com

Nielsen prices IPOup on high demand

THE debut bond issue for the EUsbailout fund yesterday was nine timesoversubscribed in an unprecedentedsuccess for the bloc.

All 5bn (4.29bn) of the five-yearbond on offer was snapped up, withAsian investors fuelling demand.

The Japanese government alonebought more than 20 per cent of theissue, which is perceived as the safestof EU bonds and offered a higheryield that German Bunds.

The AAA bonds yield was 2.89 percent, compared with 2.31 per cent for

Bunds. The EU closed the order bookyesterday with demand at 44.5bn.

EUs bailoutbond a successJ&J gloomyafter sales fall

BY DAVID CROW

POLITICS

PHARMACEUTICALS

EU ECONOMY

BY ALISON LOCKFUNDRAISING

News 3CITYA.M. 26 JANUARY 2011

IRISH finance min-ister Brian Lenihan(pictured, left) yes-terday admitted its

plan to tax bankbonuses at 90 percent may not beenforced. He saidimmense legal dif-

ficulties meanttheplan may be leftout of the financebill now being fast-tracked throughparliament.The bill must bepassed by Friday toallow an electionnextmonth.Picture: PA

IRISH GOVERNMENT SCRAPS 90 PER CENT BANK BONUS TAX PLAN

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THE British economy shrank byhalf a per cent in the final threemonths of the year, official datashowed yesterday, despite econo-mists on average expecting anexpansion of up to half a per cent.

The decline was largely blamedon the crippling effects ofDecembers snowstorms, whichknocked half a per cent off thecountrys GDP, according to theOffice for National Statistics (ONS).

But the effect of the weather andthe economic slip up may have

been overstated, according to someeconomists.

The ONS has hardly covereditself in glory in recent years withits first estimate of quarterly GDP,said Ian Harwood of EvolutionSecurities.

Such estimates are generallysubsequently revised, and often

very substantially, he added. And the ONS admitted: the

effect of the bad weather is the bestwe can make it at this stage, but isstill inevitably uncertain.

Economic progress would have been flattish irrespective of thesevere weather, the ONS suggested.

The construction industry plum-meted by 3.3 per cent, it found,

while the UKs service sector alsoshrank by half a per cent.

Yet the results are at odds with what the monthly purchasingmanagers index (PMI) surveys have

been saying, Harwood argued.The composite PMI surveys

[which measure economic activity]have run above 50, he said.

All index scores above 50 indi-cate economic growth.

It is possible to construct a

monthly series based on separatedata for industrial, constructionand services output, addedHendersons Simon Ward.

This calculation reveals that theaverage level of GDP in October andNovember was 0.1 per cent higherthan in the third quarter. In theabsence of the bad weather, GDP

would probably have risen inDecember, Ward claimed.

And Ward believes the effects ofthe weather have been overestimat-ed in the data. The December esti-mate probably relied oninformation for the early and mid-dle parts of the month when dis-ruption was most severe.

And the recovery shourebound in the first quarter of this

year, economists expect. The eco-nomic recovery is probably pro-ceeding at a moderate pace, Wardadded.

Weather blamed for0.5 per cent GDP fallBY JULIAN HARRIS

UK ECONOMY

Focus on GDP fall4 CITYA.M. 26 JANUARY 2011

ANALYST VIEWS: SHOULD WE TAKE THE GDPFIGURE AT FACE VALUE? Interviews by Alison Lock

ANDREW GOODWIN | ERNST & YOUNG ITEM CLUB

We find it difficult to believe the economy is reallyas weak as these figures suggest. This view quite simply

does not square with what survey indicators are telling us.The ONS has little hard data to base this first release on, sowe see the prospect of some major revisions.

PHILIP SHAW | INVESTEC

The ONS estimates for services look strangely softand out of kilter with firmer survey evidence and relativelyrobust retail sales figures. We are of the view that todaysGDP numbers should be taken with a pinch of salt but theyincrease uncertainty over the economy.

MICHAEL SAUNDERS | CITI

We suspect that the economys underlying momentum

in the fourth quarter was nothing like as weak as the head-line drop in GDP implies. The UK produces GDP figures earli-er than most other countries, and has a tendency to revisethe figures quite sharply. The same may happen again.

ANALYSIS lRecovery from recession has been bumpy before, says Hendersons Simon Ward

96

90

104

100

108

-2 0 2 4 6 8 10 12 14 16 18-4

Pre-recession peak = 100

Quarters

2008 recession

1973 recession

1979 recession

1990 recessionStart of

Recession

Source: Henderson

December snow was

heavily blamed forthe economic setback

Picture: REUTERS

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POLITICIANS on all sides downplayedthe likelihood of a double dip recessionfollowing the shock fall in economicoutput announced yesterday.

Shadow chancellor Ed Balls said peo-ple had already changed their behav-iour in anticipation of whats comingin the future and said: I dont think[a double dip] is the most likely out-come.

However, Balls said the economy wasnow feeling the impact of the coali-tions austerity measures.

The fact is cuts which go too far andtoo fast will damage our economy, hesaid.

Chancellor George Osborne admit-ted the GDP figures were obviously dis-

appointing, although used a newspa-per column to suggest the snow hadseverely impacted economic growth atthe end of last year.

He said: The coldest December onrecord had a much bigger impact onthe economy than anyone had fore-cast.

The impact of the severe weather was, however, downplayed byCommons Treasury Select Committeemember Chuka Umunna. He tweeted:Even accounting for the snow todaysONS figures show the Conservative ledgovernment has no policies forgrowth a government of bystanders.

But Osborne yesterday insisted thegovernment would maintain its cur-rent economic approach.

We cannot afford to be blown offcourse by bad weather, he said.

Ed Balls admits double

dip recession is unlikelyBYRICHARD PARTINGTON

POLITICS

DOWNWARD revisions to governmentdeficit figures for November, and a fallin the deficit for December, will reas-sure chancellor George Osborne thathe is on course to hit his targets for thefinancial year.

Government borrowing dropped to16.8bn in December, it was revealed

yesterday, considerably below the fore-casts of economists who expected a fig-ure closer to 20bn.

And public sector net borrowing(PSNB) for November was revised down

by 2.2bn, to 21.1bn.If current trends are replicated over

the whole fiscal year the deficit wouldcome in around 146bn, meaning thatchancellor Osborne would modestlyundershoot his target of 149bn, saidHoward Archer of IHS Global Insight.

The figures suggested that govern-ment finances might be graduallycoming under control; DecembersPSNB was down by 4.2bn against thesame time in 2009.

Excluding financial interventions,

the deficit for the f inancial year up toDecember is 118.4bn, down from126.8bn in the final year of theLabour administration.

However, government borrowinglevels are still hefty, Archer said.

In November the Office for BudgetResponsibility (OBR) slightly reducedits forecast for the years deficit to148.5bn, on the back of improved eco-nomic data.

This should at least provide theTreasury with a crumb of comfort on avery difficult day, commented NidaAli of the Ernst and Young Item club.

Novembers surge in governmentspending appears to have been a one-off, she said.

Government revenues were boosted by a year on year increase in VATreceipts of nearly nine per cent. Evenallowing for the VAT rise, this sug-gests greater consumer activity inDecember than other sources havereported, Ali added.

Yesterday also marked the first timethat the governments investment in

banking groups RBS and Lloyds TSBwere included in the data.

Data corrections to

deficit figures offerhope for Osborne WHAT COULD

BE SIMPLER THAN

SPREADS?

NOTHING.

BY JULIAN HARRIS

UK ECONOMY

Focus on GDP fall 5CITYA.M. 26 JANUARY 2011

Why I was right to predict a GDP contraction

TODAYS GDP figures took almosteveryone by surprise. The snowfallobviously added uncertainty to theDecember numbers, but this wasexpected to show in later revisions.

Instead, underlying output was softerthan thought, and the Office ofNational Statistics chose to make anearly guess at a large negative effectof the bad weather.

But we probably shouldnt havebeen as surprised as we are. We knewthe service sector was contractingeven in October, well before the snow.

And I and others had for some time been forecasting the likelihood of aquarter of contraction in GDP ineither the last quarter of 2010 or firstquarter of 2011, because every reces-sion since quarterly records beganhas involved at least one in therecovery phase.

This quarters contraction has littleto do with the coalitions spendingcuts yet. The key drivers of the fall

were construction, and business serv-ices such as consultants or outsourc-

ing. But the VAT rise this monthcould cause another quarter of con-traction to start 2011.

Its very important now that thegovernment does not backtrack onthe spending cuts. What has beenannounced is already barely adequateand rear-loaded, so many of the cutsdo not take effect for some years.

On tax rises, matters can be a littlemore flexible if needed. The VAT riseis already done, but with the Budget

coming up there is the option of rais-ing the income tax threshold a bitmore than expected. That shouldnt

be done just on the basis of a bad sta-tistic because of a bit of snow, but if

the first three months of 2011 contin-ue to look weak, income tax cutsshould be an option.

I and others have been urging morequantitative easing for some time,and this GDP contraction strengthensour case. Inflation is well above targetand will go higher: Citi has forecastCPI of five per cent, and I am still lesssanguine I think it likely to reach sixper cent in 2012. That means we willhave to raise rates very aggressively

from the end of 2011 into 2012, poten-tially to above 5.25 per cent to keepCPI inflation to only a six per centpeak. But that is next years story.

Its quite normal to have a quarter

or two of contraction at this point ina recovery from a recession. It wouldhave been a surprise not to see itafter as deep a recession as in 2008/09.

But from the middle of 2011, bar-ring calamities, I believe we will see

very strong investment-driven growth.For now, we should not panic, but

we should be flexible where appropri-ate on QE and on taxes.

Dr Andrew Lilico is a director at econom-ic consultancy Europe Economics.

CITY COMMENT

ANDREW LILICO

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CULTURE minister Jeremy Hunt hasstalled his decision over the future ofNews Corps 7.8bn bid for Sky.

Hunt says he will give News Corpmore time to prove its bid will nothave an adverse affect on media plu-rality before referring it to theCompetition Commission.

Media watchdog Ofcom has filed areport highlighting its concerns overthe bid, which it recommends isinvestigated by the Competition

Commission. News Corp is desperateto avoid this scenario, which willdelay by at least six months its bid forthe 61 per cent of the broadcaster itdoes not already own.

Hunt was accused of showing biastowards Rupert Murdochs organisa-tion, despite saying he still plans torefer the bid to the CompetitionCommission.

A furious Sky yesterday accusedOfcom of bias in its assessment of the

bid. The watchdog responded with a

strongly worded statement reading:We absolutely stand by our report

which is a rigorous, thorough andindependent assessment of theissues. News Corporations responsemakes a series of assertions of pur-ported errors by Ofcom in its report.

Specifically, News Corp allegesthat Ofcom did not have an openmind when considering the issue ofplurality. This allegation is withoutfoundation. Hunt has not given adate for his final decision but isexpected to decide within the nextmonth. MURDOCH AT DAVOS: P15

Hunt delaysdecision onNews Corp bid SKY is on the brink of snapping up wi-fi hotspot provider The Cloud in adeal analysts say could be worth

around 100m.Sky is desperate to compete with

rival BT, which offers its subscribersfree access to its Openzone wirelessnetwork covering most of the coun-try.

The Cloud has around 22,000hotspots across the UK and givesaccess to its network for 6.95 amonth. The Cloud and Sky bothdeclined to comment.

Meanwhile telecoms firm O2 is tolaunch its own wi-fi platform in theUK. The firm says the ambitious proj-ect will offer double the number ofhotspots owned by BT and The Cloudcombined by 2013.

It says access to the network will beavailable for free to customers of anymobile or broadband provider.

It says the hotspots will appear inshops, restaurants, retail outlets andoutdoor and indoor locations acrossthe UK.

O2 also says it will increase itsinvestment in its mobile network by25 per cent this year. Mobile carriersare desperate to improve their net-

works to cope with the spike in datausage by smartphones.

The Cloud wi-finetwork istarget for Sky

Ofcoms analysis is deficient. Thedeal will have minimal impacton consumers and would notenhance News Corporation'sability to influence the news

BY STEVE DINNEEN

MEDIA


ANALYSIS lB Sky B

720

740

760

12 Nov 2 Dec 22 Dec 14 Jan25 Oct

p 752.0025 Jan

June 2010: News Corp bids for the61 per cent of Sky it doesnt alreadyown. News Corp shares jump four percent despite the 7bn offer. The bid isswiftly rejected by the Sky board

who say the firm is worth more.

July 2010: The two sides hold meet-ings to discuss the value of the firm.No further bid is made and the f irmsdecide to put talks on ice until regula-tory approval is given to a potentialbid.

September 2010: Business secretaryVince Cable, who has jurisdiction over

TIME LINE | TWISTS AND TURNS OF THE BID

the bid, asks Ofcom to draft a reportadvising whether the CompetitionCommission should become involved.

October 2010: UK media companies

including the Telegraph and theMirror release a joint statement con-demning the bid.

December 2010: Cable is caught in asting by reporters, bragging aboutgoing to war with Rupert Murdoch.

January 2011: His replacementJeremy Hunt delays final decision togive News Corp time to file evidence.

WHAT THE TWO SIDES SAY

News Corp alleges that Ofcomdid not have an open mindwhen considering the issue ofplurality. This allegation iswithout foundation.

BY STEVE DINNEENMEDIA

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HTC will unveil two new Facebookbranded mobile phones next month,City A.M. has learned.

The Korean manufacturer willlaunch an official tie-up with MarkZuckerbergs $50bn (31.6bn) socialnetwork at the Mobile WorldCongress event inBarcelona.

The high-end smart-phones will be the first tobear the Facebook brandingand colours. It could looksimilar to the mock-up pic-tured right, also created byHTC.

It is understood thephones will run on atweaked version of Googles Android operating systemand will prominently displayusers Facebook messages andnews feed on the home screen.

Other areas of integrationexpected include being able to

call or email friends from informa-tion stored on their Facebook page.

Facebook has aggressively pushedmobile versions of its social networkand industry insiders see this as anattempt to consolidate its position asthe worlds leading social network.

Facebooks Joe Hewitt (whoworked on the Firefox web browser)and Matthew Papakipos (a leading

member of the GoogleChrome browser team) arethought to be behind thelaunch.

It is unclear if the phonewill be tied to a single carri-er in the UK.

The phone will drawcomparisons to GooglesNexus range, also manu-factured by HTC. City A.M.exclusively revealed thenew version of thephone, the Nexus S,would be sold in the UKthrough an exclusivedeal with Carphone

Warehouse.

Facebook to

launch firstmobile phone

Yahoo profits up on cost cutsYAHOO more than doubled its fourth-quarter earnings year-on-year yester-day following cost-cutting measures,

but revenues fell as it struggled tomake online advertising pay.The search firm made net fourth-

quarter income of $312m (197.3m)or 24 cents a share, up from $153m,or 11 cents a share, in the same peri-od the previous year, it reported yes-terday.

But net revenue fell four per cent to$1.20bn, from $1.26bn a year earlier,

as it battled rivals such as Facebookand Google that have mastered theart of making money from onlineadverts.

Revenue from display adverts rose

16 per cent before costs, but revenuefrom search adverts fell by 18 per centbefore costs, the company said.

California-based Yahoo said searchrevenues dipped due to its revenueshare deal with Microsoft, whichroutes all search-based advertsthrough the software firms plat-form. Total revenue, which includedthe amount it shared with Microsoft,

fell 12 per cent to $1.53bn, from$1.73bn a year earlier.

It was also downbeat on the out-look, forecasting net first-quarter2011 revenue of $1.02 to 1.08bn,

below analyst forecasts of $1.13bn.The results are in sharp contrast tothe record earnings announced byGoogle last week. Yahoos earningsboost was achieved through cost-cut-ting measures including redundanciesand it said it would cut a further 600staff. Google has said it will recruit arecord number of staff this year, beat-ing 2007s level of 6,000 hires.

SOFTWARE firm Misys said yesterdayit saw a gradual return to growth in banking, helped by demand for itsnew Bankfusion platform and theclosing of delayed deals that kept rev-enue flat in the first half.

Chief executive Mike Lawrie said 13customers had bought Bankfusion inthe six months to November, takingthe total to 26, well on track to meet

its full-year target of 30, although hesaid the wider demand environment

was cautious.Misys, which focuses on bankingand treasury and capital market(TCM) software after it sold most of itsstake in its Allscripts-Misys last year,reported revenue of 161m and oper-ating profit of 23m for its first half.

Shares in the group, which haverisen by 55 per cent in the last 12months, fell 2.95 per cent.

Misys says it is on trackto meet full-year targetsTELECOMS


TECH NEWS | IN BRIEF

Psion hit by forex lossesPsion forecast a normalised operatingloss for the full-year, hurt by forex loss-es, but said it remained confident ofstrong growth in 2011. Shares of thecompany fell five per cent in trading yes-terday. The provider of mobile comput-

ing services expects a normalisedoperating loss of 1.5m to 2.5m for thefull-year, compared with an operatingprofit of 4m last year.

Ericsson sees sales surge 7pcSurge in demand for mobile smart-phones pushed Sony Ericsson to a sevenper cent rise in fourth quarter sales. Itsrevenue soared to 62.8bn crowns(6bn), beating forecasts but its 8.4bncrowns profit lagged behind predictions.

Nokia to launch MeeGo tablet?Nokia, the worlds biggest handset man-ufacturer by volume, may be on theverge of revealing its first tablet com-puter. Industry sources say the firm hasdeveloped a device featuring the newversion of its operating system, MeeGo.

News Corp iPad paper to launchNews Corp's new digital newspaper TheDaily, designed for Apple's iPad, shouldlaunch in the next two weeks after somedelays and will cost 99 cents a per week,executive James Murdoch said yesterday.The digital-only publication, available initiallyonly in the US, is News Corp's latest attemptto force consumers to pay for its journalism.

BBC World Service makes cutsThe BBC World Service is to close five ofits language services. It is thought thatabout 650 jobs will be lost from a work-force of some 2,400. Staff will beinformed today of the redundancies.

WILL YOU BUY THE NEW FACEBOOK PHONE?Interviews by Richard Partington

No I dont think so, Im happy with my cur-rent phone. I could see the appeal for youngerpeople. It might be a success with them, butnot for my generation.

TRISTAN SWINDELLS | RFIB GROUP

Im not too sure actually, Id have to see how itgoes and see how the market receives it. Iveheard that Android is getting good reviews, soit could be good. Everyone loves a gimmick.

MARTIN MALONEY | MG CAPITAL

No, it feels a bit tacky. The success of it woulddepend on the way its advertised. You want todo more than just Facebook with a phone andI dont know if I could trust it.

HANNAH RUBIE | HAYWARD AVIATION

Mark Zuckerbergwill take his firststeps into hard-ware with aFacebook phone.

TECHNOLOGY

BY STEVE DINNEEN

EXCLUSIVE

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The Capitalist8

EDITED BY

STEVE DINNEENGOT A STORY? [email protected]

HEDGE FUNDMANAGERS

GET A VERYRAW DEALHEDGE fund managers rightly feel theyare being persecuted by creeping EU leg-islation, which is suffocating their indus-try.

But Hugh Hendry, a Scottish fundmanager at Eclectica Asset Management,may be suffering from a touch of hyper- bole. In the latest issue of BloombergMarkets he likens the plight of the hum-ble hedgie manager to the persecution ofgypsies under Nicolas Sarkozy in France.

Hendry, who is often referred to as themost high-profile Scot in the hedge fundbusiness, came into the public eye whenhe railed against government bailouts.

His appearance on Newsnight was

notable for his rant against the social-ists I meet when I travel first class, who blame the hedge fund industry for thewoes of countries like Greece needing tobe bailed out.

DOUBLE DIPCoinciding with the gloomy news thatthe economy has retracted 0.5 per cent inthe fourth quarter, The Capitalistreceivedan unwanted gift in the post yesterday.

Commercial foreign exchange firm

Either the rumours of the economysdeath have been greatly exaggerated, orthese guys know something we dontand they are stocking up on all the goodbooze to drown their sorrows.

ON THE PISTEPub chain JD Wetherspoon prides itselfon its modest prices and for catering forall sorts.

But staff at its flagship Marble Archwatering hole got more than they bar-gained for yesterday when in loped a

towering, shaggy-haired customer withhis right arm in a sling and addressingstaff as if he owned the place.

The customer eventually proved to be none other than Wetherspoonsmillionaire chairman Tim Martinmaking an impromptu visit.

And as for his cast-enclosed arm?Martin was heard muttering some-thing about an accident but no expla-

nation was otherwise forthcoming.But suspicions are high that he

might have been on the piste.

Moneycorp decided to celebrate the UKsanniversary of exiting recession byreminding us how bad it all was... with apacket of Double Dip sherbet.

The chemical treat was accompanied

by an equally depressing note reading:Celebrations are marred by concernsaround impending spending cuts, infla-tion data and the possibility of a doubledip recession.

The MPC pinned hope on a weakpound leading to an export recovery but2011 looks a daunting prospect with anumber of unanswered questions...

The biggest worry though, is the sub-liminal message the sherbet treat sent.There was one extra bag free; does thatmake it a triple dip? At least if the econo-

my does collapse all over again, TheCapitalist can get a nice big sugarhigh.

STOP WINE-INGIf financial armageddon is nigh, itisnt showing in Hong Kong.

A wine auction over the week-end by Sothebys and Acker,Merrall & Condit raised a stag-gering $25m, with 100 per centof the lots being snapped up.

Prices ranged from marketprices to 30 per cent premiums(although this is relatively conservative compared to the extraordi-nary Lafite sale of last year).

Hugh Hendry likens the hedgie managers plight to French persecution of gypsies Picture: REUTERS

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CITYA.M. 26 JANUARY 2011

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9/32

PZ CUSSONS yesterday saw its sharesplummet by more than nine per centas it warned that the year ahead

would be tough due to rising costs. The maker of Imperial Leather

reported a 3.4 per cent rise in firsthalf pre-tax profit which disappoint-ed some analysts.

However, a poor performance inEurope has been partially offset byrelatively healthy Asian markets, inthe six months to 30 November. Inthe UK the company was hit by toughcomparative figures after its Carexanti-bacterial gel sales were boosted

by a swine flu outbreak.Against such a backdrop, we do

harbour concerns that our 2010/11EBIT (earnings before interest andtax) forecast of 115.7m whichrequires 23 per cent growth throughthe (second) half, may prove toomuch of a challenge to deliver, saidShore Capital analyst Darren Shirley.

Shore cut its full-year pretax profitforecast to 111m from 116.3m andsaid it was considering reviewing itsbuy rating on the companys shares.

PZ Cussons chairman RichardHarvey said that tough trading condi-tions and rising raw material prices particularly of palm oil which it usesin many of its products meant thecompany remained cautious goingforward.

The FTSE 250 listed company, which also owns Original Source,Charles Worthington and TheSanctuary spa range, saw a five percent fall in European operating prof-its to 23.7m. But Asian operatingprofits jumped to 8.6m from 6.1min the same period the year before.

And total group sales were up 1.3per cent to 374.8m, delivering pre-tax profits that were flat at 44.5m.

PZ Cussons in

share drop ascosts surgeBY JOHN DUNNE

CONSUMER

MEDICAL staffing firm HealthcareLocums yesterday suspended its AIM-listed stock and two of its top staff

while it investigates accounting irreg-ularities.

Healthcare Locums, which was setup by serial entrepreneur KateBleasdale in 2004, has begun an inves-tigation into serious accounting irreg-

ularities that mean its profits will befar below market expectations of25m this year.

Bleasdale, who is executive vicechairman, and chief financial officerDiane Jarvis will be suspended pend-ing the outcome of the probe.

It is understood that the police arenot involved in the investigation.

Healthcare Locums has lost 25 percent of its share value since it blamedpublic spending cuts for poor results

in September.However, the firm continued tomake acquisitions including the77.8m purchase of an Australianhealthcare firm, which was funded bya National Australia Bank loan.

The firm appointed JefferieInternational to join Fairfax IS as jointcorporate broker in September.

The company restated its 2009results last March to reflect a newaccounting policy.

Healthcare Locums suspendsstock after accounting issuesBYMARION DAKERS

PUBLIC SECTOR


MODEL train maker Hornby, whichalso owns Scalextric and Airfix, has

warned its profits will be below fore-casts after sub zero temperatures hitChristmas sales.

It said that the lower-than-expectedsales in the festive season meantstores were unlikely to order as muchfresh stock in the next few weeks.

The company expects its pre-tax prof-its in the year to 31 March 2011 to be

below current market expectations,Decembers severe weather meant

fewer shoppers braving the elements,

leaving retailers struggling to meetsales targets.

GAMES Workshop which sells the Warhammer series yesterday saidinexperienced staff failed to keep itstills ringing during the summer, trig-gering a 15 per cent fall in pre-taxprofit to 6.7m for the six months toNovember.

Mark Wells, chief executive of thetable-top war games maker, said: Wemade some changes to our staffing.

We had inexperienced managers andwe were a bit flat-footed. Sales in thesix months were down four per centat 60m. The store usually has games

being played in-store to explain therules to customers.

Profit at GamesWorkshop downHornby trainsslowed by snowRETAIL

RETAIL

SERIAL entreprener Kate Bleasdalestands to lose more than her job ifHCL flatlines she has amassed

more than 18 per

cent of HCLs sharesthrough her per-sonal stake andholding company

Healthmark UK.Bleasdale gradu-ated as a nurse

in 1983 but

left the NHS in 1987 to foundrecruitment agency MatchHealthcare, which had revenuesof 185m by the time Bleasdale

was dismissed in 2001.She filed a sex discrimination

claim against chairman Sir Tim

Chessells, and hit headlines in2002 when she walked away witha 2.2m payout.

Bleasdale used the money tostart rival recruiter HealthcareLocums in 2003, which floated on

AIM in 2005 with the help ofnominated adviser Fairfax IS.

She was named entrepreneurof the year at the 2008 AIM

Awards.

BYMARIONDAKERS

PROFILE

From NHS nurse to AIM star

KATE BLEASDALE

ANALYSIS lPZ Cussons

370

380

390

400

410


p 352.6025 Jan

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BOPARAN Holdings built up its stakein takeover target Northern Foods to11.4 per cent yesterday, after severallarge shareholders sold their stakesfor Boparans 73p per share offerprice.

Boparan, which made its takeover bid on Friday night, said in a state-ment it had snapped up 22.4m sharesto bring its total to 53.3m.

Boparan also confirmed thatNorthern shareholders registered on

7 January will receive a 1.55p interimdividend as planned by Leeds-basedNorthern last year.

One bank understood to have soldat least some of its stake in Northernis Lloyds Banking Group, which last

week declared an interest in 6.9 percent of the Leeds-based conveniencefoods maker.

Lloyds also holds a small stake inGreencore, the Irish food firm that is

working to sweeten its all-share merg-er plans for Northern.

Evolution Securities analyst AlexSloane said Greencore would likelyneed to raise substantial funds, possi-

bly through a rights issue, to financea rival to Boparans all-cash bid.

He added that Boparan is unlikelyto match the cost synergies offered byGreencore, estimating 10m to 15mper year savings compared toGreencores 40m.

Boparan, which is run and owned by Ranjit Singh Boparan, specialisesin producing chicken products forsupermarkets.

Shares in Northern foods edged

upwards to close at 74.25p yesterday,a gain of 0.34 per cent. Shares inGreencore also gained to close 1.58per cent higher at 1.16.

Boparan buysup NorthernFoods shares UNDER FIRE F&C Asset Managementdelivered a blow in the fight to sup-press rebel shareholder SherborneInvestors yesterday, after it posted

increased assets under management(AUM).

The firms board said strong netinflows last year showed its strategy tosteer the company away from years ofunderperformance was working.

F&C increased AUM to 105.8bn atthe end of last year, compared to97.8bn the year before, with net busi-ness inflows of 3.7bn over 2010 afterfour years of net outflows.

Chairman of F&C Nick MacAndrew,who has faced calls from Sherborne tostep down, said the rebel shareholderhad contributed nothing to any ofthe companys progress.

He said: Sherborne is simply look-

ing to benefit from the hard work thecurrent board and F&C staff have doneto improve the groups performanceand create value for all shareholders.

Investors will decide next week inan extraordinary general meeting

vote, tabled by Sherborne, whether toreplace MacAndrew and director BrianLarcombe with the activist investorsrepresentatives.

Sherborne said yesterday it wasfully aligned with the interests of allF&C shareholders.

F&C fights backat Sherborne assees assets rise

BYMARION DAKERS

M&A

ASSET MANAGEMENT

Leeds-based Northern Foods produces Foxsbiscuits, Goodfellas pizza and ready meals. In November, Northern announced an all-share merger with Greencore, the maker ofWeight Watchers meals, to create Essenta Foods.

FAST FACTS | NORTHERN FOODS

A FRIENDLY NEW FACE FROM LLOYDS

ANDY Briggs,pictured, wasnamed the nextchief executive of pensions providerFriends Providentyesterday. Briggs,currently head of

general insuranceat LloydsBanking Group,takes over fromTrevor Matthews,who will stepback to becomevice chairman ashe is eager toreturn to hisnative Australiain the nextthree years.

RANJIT Boparan hired Goldman Sachsand Rothschild to advise on his effortsto take over Northern Foods.

Goldman Sachs partner and manag-ing director Luca Ferrari leads theteam working for Boparan at the bank.He has a history of high-flying mediadeals, including advising Telefonica dur-ing its 18bn takeover of mobile net-work O2 in 2005, but also has M&A

experience in insurance and industry.Also on the Goldman team is Nick

Harper, who last year helped Betfairfloat on the London market and in2006 worked for Boots during its13bn merger with Alliance UniChem.

Gilberto Pozzi, another Goldman

partner working for Boparan, workedon one of the worlds biggest mergerswhen Arcelor and Mittal joined forcesin 2006.

The Rothschild bankers include headof hotels and leisure, Avi Goldberg,who once advised Northern Foods.

Kevin Ramsden, who currently sitson Boris Johnsons social housing task-force, and Premier Foods adviserRobert Plowman make up the rest ofthe Rothschild team.

LUCA FERRARI

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NEWS | IN BRIEF

Regal takeover deadline extendedRegal Petroleum shareholders have beengiven until 7 February to accept a 77mtakeover offer from EnergeesManagement, the firms said yesterday.Investors representing 2.79 per cent of

Regals capital have already accepted the24p per share offer, though rival Pinchukhas said it is preparing to bid 25p pershare. Energees said it now has the greenlight from anti-monopoly watchdogs.

Ortac raises its gold estimatesAIM-listed gold explorer Ortac Resourcessaid yesterday its reserves in a Slovakianmine are over 40 per cent more thanthought. The Kremnica gold mine is nowthought to contain around 1.1m ounces

and Ortac said it will now ramp up workto bring the project into full production.But the shares plunged 21 per cent to2.2p as the update disappointedinvestors hoping for a more lucrative find.

BAs brand can only stand strikes for so long

WITH BA cabin crew onceagain voting to supportindustrial action, weve hada look at the impact that

the strikes have had on public per-

ceptions of the airline, now part ofInternational Airlines Group (IAG).

Back in the autumn of 2009 BAhad an impressions score in the high20s. Then came the announcement

of strikes over the Christmas periodand by the turn of the year that scorewas -18.

Those strikes were declared illegaland did not happen, the BA scorestarted to rebound and had reached19 before a second ballot saw newstrikes which this time did goahead and the score dived again to15.

Once again the rebound was swift,and interestingly unimpacted by the

ash cloud stopping all air travel inthe UK for days, but another strike amonth later again saw perceptionsquickly drop and then rebound to ahigh of 19 before the December snow

completed a miserable year for BA.So what does this pattern tell us?BA is a brand that is very susceptibleto bad publicity and perceptions arebadly hit by the strikes, but it is alsoa very resilient brand with a stronglegacy and an ability to recoverquickly.

The speed of recovery however hasslowed with the most recent strikeleading to questions about howmany more times BA can drag itself

out of the troughs it so frequentlyfalls into.

The good news for our nationalairline is that the strikes are barelyregistering outside of this country

with perceptions virtually unalteredin other countries such as the USand Germany.Stephan Shakespeare is founder and chiefexecutive of YouGov.

BRANDINDEX

STEPHAN SHAKESPEARE

ANALYSIS lInternational Impressions

20

10

0

-10

-20

30

40

2009/

10/01

2010/

01/01

2010/

04/01

2010/

07/01

2010/

10/01

2011/

01/01

UK Germany US

ANALYSIS lBritish Airways Impressions

20

10

0

-10

-20

30

40

2009/10/01

2010/01/01

2010/04/01

2010/07/01

2010/10/01

2011/01/01

UK

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INDIAS reserve bank raised the reporate at which it lends to banks by0.25 per cent to 6.5 per cent yesterday,in a bid to clamp down on resurgentinflation.

The central bank also raised itsinflation forecast for the end of thefiscal year in March to seven per centfrom 5.5 per cent. Markets reacted tothe inflation forecast, which could beread as a hint towards more interestrate hikes. The Bombay stockexchanges Sensitive Index (Sensex)closed 0.95 per cent down at 18,969.45

points. The increase in key rates wasthe seventh since March.

HOUSE prices in the US fell for a fifthconsecutive month in November, a

well regarded survey revealed yester-day.

However, there was better news forthe US recovery as official datashowed consumer confidence hittinga seven-month high in January.

The US Conference Board said itsindex of consumer sentiment

jumped to 60.6 this month, from 53.3in December.

However, despite improving eco-nomic news, a double-dip in homeprices could be confirmed by spring,according to the Standard & Poors/Case-Shiller index, which measuressingle family house prices in 20

American cities. The index fell by halfa per cent in November, following aone per cent drop in October.

While disappointing for the hous-ing market, the drop was less thanexpected by many economists.

Sixteen out of the twenty citiesrecorded a drop in November, withthe biggest falls in Detroit (-2.3 percent), Atlanta (-1.7 per cent) andChicago (-1.6 per cent).

Another survey released yesterday,the FHFA index, recorded month-on-month price stagnation in November.

Yet prices fell by 4.3 per cent com-pared to November 2009, it said.

We expect softness to persist inthe near term as home prices contin-ue to face headwinds from the largepipeline of foreclosures entering themarket, commented Theresa Chen ofBarclays Capital.

However, we expect some of thedecline to be offset by increased hous-ing demand.

Prices were 1.6 per cent lower thanin November 2009.

While prices held a bit better thanexpected, they are only 1.2 per centabove their crisis low in May 2009,

before the homebuyer tax credit start-ed to distort sales and prices, saidING senior economist Teunis Brosens.

In eight of the 20 cities, prices areeven below the spring 2009 level, hesaid.

In spring last year many buyersrushed to beat the end of the home-

buyer tax credit.After the surge, demand collapsed,

Brosens said. The housing bubblehas left scars that will remain visiblefor years, he said.

US mood rises

despite houseprices falling

THE Bank of Japan revised up its infla-tion forecast yesterday, a move thatreflects the impact of recent rises incommodity prices.

Consumer price index (CPI) infla-tion will reach 0.3 per cent in thenext financial year, it said.

However, the Bank could not beexpected to say that inflation willremain negative as this would admitfailure on a key policy objective, said

Julian Jessop of Capital Economics.Interest rates were kept at virtually

zero, while GDP forecasts for the next

financial year were revised slightlydown to 1.6 per cent from 1.8 per cent.

BoJ trims itsGDP forecastIndia ups ratesto beat inflation

BY JULIAN HARRIS

US ECONOMY

ASIA ECONOMY

ASIA ECONOMY

American consumer confidence jumped last month, according to the US Conference Board Picture: REUTERS

You worked hardfor your moneyYou shouldnt have towork even harder to getthe best exchange rates

020 7801 9080worldfirst.com

Economics 13CITYA.M. 26 JANUARY 2011

NEWS | IN BRIEF

German consumers are upbeatGermanys relentless recovery receivedanother boost yesterday, as consumerconfidence figures showed yet a furtherincrease. The household confidenceindex is expected to rise to 5.7 nextmonth. The level for January wasrevised up to 5.5 from an initial estimate

of 5.4, following six months of increases.Even the first wave of German austeri-ty measures could not stop optimism,said INGs Carsten Brzeski.

French car scheme boosts salesFrench consumption of manufacturedgoods rose 0.6 per cent in Decembercompared to November, boosted by thefinal weeks of a government subsidisa-tion scheme for car purchases. The risewas nonetheless above forecasts.

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Focus on Davos14 CITYA.M. 26 JANUARY 2011

DISCUSSING THEROAD TO FUTUREPROSPERITY NOW

ANDREW MOSSGROUP CHIEF EXECUTIVE, AVIVA

OUR business is about securing the long-term financialfutures of our customers: providing prosperity and peaceof mind. And our relationships with customers are endur-ing potentially lasting 50 or 60 years through the sav-

ings and retirement phases of their lives.As a leading insurer, with 53m customers, were at Davos to

join in some of the biggest topics up for discussion: rebuildingtrust in financial services and tackling the savings gap.

More than any other issue, the question of savings links thebig macroeconomic and political debates of our time with thespecific and everyday concerns of every individual. It links highpolitics with culture and psychology; local markets with globaleconomic imbalances. It affects our livelihoods, our politicaldebate and the development of society worldwide.

We need a change in attitude towards saving, and for it to bereconnected to the idea of prosperity, both for the individualsaver and for those that use their capital to create wealth.

With that in mind, Aviva recently convened the FutureProsperity Panel in partnership with the EconomistIntelligence Unit bringing together experts in behaviourchange, economics and policy to look at ways of bringing abouta step-change in attitudes towards savings. Well be publishingnew thinking on the subject later this year.

The image of savings has not been helped by the turmoil thathas sapped confidence in markets and financial services. Part ofour discussions this week in Davos must focus on reintroducingthe concept of prudent saving to customers who may have lostfaith in that process.

The Future Prosperity panel is chaired by the Economistscapital markets editor, Philip Coggan, and brings together nineleading thinkers. It will use insights from business, behaviouraleconomics and public policy to consider new approaches toimprove prosperity around the world.

A BREAKDOWN in cyber security isnow one of the five major risks facingthe global economy, according to

World Econmic Forum founder KlausSchwab.

A WEF report released as a previewto discussions planned at the confer-ence this week highlighted cyberattacks and the possibility of all-outcyber warfare as a major threat. Weare now living in a completely digi-talised world and a completely glob-alised world, said Schwab, pointingto the impact of Wikileaks revela-

tions as an example of the potentialdisruption.

In line with the focus on the worldeconomys vulnerability to technolo-gy breakdowns, this years conferencefeatures a tech-heavy agenda. Seniorfigures from Google, Infosys

Technologies, Cisco Systems,Microsoft and Spotify are among themany guests and Googles invite-onlynightcap or drinks party on Fridayis being touted as this years hottestticket.

In an attempt to provide a counter-part to the many doom and gloomforecasts this year, the conference isalso hosting a tech pioneers pro-

gramme that aims to bring togethertechnology entrepreneurs fromaround the globe.

The programme gives awards to 31technology start-ups and invites themto the forum to give their leaders achance to network and exchangeideas. William Brindley, chief execu-tive of tech social enterprise NetHope,

will also tell Davos delegates that techis key to the aspiration of sharednorms at the heart of the forumsagenda.

The pace of change and technolog-ical innovation is great, but it should

be thought of as part of the solution,not just a problem, he says.

Cyber security global threatBY JULIET SAMUEL

TECHNOLOGY

GLOBAL unemployment will be at thetop of the agenda at Davos this year,

with one official of the WorldEconomic Forum warning that the

biggest danger for 2011 is the possibil-ity of a jobless recovery.

The warning comes as theInternational Labour Organisation(ILO), a UN body, announced yester-day that worldwide unemploymenthas stayed stubbornly high at 205mduring 2010. The ILO also forecast

that the number will fall by less thanone per cent during 2011. The figuremeans that there are now 27.6mmore people without jobs than in2007 before the crisis hit.

Delegates at Davos will discuss thethreat of ongoing joblessness thismorning at an event entitled: The

West isnt working, held byManpower, an employment consul-tancy and main sponsor of the WEF.

Jeffrey Joerres, chairman and chiefexecutive of Manpower, will blame

western educational systems for notbeing aligned with the needs of the

world of work.Industry and educational institu-

tions must work together more con-structively and governments need totarget funding in the right areas, hesays. Companies, governments andeducators all have a responsibility toget this right.

World leaders are particularly nerv-ous that stubborn unemploymentcould combine with skyrocketingcommodity prices to create condi-tions ripe for widespread civil unrest.President Barack Obama has comeunder heavy fire ahead of his first

State of the Union address for failingto boost job creation: US unemploy-ment currently stands at 9.4 per cent.

Europe is in even worse straits. Andthe economist Nouriel Roubini, whois due to speak at a CNBC breakfast inDavos this morning, has warned thatthe UK in particular has a whiff ofstagflation about it, saying it isalready double dipping while infla-tion is rising.

Youth unemployment in the UK isalready on a par with general unem-ployment in Spain, with both now at20 per cent.

Davos leadersfear surge inunemployed

@davospulse 3.36pm

As the attendees start flowing into town, google partystill sounds like the hot ticket. 'It's got music #WEF#davos

@WmShaw 3.45pmPlato's cave theory: you hold the conf in Switzerland,you walk out of the hotel, 'Hey, things look prettygood, see you next year #Davos

RT @FTDavos 12.30amBiggest theme at Davos is whether east is dominantsphere in economics or is it a cyclical blip? #Davos

@inkhead 01.00amQueue the elitism. Soon come tue Davos 2011tweets. Rich people and celebrities partying. #Davos

Davos tweets ...

BY JULIET SAMUEL

DAVOS 2011Heading for the economic heights

COMPANY bosses are in a positivemood about economic growth overthe next year, with confidence levelsamongst chief executives almost backto the levels seen in 2008.

Of 1,201 executives polled byaccountants PricewaterhouseCoopers,48 per cent of respondents are veryconfident about their companysprospects for growth over the next 12months a sharp climb from last

years figure of just 31 per cent.

The Annual Global CEO Survey,launched at the World Economic

Forum last night, also showed thatexecutives on the search for sustain-able growth were increasingly turningto emerging markets, with 92 per centexpecting growth in their Asian opera-tions compared to just 48 per cent con-fident of the same in Europe.

It means that executives based indeveloped markets are increasinglylooking further afield for opportuni-ties to expand their businesses. Anyindustrial company if theyre goingto be a global leader has to have alarge presence in emerging markets,said Ed Breen, chairman and chief

executive of US-based industrial con-glomerate Tyco International.

CEO confidence in outlookis near pre-crisis levelsBY ELIZABETH FOURNIER

WORLD ECONOMY

ANALYSIS lHow confident are you ofyour company's prospects

for revenue growth?

20

0

60

40

2006 2007 2008 2009 20102005

Percentagestating veryconfidence

Source: xxxx

12

3 Years

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Focus on Davos 15CITYA.M. 26 JANUARY 2011

EUROPE needs to strengthen its finan-cial rescue fund to reduce the risk ofrenewed global instability, theInternational Monetary Fund (IMF)said yesterday.

But US tax cuts and buoyant emerg-ing economies are helping propel therecovery elsewhere, the IMF said in itsworld economic outlook, published atthe start of the summit in Davos.

The IMF revised up its forecast forUS growth to three per cent this year, asharp increase from the 2.3 per centforecast in October for the worlds

largest economy.However, it was less positive on

other advanced economies, keepingits Eurozone forecast at 1.5 per centand raising Japan slightly to 1.6 percent.

The slow growth prospects ofadvanced economies and the contin-ued weakness in their fiscal balanceshave raised the markets sensitivity todebt sustainability risks, the IMF saidyesterday.

Emerging economies, such as Chinaand India, were expected to keep upbrisk growth, although the IMF notedinflation pressures rising, particularlyfrom high food and energy prices.

US growth to accelerate

yet Europe still vulnerableBY JULIAN HARRIS

WORLD ECONOMY

Obama to freeze US spend

DAVOS: WEDNESDAY 26 JAN

lThe World Economic Forum AnnualMeeting 2011 runs until Sunday 30January. Davos is one hour ahead. All

times are given here in UKtime.

lTodays morningprogramme beginsat 8.00 - 9.15, withupdate sessions fordelegates.

l World EconomicBrainstormingtakes place from 9.30- 11.00.

lThere are further updatesand an IdeasLab session from 9.45 - 11.00.

lThe opening buffet is served from 11.00- 12.30.

lAfternoon update sessions and brain-storming then resume until 2.

lBrainstorming is followed by updateand IdeasLab sessions until 3.30.

l From 3.30 - 4.30, delegates will beattending the opening reception in theCongress Hall.

l

The opening session takes place from4.30 - 6.

lDinner is served from 7 - 9.

lThe official blog is at:http://www.forumblog.org/

lThe official Twitter feed is@Davos #WEF.

lEvents can be watchedonline:

http://www.livestream.com/worlde-conomicforum

lThe Open Forum Davos also runs in par-allel to the World Economic Forum, from27-29 January.

lThis years Open Forum theme isRecognition, Discussion and Change.Unlike the World Economic Forum, this is

open to the general public. Videos ofevents will be posted on YouTube.

events ............................... ....

In

association

with

THE US pilot who safely landed aplane carrying 155 passengers on theHudson River yesterday urged politi-cal and business leaders in Davos tolook beyond short-term results todeliver long-term benefits.

Chesley Sullenberger III, former US Airways pilot, was speaking at theWorld Economic Forum as chief exec-utive of Safety Reliability Methods.

His sessions Leadership underPressure and Exploring the

Extremes are both fully subscribed, itwas revealed last night.

Hero calls forlong-term plans

DAVOS

ANALYSIS lWestern Government Debt

40

0

120

80

2006 2007 2008 2009 20102005

Debt toGDP %

Source: IMF and Haver Analytics

UK

Euro area

US

US PRESIDENT Barak Obama yesterdayendorsed a five-year freeze on discre-tionary government spending to helpbridge the yawning US budget deficit.

The call, made as part of his State ofthe Union address, excluded spendingon security, medical aid or socialsecurity but included all otherdomestic spending.

The US is approaching its current$14.3 trillion (9 trillion) borrowinglimit and while lawmakers can vote toextend it, pressure is growing on

Obama to offer a plan to cut spendingsignificantly.

Senate Republican leader MitchMcConnell rejected Obamas cuts assimply freezing in place the extraordi-nary increase in spending since 2008.

The party has proposed that publicspending should be reduced to 2008levels and is keen to cut up to $100bnfrom non-security spending.

The US deficit is expected to reach$1.4 trillion this year, up from $1.3trillion in 2010, from an overall 2011b u d g e tof $3.8 trillion. Obama struck a dealwith Republicans at the end of 2010to pass a finance bill extending an$858bn programme of tax cuts dat-

ing from George W Bushs tenure aspresident.

BYALISON LOCK

US ECONOMY

Clockwise from farleft: A sole sniper

guards the worldselite at the main

Davos conferecentre; US airline

pilot CSullenberger IIIspeaking yesterdayurged politicians tothink long-term

Rupert Murdocancelled his visit to

Davos to personallylead negotiationswith culture secretary Jeremy Hunt

over the buyout ofSky and PwC chairman Dennis Nallysaid that chief executives confidencelevels were nowclose to that ofbefore the recession

Russia's PresidentDmitry Medvedev (left)and Frances President

Nicolas Sarkozy asreboth at Davos. Pic: PA

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ANALYSIS lAberdeen Asset Management

170

190

210

230

25 Oct 12 Nov 14 Jan2 Dec 22 Dec

p

219.4025 Jan

ABERDEEN ASSET MANAGE-MENTMorgan Stanley rates the fund manageroverweight and has lifted its targetprice to 260p. The broker has also raisedits earnings per share forecast by fourper cent on higher margin equity inflows,and views the shares as attractive due tostrong global equity reach and reduceddrag from fixed income.

To appear in Best of the Brokers email your research to [email protected]

Moelis & CompanyMoelis & Company has appointedAlexandra Oldroyd to the firm as a

managing director based in London.She will advise clients in the consumerindustry with a particular focus on the

food and beverage sector, workingclosely alongside Benoit Renon, man-aging director in the firms Europeanconsumer practice. Oldroyd joins fromBarclays Capital where she was amanaging director and pan-Europeanbeverages analyst.

AFMThe Association of Financial Mutuals[AFM] has hired John Reeve, chiefexecutive of Family Investments, as itsnew Chairman. Reeve takes over fromMike Yardley, who stepped down aschief executive of Royal London lastyear. Reeve has been chief executive ofFamily Investments, the leading

provider of the Child Trust Fund andaffordable tax-exempt savings plansespecially for children, since 1992. TheAFM is a trade body that represents57 mutual insurers, friendly societiesand other financial mutuals in the UKand is tasked with enhancing the

importance and value of mutuals with-in the UKs financial service sector.

World FirstSir David Clementi, former deputygovernor of the Bank of England, SirDavid Clementi, is to become chairmanof the board of directors of foreignexchange brokers, World First. He hasbeen senior advisor to the company

since 2006. Clementi is currentlychairman of Kings Cross Central and adirector of The Royal Opera House. Hewas previously chairman of Prudentialand was deputy governor of the Bankof England from 1997 to 2002. He hasalso been chief executive of Kleinwort

Benson.

Jones Lang LaSalleJones Lang LaSalle has appointedRobert Mayhew as regional director inits valuation advisory team in London.Robert is relocating from Jones LangLaSalle Russia and CIS where he hasbeen the head of strategic consultingand valuation since late 2006.

CITY MOVES | WHOS SWITCHING JOBS Edited by Elizabeth Fournier

RSM TenonThe seventh largest accountancy firm hasnamed accountant Peter Musgrave as head ofits enlarged London office. RSM Tenon hasbrought together teams from four offices intothe central London location in Chiltern Street in

the West End and created a 450 strong teamcovering all the Groups services. Peter previ-ously ran the RSM Tenons Wigmore Streetoffice and now heads the largest office withinthe group, dedicated to the London market.

+44 (0)20 7557 7245morganmckinley.com

To appear in CITYMOVES please email your careerupdates and pictures to [email protected] SPECIALISTS IN GLOBAL PROFESSIONAL RECRUITMENT

in association with

SIEMENS, Europes biggest engi-neering conglomerate and aGerman bellwether, beat profitforecasts due to robust demand inemerging economies and saidsigns for future sales were strong.

Like most of its German peers,Siemens relies heavily on exportsof manufactured goods to China,Brazil, India and Russia to powergrowth, profiting from infrastruc-ture investment in those coun-tries.

Siemens and steelmakerThyssenKrupp have also benefitedfrom emerging economiesappetite for German luxury cars,high-end engineering machineryand industrial equipment.

Net profit from continuing oper-ations -- which exclude unitsplanned to be spun off -- rose 17percent to 1.79bn (1.54bn) in thequarter, beating an average fore-cast of1.47bn.

Orders and revenue grew in allregions, particularly in emergingmarkets, Siemens chief executivePeter Loescher said, referring to

the companys first quarter to end-December.

Shares in Siemens closed flat at93.43.

Bric countries boost

profits at SiemensBY HARRY BANKSTELECOMS

CHINAS Huawei Technologies hasfiled a lawsuit to block Motorolafrom selling one of its businessunits to Nokia Siemens Networks,demanding that the $1.2bn (760m)deal be altered to avoid infringingon intellectual property rights.

Nokia Siemens is seeking regula-

tory approval in China for its agree-ment to buy Motorolas networkequipment unit. Huawei wants thedeal to exclude any equipment

based on widely-used GSM andUMTS technology standards.

Huawei alleged a possibleinfringement of intellectual proper-ty rights by Motorola in a lawsuitfiled in the US District Court for the

Northern District of Illinois EasternDivision.

Motorola Solutions said the caseis without merit and it still aims toclose the Nokia Siemens deal earlythis year. The deal needs approvalfrom antitrust authorities.

Representatives for MotorolaMobility and Nokia Siemensdeclined to comment on the suit.

Huawei sues Motorola over sale of unitTECHNOLOGY

NEWS | IN BRIEF

Amgen acquires BioVexAmgen has agreed to buy BioVex, a closelyheld maker of experimental cancer drugs,for up to $1bn (633m). An initial payment

of $425m will be made, and as much as$575m in milestone payments.Biovex is a privately held, venture-funded,biotechnology company headquartered inWoburn, Massachusetts.

Asian boost for Intl FerroInternational Ferro Metals said sales offerrochrome more than doubled in its sec-ond quarter on strong Asian demand for

the stainless steel ingredient. Chief execu-tive David Kovarsky put the growth downto the company building good relationshipsin Asia that have focused on higher-valuemarkets.

BEST OF THE BROKERS

ANALYSIS lBurford Capital

116

117

118

119

120


p

119.5025 Jan

BURFORD CAPITALEspirito Santo rates the dispute financierbuy with a target price of 137p. Whilethe broker was surprised by the depar-ture of the Burfords chairman, it believesthe firm has an advantage over othersthanks to its $200m cash pile. It expectsan average return on investment of 27per cent, providing the firm continues toinvest.

ANALYSIS lGreene King

420

40

60

80

00


p 446.6025 Jan

GREENE KINGNumis rates the leisure group add witha target price of 525p. The brokerexpects the firm to report in-line orabove-forecast sales on Monday, buildingon a 17 per cent rise in pre-tax profit inthe first half of the financial year. Numispredicts a pre-tax profit of 136m for2011, which is slightly below consensusestimates.

ANALYSIS lSiemens

85

90

95


93.4325 Jan

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BABCOCK International, the defenceservices group, delivered an upbeatthird-quarter trading statement yes-terday saying that its strong orderbook made it confident of meetingits full-year targets.

The business, led by chief executivePeter Rogers, said third-quarter tradehad been strong, driven by growth atits defence, security and marineunits.

Babcock, which also maintainsRoyal Navy submarines, yesterdaysaid that its pipeline of contracts thatit was bidding for stood at 6bn, upfrom 5bn three months ago. Itadded its order book was stable ataround 12bn.

The support services firm said: Weare confident of achieving our expec-tations for this financial year andexpect to make further good progress

thereafter.The firm, which last year bought

out rival VT Group, said that its inte-gration was progressing efficientlyand it was confident of achieving50m of pre-tax savings in total fromthe deal by the end of March 2011.Babcock bought VT for 1.5bn lastMarch. It also said the governmentsStrategic Defence and SecurityReview would provide it with newsignificant outsourcing business.

Babcock sayssales on trackBYROGER BAIRD

DEFENCE

DUBAIS DP World, the worlds third-largest container operator, saw salesrise 14 per cent higher in 2010 com-pared to the previous year, in a signthat at least parts of the world econ-omy are gathering momentum.

DP World, which is 80 per centowned by Dubai World, the Arabemirates debt-laden, government-owned conglomerate, said the

strongest gains were in Asia,Australia and America, as well as innew terminals in Peru and China.

DP World said 49.6m TEU (twenty-foot equivalent container units)came through its 49 terminals in 28countries last year.

The firm also operates theSouthampton and Tilbury ports inthe UK.

The firms chief executiveMohammed Sharaf said: We remainconfident about the long-term out-

look for the container terminalindustry. Handling 50m TEU acrossour global portfolio is a major mile-stone for DP World. It puts our annu-al throughput for 2010 well ahead ofhistoric peak levels seen in 2008.

DP World also said it is on track tolaunch a secondary listing of itsshares on the London StockExchange in the second quarter ofthis year. Currently about 20 percent of DP World is listed on theDubai stock exchange.

DP World sees traffic at itsports lift as world trade risesBYROGER BAIRDSHIPPING

ANALYSIS lBabcock International

520

560

600


p 579.0025 Jan

ANALYST VIEWS: HOW HAS BABCOCK DONESINCE IT BOUGHT VT GROUP? Interviews by Roger Baird

PAUL JONES | PANMURE GORDON

The order book remains stable, with the bid pipeline

showing some growth and expected to grow steadily duringthe course of the year. Cash generation appears to remainstrong, with the integration of VT progressing well.

MIKE MURPHY | NUMIS

This positive third-quarter management statementshould bash the Babcock bears. We see fears over thegrowth rate and its net debt position receding over the next12 months driving a major re-rating of the shares.

KEVIN LAPWOOD | SEYMOUR PIERCE

The trading update was a comforting mixture ofstability in the UK defence businesses and strong cash flowcombined with encouraging growth overseas. The integra-

tion of VT Group continues according to plan.

SEVERN TRENT SEES LEAKAGES RISE

SEVERN TRENT said yesterday it has experienced higher levels of leakages so far thiswinter because of last months snow. The water firm, led by chief executive Tony Wray,added its net capital expenditure would range from 400m to 410m for the year. It saidthat the business expected to book exceptional charges of around 20m to 25m.

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Tune in for live coverage from 26 28 January.

CNBC provides the most extensive coverage of the World Economic Forum Annual Meeting in Davos.

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The games not over for the West,and Dambisa Moyo wants us to winThe controversialauthor of Dead Aidtells the West that itneeds to confront itsproblems to survive

IMAGINE if the top Premiership team,instead of honing its football skills,

became obsessed by the performanceof another, lower-ranking but fast-

improving side. Distracted from practice,heads craned over their shoulders to gawpat the new phenomenon, the players

advantage would dwindle not so muchfrom the growing skill of the newcomers

but from their lack of focus on their ownperformance. Out of shape and badlymanaged, they would rapidly find them-selves relegated. That is the metaphor thatDambisa Moyo suggests to me capturesthe current predicament of the West.

We have met to discuss her new book,How The West Was Lost, which arguesthat we are losing ground to China andother emerging economies, not so much

because they are doing well as because ofour own failing performance. And likethose forgetful but fundamentally talent-ed players, Moyo believes that if we willonly pay attention to ourselves, and insti-tute the economic equivalent of a toughnew training regime, all is not yet lost.

Moyo is already controversial as theauthor of Dead Aid, which dared to sug-gest that fifty years of aid to Africa mayhave done more harm than good. Its suc-cess still surprises her. She admits that

before its release, I had a couple of con- versations with my publisher aboutpulling it in January 2009, with thefinancial crisis dominating the news, itseemed that few would be interested indiscussing the politics of aid. And yet it

became an immediate sensation, perhapsbecause people were actually questioningeverything.

With her new book, Moyo is hoping topush that questioning spirit even further.She calls herself something of an acciden-tal writer, driven by irritation over thetreatment of the issues rather than long-standing literary ambitions. And she iscertainly a passionate defender of heranalysis, her hands reaching out toemphasise her points. If her two booksseem on the surface far apart from oneanother in subject matter, for her they aredeeply connected by the power of unin-

tended consequences the dangerous waygood intentions can lead to bad outcomes.Often, as she points out, these problemscan be traced to the choices of the sameactors, the same generations of policymak-ers encouraging huge government to gov-ernment aid flows into Africa and callingfor subsidised house purchasing andunfunded pension entitlements at home.

What

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