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FTSE 100 5,963.80 -46.64 DOW 12,285.15 +14.16 NASDAQ 2,760.22 -1.30 /$ 1.63 unc / 1.13 unc /$ 1.45 unc

Bond yieldsescalate onGreek debtconcerns

GREECE will today present fresh austeri-ty and privatisation plans in an attempt

to convince markets it can tidy up itsfinances and avoid restructuring itsdebt.

The measures which we willannounce will send a message to mar-kets: Greece now has credibility, a planand a prospect which guarantee thatwe will meet our targets, governmentspokesman George Petalotis said, deny-ing debt restructuring plans.

The government is expected tannounce sell-offs, benefit cuts andeffective tax hikes to save about 23bn(20bn) to bring its budget deficit toabout one per cent in 2015 from about10 per cent in 2010, officials said. Two-thirds of this would come from spend-ing cuts and one third from revenues.

Worries that Greece will be forced torestructure its massive governmentdebt saw Greek bond yields surge yester-day. Markets were reacting to Germanfinance minister Wolfgang Schaeubles warning that additional steps mayhave to be taken if research suggeststhat Greek debt is not sustainable.

The yield on two-year Greek bonds hit18.4 per cent, while five-year yieldsbriefly topped 18 per cent and 10 year yields rose to a euro lifetime high of13.61 per cent.

Greece needs more time to convince investors that its reform programme is on track, finance ministerGeorge Papaconstantinou also said.

It is unclear when Greece will be ableto return to the financial markets forfunding, Papaconstantinou admitted.

A review of the Greek position is dueto be published in June, written by theEuropean Central Bank (ECB) andEuropean Commission.

Senior ECB official Olli Rehn hit backyesterday, insisting: We do not see debtrestructuring as an option. Instead we

are engaged in a revised and updateddebt sustainability analysis, which wewill do with the IMF and present in duecourse, Rehn said.

BY JULIAN HARRIS

EUROZONE

COLOUR and excitement returnedto the City yesterday as Glencoreannounced a former French foreignlegionnaire, Algerian war veteran,author, explorer and financier as itsnew chairman. Simon Murray (pic-tured) will be tasked with leadingthe firms up-to $11bn (6.7bn)float, valuing it at about $60bn, thedetails of which were confirmedyesterday.

The move heralded a return tothe days when interesting and com-plex characters, rather than facelessexecutives, ran the City.

Earlier this week, Murray said:This is very exciting, but you aretalking to someone who has beenchased by a leopard. You are talkingto someone who has been shot atwith a machine gun and missed.

Murray, whose tales of derring-doinclude carrying two severed headsin his backpack during his timein the French Foreign

Legion, was born in Leicester in cen-tral England. As a teenager in 1960he joined the Foreign Legion on a whim, going on to fight for fiveyears in Algeria. He later wrote a bestseller, Legionnaire, about histime in north Africa.

It was made into a film in 2002.Educated at Bedford School, one

of Englands oldest public schools,Murray was turned down by theBritish Army before signing up withthe Foreign Legion.

I think perhaps I was just a young buck without much confi-dence in himself setting an extremechallenge to see if he could hack itin a mans world, he says in hisbook.

He has since run a 240km race inthe Moroccan desert, climbed

Mount Everest andbecome the old-

est man tow a l k u n s u p -ported to

the SouthPole. Glencore unveiledits blockbuster initial

public offering(IPO) to the

market yesterday, following monthsof speculation.

The Swiss-based firm, which mar-kets and produces metals and othercommodities, is seeking to raise between $6.8bn and $8.8bn in aLondon listing, making it the biggestfloat ever offered in the capital.

A secondary share offer of approx-imately $2.2bn worth of existingstock in the company will be sold inHong Kong.

The deal will value Glencore atabout $60bn, making it one of thetop 20 London-listed firms by mar-ket capitalisation and sending itstraight into the FTSE 100.

It will be just the third firm toattain blue chip status on its firstday of trading, following BT in 1984and BG Group in 1986.

The firm is aiming to complete itsIPO in May, and will use $3.2bn ofthe proceeds to buy Kazakhstanmining group Kazzinc.

It will also pay off debts and usethe funds to provide working capitalfor the next three years.

Senior management in thecompany, including chief exec-utive Ivan Glasenberg, will become billionairesovernight, although theywill be locked into shares

for five years.Glasenberg, who owns

a 15 per cent stake in the firm, willbe made into one of the worlds rich-est men following the IPO.

Almost 500 partners in the firmwill also become millionaires in thedeal, but will also be blocked fromselling their shares immediately fol-lowing the float.

Former BP chief executive TonyHayward will join Murray onthe board as a sen-ior independ-ent director,as he beginsto rebuildhis busi-n e s sc a r e e ra f t e rdepartingthe oilgiant amidthe Gulf ofMexico oilspill crisis lastyear. MORE:P4-P5

MEET THE 71-YEAR

OLD ADVENTURERIN THE HOT SEAT

www.cityam.comIssue 1,365 Friday 15 April 2011 FREEBUSINESS WITH PERSONALITY

Certified Distribution

31/01/11 - 27/02/11 is 107,265

As Glencore unveils its London mega-float

BY RICHARD PARTINGTON

COMMODITIES

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News2 CITYA.M. 15 APRIL 2011

Cable in rowon migration THE COALITION was thrown intoconfusion last night after businesssecretary Vince Cable came out tocriticise Prime Minister DavidCamerons stance on immigrationand then later said he backed govern-ment migration policy.

Cable said that Camerons promiseto limit immigration to tens ofthousands, not hundreds of thou-sands was very unwise and risksinflaming extremism.

Asked if this meant that he did notsupport his own governments policyof an annual 20,700 visa cap for non-EU workers, Cable backtracked, say-ing: We are completely unitedbehind the immigration policy.

The business secretarys interven-tion comes as top Tories and Liberal

Democrats seek to position them-selves for local elections on 5 May.

A spokesman for deputy PrimeMinister Nick Clegg also criticisedCameron: Its not the language thedeputy Prime Minister or any LiberalDemocrat would use in a speechabout immigration.

The coalition partners are keen todistinguish themselves and appeal totheir bases during the campaign, with Cameron telling voters inHampshire a key Tory/Lib Dem bat-tleground that for too long, immi-gration has been too high.

But he added: Our country has benefitted immeasurably froimmigration.

After business criticised its origi-nal policy earlier this year, the gov-ernment decided to exempt thoseearning over 150,000 from its visacap.

BY JULIET SAMUEL

POLITICS

Glass is both half full and half empty

GLASSES can either be half full orthey can be half empty, depending onones temperament: optimist or pes-simist. But when it comes to economicconditions, and prospects for invest-ments, jobs, incomes and growth,there is enough material to make bothsides happy. My own take is moderatemedium-term optimism, combinedwith longer-term pessimism. Anotherdebt and macroeconomic crisis isbrewing, but there are also plenty ofgood things going on in the world.

Lets first look on the bright side.Surveys show that G7 economic activi-

ty in the coming months will bestrong. It remains to be seen howmuch the UK rebounded in the first-quarter, but growth is back, despitefalling take-home pay and retail sales.

The global economy remains solid,despite a slowdown in China, theEurozones woes, the geopolitical crisisin North Africa and the Middle Eastand Japans nuclear catastrophe.

American credit constraints are eas-ing, with banks increasingly able tolend, as Ian Harwood, an advocate ofthe bullish case at Evolution Securities,points out. This is documented by Fedloan officers surveys, PayPal smallbusiness lending data and the month-ly NFIB survey (now at its highest sincethe start of 2008).

In the US, payrolls growth hasfirmed (despite a setback yesterday),unemployment has begun to dip andthere is less talk of a jobless recovery(though there is still a huge way to goand millions fewer jobs than thereonce were). In Britain, the private sec-tor is creating far more jobs than are

being cut by the state. Marchs UK com-posite purchasing managers indexshowed the strongest jobs growthsince October 2007. Companies aregenerating cash and profits. Business

investment and employment are ris-ing. Margins are being squeezed bycommodity and oil prices, but earn-ings and revenues are still growing.

So much for the bullish case. Thereis also plenty of depressing news. Inthe UK, inflation remains too high, which is cutting wages, consumerspending and hitting the publicfinances. Voters seem unaware thatinterest rates will eventually have torise as monetary policy is normalised. The sovereign debt crisis in theEurozones periphery is intensifying and while Barack Obama is finally try-ing to cut the massive US budgetdeficit, neither he nor the Republicansseem really serious about acting.Eventually perhaps in ten years time the US will either have to act or face acrisis that will make the sub-primedebacle look like a walk in the park.

Closer to home, three-year yields onGreek debt hit a monstrous 18 per centyesterday. Greece will eventually haveto default on part of its debt. But thefact that this could happen before new

European procedures are in place in2013 means that there will be nomechanism for a forced restructuring.It would have to be voluntary, whichwill be interesting.

Last but not least, Chinas forexreserves soared 24 per cent over thepast year to $3.04 trillion, with thecash recycled into securities, pushingdown yields on US and other govern-ment debt and stoking future bubbles.This very process was one of the keydrivers of the boom and bust yetnothing has changed. The reserves willcome in handy when Beijing eventual-ly sorts out the Chinese banking sys-tem, which is nursing lots of bad debt but in the meantime the much-need-ed repricing of credit and risk is nottaking place. Have a great weekend.

[email protected] me on Twitter: @allisterheath

NEWS | IN BRIEF

BA crew wont strike over EasterBritish Airways cabin crew will notstrike over the Easter and royal weddingbank holidays, the airline and Uniteunion said in a joint statement yester-day. BAs new chief executive KeithWilliams and Unite boss Len McCluskeyhave agreed to extend a prior deadline

of 15 April for any strikes to beannounced, meaning crunch talks cancontinue and Unite will hold off fromcalling disruptive action over the holi-days. Both parties said they would con-tinue to work towards lasting peace.

Hammerson chair for LloydsJohn Nelson, chair of FTSE 100 proper-ty company Hammerson, is believed tobe a front-runner for the role of chair-man of Lloyds of London, the UKsbiggest insurer. The firms currentchair, Lord Levene, will step down thisyear, leaving vacant a post that is seenas an ambassadorial role for the Britishinsurance industry. Nelson has previ-ously worked at Lazard, KleinwortBenson and Credit Suisse First Boston.He is currently a front-runner among alist of candidates, according to a reportfrom Sky News.

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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Distribution helplineIf you have any comments about the distributionof City A.M. Please ring 0207 015 1230, or [email protected]

Figures prove that economicmigration is anything but badIMMIGRATION boosts the economyand subsidises the UKs welfare state,several academic institutions said yesterday, as the proposed cap onimmigration came under wide-spread criticism.

Immigrants contribute more intaxes than they use in services, saidSam Bowman of the Westminster-based Adam Smith Institute.

Home Office research suggeststhat is equivalent to 1p off the basicrate of income tax, Bowmanexplained. Immigrants dont drainthe welfare state, they subsidise it.

Earlier in the year the govern-ments statistics office revealed thatforeign-born people are less likely toclaim state benefits than their UK- born counterparts in nearly allBritish regions and countries.

The UKs engineering sector is setto suffer from the new regulations,the Institution of Engineering andTechnology (IET) said yesterday.

These changes to the immigra-tion system will not help our engi-

neering sector to contribute to eco-nomic recovery in the UK, said IETdirector Dr Tony Whitehead.

We currently have a nationalshortage of engineers and techni-cians, which has a negative effect onthe UK economy.

Populist immigration policies aredamaging to economic growth, saidJens Tholstrup of Oxford Economics,earlier in the week.

Unemployment, currently at 7.8per cent in the UK, is not exacerbated by large-scale immigration, accord-ing to Michael Clemens of the Centrefor Global Development.

Following EU expansion in 2004,there was a sudden influx of justunder half a million easternEuropeans to the UK.

Yet a Bank of England report in2007 said that the wave of immi-grants appears to have had little orno discernible effect on the unem-ployment rate or any other labourmarket aggregate for that matter.by Julian Harris

BOSCH WARNS JAPAN CRISIS WILLSLOW GLOBAL GROWTHThe impact of last months Japaneseearthquake will cut global economicgrowth by a quarter of a percentagepoint and could put a big dent inplaned increase in car productionthis year, the head of the worldslargest car parts supplier warned.Franz Fehrenbach, chief executive ofBosch, said damage to Japans indus-trial base would slow momentum ofthe world economy.

SWISS JULIUS BAER PAYS BERLIN50M TO SETTLE TAX EVASION CASEJulius Baer became the first Swiss pri-vate bank to reach a settlement withthe German authorities over itspotential role in helping rich cus-tomers to evade taxation with a one-off 50m (44m) payment. German

tax authorities have gone to greatlengths to track down tax evaders,

including the purchase of stolenclient information.

LIBERTY SELECTED AS PREFERREDQUINN BIDDERLiberty Mutual, the US insurancecompany, has been selected as pre-ferred bidder for Quinn Insurance,Irelands second largest general insur-er, which was placed in administra-tion by the Irish regulator last yearover breaches of insolvency rules. Thedeal is one of several announced yes-terday as creditors closed the net onfounder Sean Quinn.

LISTING THREAT TO PLANS FOR NEWUBS BASEPlans by UBS to build a new head-quarters in the City of LondonsBroadgate estate could be underthreat from English Heritage, whichis considering a historic listing forparts of the 25-year-old Arup-designedoffice campus. The conservation

group is considering recommendinga Grade II listing.

BURGER INVESTORS EAGER FOR ATASTE OF LATIN AMERICA American investors rushed to takeadvantage of a rare opportunity togain blue-chip exposure to the grow-ing Latin American economies whenthe worlds biggest McDonalds fran-chisee started trading in New York yesterday. Shares in Arcos Doradosrose nearly 25 per cent above theirIPO price of $17 (10.40) on the NewYork Stock Exchange yesterday.

DIXONS PULLS OUT OF SPAINDixons Retail, the owner of Currysand PC World, confirmed that it waspulling out of the Spanish marketyesterday. The company said that thedecision was made due to a continu-ing weak consumer environment andcontinuing losses of the business,together with the groups plans to

focus on combined electrical andcomputing stores.

SIR RICHARD BRANSON TO MAKE BIDTO BUY BACK FORMER VIRGIN RADIOSir Richard Branson is attempting tobuy back the former Virgin Radio 14years after selling the UK radio group.The Daily Telegraph understands SirRichard's Virgin Radio International will make a bid today for AbsoluteRadio. The radio group is being soldby its Indian owner TIML Radio, partof Bennett Coleman.

BRICS WARN OVER COMMODITYPRICESThe roller-coaster path of commodityprices threatens the global recovery,the BRICS group of new economicpowers warned. Excessive volatilityin commodity prices, particularlythose for food and energy, poses newrisks for the ongoing recovery of theworld economy, they said in a joint

statement, released as the nationsmet for their third summit.

ENI SEEKS TO SHIP LIBYA OIL TO ITALYEni, Italys biggest energy company bymarket value, said yesterday it plansto transport as much as possible of itsown oil stored in a Western Libyanterminal to Venice for safety reasons.We are trying to lift as much equityoil as possible from the Mellitah ter-minal via a tanker to Venice, said Eni.No specific time frame is available,but we hope to have one [tanker] in afew days.

SPAIN MOVES TO CLAMP DOWN ONHIGH-INTEREST DEPOSITSSpains ailing savings banks are rush-ing out a slew of aggressively pricedproducts for savers ahead of an initia-tive by the government and the Bankof Spain to limit money-losingdeposits. The Finance Ministry hasoutlined new draft rules aimed at

limiting the interest rates that bankscan pay for deposits.

WHAT THE OTHER PAPERS SAY THIS MORNING

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IRELAND yesterday said it had passed acrunch review of its economic progressby creditors without any penalty andratings agency Fitch upgraded its out-look in some rare good news for thedebt-ridden country.

The troika [EU, IMF and ECB team]have informally signed off on the firstquarter, finance minister MichaelNoonan said. The central bank cut itseconomic growth forecast for 2011from one to 0.9 per cent. But ratingsagency Fitch left Irelands sovereignrating at BBB+, upgrading its outlook

from ratings watch negative to out-look negative, saying its economy wasstablising.BANK OF IRELAND: P8

THE already shaky climate in theLondon new issues market worsenedyesterday as the Russian mobile phoneretailer Euroset pulled its 800m issue.

While the deal was overshadowed by Glencores announcement,Eurosets flotation is the latest smallerplanned initial public offering (IPO) tohave been dogged by uncertainty because of nervousness in the mar-kets. Investors are increasingly unwill-ing to pay for what they deem to beovervalued stock.

The decision to pull the float wastaken around lunchtime, according tobankers close to the deal.

Three issues have been pulled fromthe London market in the past coupleof weeks: Topaz Energy, which wantedto raise 300m; on Tuesday the onlinepayments group Skrill pulled its 80mcash-raising; and the vacuum technol-ogy group Edwards last week pulled its375m offer.

There were also three Russian floatspulled from the market earlier thisyear. Market experts are talking abouta buyers strike in the London mar-kets, which are suffering far more

than their European counterparts.Experts say that the expectations ofsellers are currently higher than theyought to be given the scepticism ofpotential buyers. Potential investors,they say, have also been spooked bysharp price declines in two deals thatpriced at the end of last week, Performand Austrian group AMAG.

The Euroset deal was expected tonet Russian billionaire AlexanderMamut more than 500m. Mamut is ashareholder in the troubled retailgroup HMV and he is also expected tosubscribe for shares in Nomos Bank, aRussian IPO set to price within thenext few days.

Euroset said in a statement thatthe shareholders and managementteam remain confident of the strongfundamentals for Euroset and willcontinue to develop the business inline with the existing strategy.

Alfa Capital, Credit Suisse, GoldmanSachs and VTB Capital were the bankadvisers on the deal.

Banking sources were saying even asrecently as Wednesday that the dealwould push ahead, although very like-ly on a reduced scale.

Etalon, a Russian property group, isexpected to price shortly.

Euroset float

cancelled asbuyers dither

LONDON-BASED banks will need anextra 1.6m square feet of space by 2014to accommodate an expected hiringspree, research out today claims.

To put this into perspective, this isthe equivalent of four extra Shards orfive extra Heron Towers good newsfor the City in particular as this iswhere most of the banks will be look-

ing, said Dan Bayley, head of centralLondon at BNP Paribas Real Estate,which commissioned the research.

Banks and financial services compa-nies will add a total of 11,500 extraemployees over the next three years,the survey predicts.

Three quarters of the banks sur- veyed said their business will growover the next three years, with 55 percent adding that they will increasehead counts during this period.

City hiring spree todrive office squeeze

SALES of electronic books (e-books)have overtaken those of print booksin the US for the first time ever,according to data published by theAssociation of American Publishers.

Revenues from e-book sales soared169 per cent to $90.3m (60m) dur-ing January and February of this year while sales in paper booksdropped 25 per cent to $81.2m overthe same period.

Publishers blamed the printdecline on bad weather, low con-sumer confidence and Borders, the

high street books retailer, goingbust. E-books are overall more prof-itable due to low distribution costs.

US e-book salesovertake printIreland passeskey stress test

BYDAVID HELLIER

CAPITAL MARKETS

EUROZONE

MEDIA

BYMARION DAKERSPROPERTY

News 3CITYA.M. 15 APRIL 2011

LEADERS UNITE ON GADDAFI

BARACK Obama (top left) has aligned himself with Nicolas Sarkozy (centre) and David Cameron by committing to support militaryaction in Libya until dictator Gaddafi is gone. The leaders write that the world will be guilty of an unconscionable betrayal if theLibyan leader is left in place, putting the fate of citizens who have held out against the dictator in the hands of a merciless militiaintent on revenge. Colonel Gaddafi must go and go for good before the rebuilding of Libya can begin, they say in todays Times, reject-ing demands for an immediate ceasefire and a negotiated exit for the Libyan dictator, which could have left his family in charge.

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Former BP bossTony Hayward (farleft) will join theGlencore boardwhen it becomes apublicy quotedcompany. HongKong businessmanSimon Murray(centre) will be thechairman of thefirm, while US

businessmanWilliam Macaulay(right) will alsojoin the board

Focus on Glencore 5CITYA.M. 15 APRIL 2011

PUBLICITY-SHY chief executive IvanGlasenberg will end years of secre-cy by putting the private firm cen-tre stage in an initial publicoffering (IPO).

The former South African andIsrael champion race walker isknown to be wary of the limelight,preferring relative anonymi-ty.

Yet the 54-year-old hasrecognised the constraintsof a private partnership onGlencore, despite the scruti-ny it will now come underfrom new shareholders andthe public gaze.

Glasenberg took the longroad to the top, first start-ing as a coal trader for

Glencore in 1983. He took aquarter of a century to

become chief executive ofthe Swiss-based firm, takingthe top job in 2002, via sever-al senior positions in

Australia, Hong Kong andBeijing.

He has since built the firminto a commodities power-house, as one of the worlds

biggest privately held firms.

Secretive chief takescentre stage

BYRICHARD PARTINGTON

MINING

THE STORY BEHIND A

COMMODITY TITAN

THE COMMODITY boom has helpedto turn Glencore into a powerhouse,creating huge profits on massive rev-enues.

Driven by massive demand fromChina, commodity prices havesoared in recent years, turning the

Swiss-based firm into one of thelargest privately held companies.Last year, it had pre-tax profits of

$6.2bn (3.8bn) on revenues of $145bn.It said yesterday it expects to

announce a $350m shareholder divi-dend alongside its half-year resultsthis August.

Yet the timing of its listing planscomes as demand for commoditiesslows and prices fall, althoughobservers still view the firmfavourably.

Founded in 1974, Glencore wasinitially focused on the physicalmarketing of metals, minerals andcrude oil.

In the early 1980s, the firmacquired an established Dutch graintrading company, later adding a coaltrading unit.

It has since moved from purelymarketing commodities sourced

from third parties, into an extractorin its own right. It also holds smelt-ing, refining and processing assets.

It first ploughed its cash into equi-ty investments in 1987, when itacquired a stake in a US aluminiumsmelter, before it purchased a con-trolling interest in 1988.

Glencore now holds significantstakes in several publicly listedindustrial firms, including Xstrata,Century Aluminium and KatangaMining.

1 Royal DutchShell A and B 79692.03

60517.71

2 HSBC Hldgs 116496.6

3 Vodafone Group 91639.74

4 BP 87467.69

5 Rio Tinto 67329.89

6 GlaxoSmithKline 64632.03

7 BHP Billiton 55481.25

8 British AmericanTobacco 50512.42

9 BG Group 50437.24

10 Xstrata 43536.5

11 AstraZeneca 41934.01

12 Anglo American 41721.13

13 Lloyds Banking Group 41307.2614 Standard Chartered 38588.68

15 Barclays 37618.9

16 Glencore approx. 37000

17 SABMiller 35647.18

18 Tesco 32285.64

19 Diageo 30224.59

20 Royal Bank OfScotland Group 25598.57

HOW GLENCORE WILL SIT IN FTSE 100COMPANY MARKET

CAP (M)COMPANY MARKET

CAP (M)

IVAN GLASENBERG

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BP management faced angry protestsfrom shareholders yesterday, asinvestors concerned about Russiandeals, tar sands projects and the Gulfof Mexico disaster gave the company a

bloody nose in the annual vote.BP said yesterday that prospective

Russian partner Rosneft has given thefirm more time to clear the path for its10bn share swap, though bosses yes-terday remained cautious.

Chief executive Bob Dudley con-firmed that BP had offered to buy outRussian partner AAR to allow its deal

with Rosneft to go ahead, while chair-man Carl-Henric Svanberg conceded:I dont think it would be a possibilityto bring them on side more than wethought we had.

Dudley said the relationship withAAR is not dysfunctional, its noisy.

Our relationship is very good withRosneft, and with TNK, its not person-al. Its business.

Svanberg stressed that Russiaremains a key part of BPs strategy,pointing out that the TNK-BP projecthas delivered $16bn (9.8bn) in divi-dends since it was formed in 2003.

A sizeable minority of sharehold-ers 11 per cent voted against BPsdirector remuneration report, whilefive per cent rejected its annual report,compared with last year when 91 and99.8 per cent of voters approved therespective resolutions.

BPs first AGM since the Gulf disas-ter last April drew dozens of vocal pro-testors. Svanberg told the meetingthat five shareholders lobbying for therights of Gulf fisherman had been

barred from entry, while four peopleshouting against BPs Canadian tarsands projects were dragged out of theExCel centre by security.

Protests mar

BPs meeting

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ENERGY

AT the eleventh hour, the US Houseof Representatives yesterday approveda Budget deal cutting $38bn (23.2bn)in spending for the current fiscal

year, enabling the government tokeep operating until 30 September.

The House passed the bill by a voteof 260 to 167, and sent it to theSenate, which was set to pass the billlate last night before existing funding

ran out at midnight. About one-fourth of HouseRepublicans defected because thecuts were not deep enough and morethan half of Democrats rebelledagainst cuts they feared would hurtlower income Americans. The House

vote was the first act in a growingpolitical battle over spending anddebt, with Obama and Congress gear-ing up for new fights over an increasein the $14.3 trillion US debt limit.

US house approvesdeal on Budget bill

US ECONOMY

BPs first AGMsince the Gulfdisaster last Aprildrew dozens ofvocal protestors


SHAREHOLDER VIEWS: WERE YOU HAPPY WITHBPS AGM? Interviews by Marion Dakers and Eric Wilkens

It was a very good BP shareholder meeting, and Ivebeen to a few. I think the board were very forthrightand got their points across. I had some ques-tions about the Gulf and the chief executiveanswered them in his speech.

ALLAN AITKEN | HORNCHURCH

I was mostly interested in how my shares weregoing to do. The board have convinced me of thestrength of the business and the plans for the future though some of them might not be ethical.Im happy for them to deal with Russia.

I wasnt happy with it at all, especially with thetar sands projects. I believe they should be invest-ing much more in renewables. BP's current philoso-phy of investing in oil is bad for the climate and

bad for indigenous people.

SEAN GIFFORD | LONDON

JAMIE JOHN | BRIDGEND

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by the Low Emission Zone?From 3 January 2012, if you have a larger van or specialist vehicle between 1.205 tonnes

unladen and 3.5 tonnes gross vehicle weight, it will need to meet certain emissions

standards to drive within London.

Minibuses with more than 8 passenger seats weighing 5 tonnes or less gross vehicle weight

will also be affected.

There are a number of options available to meet the standards including fitting an approved

filter, upgrading your vehicle, or pay a daily charge. A number of vehicle manufacturers*,Ashwoods, Citron, Ford, Mercedes-Benz, Peugeot, and Volkswagen are offering discounts

on new vehicles to help owners of vehicles that do not meet the emissions standards.

To check if your vehicle is affected and for advice on your options including where tofind out more about the discounts visit tfl.gov.uk/lezlondon or call 0845 607 0009**

*Each vehicle manufacturer will have their own terms and conditions relating to eligibility for their specific offer. For details of participating dealers

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or promotional material and does not endorse the products, services or views expressed within them or the organisation or persons providing

them in any way. **Calls from BT landlines cost up to 4p per minute. The cost of calls from other lines may vary

8/7/2019 Cityam 2011-04-15

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GOOGLE posted a 15 per cent rise inpre-tax profits to $2.89bn (1.76bn)in its first-quarter results last night,

but investor panic over a 34 per centsurge in costs saw its shares dive by5.4 per cent in after-hours trading.

Costs ballooned to $5.78bn, withsales and marketing spending rising69 per cent to $1.03bn and operat-ing costs up 20 per cent to $2.94bn.

But the search giant said revenuegrowth of 27 per cent quarter-on-quarter justified the outlay. Theseresults demonstrate the value ofsearch and search ads to our usersand customers, as well as theextraordinary potential of areas likedisplay and mobile, said chief

financial officer Patrich Pichette.Paid clicks ads that generate rev-

enue whenever a user clicks onthem rose 18 per cent, with cost-per-click rising eight per cent.

Google also revealed that it hashired another 2,316 staff in the first-quarter of this year, which in partexplains its growth in costs. In addi-tion, it spent $890m on propertyand equipment, up from $239m inthe first-quarter of 2010.

Much of the spending has gonetowards an aggressive expansion inGoogles mobile and social network-ing presence.

Youve got expenses growingfaster than revenue and some peo-ple were caught by surprise by the

willingness of the company tospend, said BGC Partners analyst

Colin Gillis.But Larry Page has signalled

pretty clearly that he is going to bedriving up expenses. If the expensesare targeted and result in future rev-enue streams, then good for Larry. Ifnot, that results in an undisciplinedspending approach.

Google cost surgesees investors fleeBY JULIET SAMUEL

TECHNOLOGY

BANK of Ireland surprised the mar-ket yesterday when it announced itscaled back its losses last year, but

warned its future remains challeng-ing.

It reported full-year losses of609m (544m), compared to1.76bn in 2009, after negotiating astring of tough write-downs with its

bondholders.However, the group is still staring

down the barrel of majority state

control after the central bank said itneeded5.2bn in extra capital to bul-

letproof itself from future economicshocks. Chief executive RichieBoucher says the bank is looking toforeign investors to help it stay inde-pendent.

Bank of Ireland, in which the statealready holds a 36 per cent stake, willupdate the market in coming weeksabout its capital-raising plans, andsome of its subordinated bonds haverisen on speculation it will offer adebt for equity swap.

Boucher said: Its a clean story tounderstand. We have moved from

survival to stabilisation.Most of the Irish banking sector

has been effectively nationalised, with Allied Irish Banks unveiling ajaw-dropping 10.4bn loss.

Bank of Ireland reduces its loss as itpromises an update on capital raisingBANKING

BANKS are well on the way topreparing for the end of the Bankof Englands special liquidityscheme, according to Bank execu-

tive director Paul Fisher.In a paper on the Banks collater-

al policy published yesterday,Fisher said:

The banks have made good,

early progress in reducing theiruse of the scheme, unwinding thecollateral swaps ahead of their con-tractual maturities, Fisher said.

It is expected that the banks

will be able to generate liquidityusing their mortgage assets in theprivate market or by raising fund-ing through other markets, headded.

Fisher: Banks will cope after SLSBANKING


NEWS | IN BRIEF

Next boss gets 1m bonusNext boss Lord Wolfson was handed a1m bonus for last year, taking his totalremuneration to around 1.75m. Nextreported a nine per cent rise in pre-taxprofits to 551m in the year endingJanuary. Cost savings boosted the fig-ures as the chain suffered a four per

cent fall in same-store retail sales. Nextforecast profit for the new financial yearto be between 520m and 570m, inline with current market expectations.The retailer will also pay its group prod-uct director Christos Angelides 1m,including a 500,000 bonus.

No European banks for ICBCIndustrial and Commercial Bank ofChina, the worlds biggest bank by mar-ket value, plans to increase its globalfootprint by setting up new branches incountries such as Brazil, India andPakistan, its chairman said yesterday.But ICBC is not considering acquiringEuropean banks in the near term, chair-man Jiang Jianqing said. The bank aimsto draw 10 per cent of its assets andprofit from overseas operations by2016, up from four per cent now. ICBChas been aggressive compared to otherChinese banks in boosting its overseas

presence through acquisitions, althoughon a much smaller scale than its west-ern competitors. It acquired 80 percent of Bank of East Asias US businessin January for $140m (86m).

ICELAND TO START REPAYMENTS IN SUMMER

ICELAND will begin making debt repayments to Britain and the Netherlands this sum-mer, using funds raised from the sale of assets from one of its collapsed banks, the coun-trys Prime Minister Johanna Sigurdardottir (pictured) said yesterday. The countryscoalition government survived a vote of no confidence earlier in the week.

MAVERICK investor Terry Smithattacked share buybacks as a tool todestroy shareholder value and calledfor a review of their use yesterday.

Smith, an outspoken financier wholaunched fund manager Fundsmithlast year, attacked the practice ofusing buybacks to raise companiesearnings per share figure by cuttingthe number of shares in circulation.

Most share buybacks destroy valuefor remaining shareholders, he said.

Simply by executing a share buy- back rather than paying out divi-dends, companies can inflate theirearnings per share and are almostuniversally seen to have created valuefor shareholders when mostly theyclearly have not.

Smith, who is also chief executiveof broker Tullett Prebon, called formore analysis of the causes of share

buybacks.

Terry Smith launches anattack on share buybacks

BYALISON LOCK

INVESTMENT

ANALYSIS l Bank of Ireland

5 Apr16 Mar24 Feb4 Feb17 Jan

0.45

0.35

0.25

0.2814 Apr

ANALYSIS l Google

$

1 Apr14 Mar23 Feb3 Feb

640

620

600

580

560

578.2514 Apr

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9/32

www.houseoffraser.co.uk

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WEDDING CRASHER TO BOISDALE of Canary Wharf forthe grand opening of the latest

whisky and cigar restaurant venturefrom the groups colourful propri-etor Ranald Macdonald.

Actress Jessica Lowndes of teen

show 90210 had to cancel at the last

minute much to the disappoint-ment of Roger Hambury, managingdirector of sponsor CityIndex butthe presence of Nancy DellOlio andSky News political editor AdamBoulton more than made up for theloss.

Boulton was on mellow form ashe enjoyed the live jazz from RayGelato and the Giants of Jive, tellingThe Capitalisthe is looking forwardto going back to his cub journal-ism roots by doing a spot ofdoorstepping.

The south doorstep of Westminster Abbey on 29 April,that is, where he will take up res-idence to cover the Wedding Of

The Year.

PASSAGE TO INDIAHOWEVER, no-one could top the

exploits of Michael Herron,global head of legal at

CityIndex, who is as we speak flyingout to South India with two of hiscolleagues to drive 3,500km fromCochin in Kerala to Shillong inMeghalaya in a three-wheeled autorickshaw with a lawnmower-sizedengine.

The roads are among the mostdangerous in the world, even if youare driving a normal car, Herronsaid. And none of us are Hindu, soif we are unlucky enough to get hit

by a truck, we dont have a great belief we will be reincarnated as aBollywood icon.

Now that would be a story.

NOT TOO BIG TO FAILBACK to Boisdale bleary-eyed the fol-lowing morning for yet anotheropening celebration in Cabot Place this time for the launch oflunch.

No jazz and whisky here though;instead, City leaders includingSimon Mansell, chief operating offi-cer of GFT Global Markets, David

Wiggin, founder of PtarmiganMedia and David Stuart, chief oper-ating officer of Alpari, were treatedto a spirited defence of capitalism

by Mark Littlewood, director generalof the Institute of Economic Affairs(below).

In the good times, I dontremember people saying that sincethe bankers created the wealth, it

wasnt theirs to spend, he said.Littlewood went on to call theinterim report from theIndependent Commission onBanking deeply confused.

We seem to be too concernedabout preventing failure ratherthan providing a system within

which banks can fail in anorderly fashion, he said.

Finding a mecha-nism to allow a bankto go to the wall so

it is wound up sen-sibly, as Woolworths wa wound up, is the

Holy Grail.

STOCK EXCHANGE VETTO STAGE WEST END

MUSICAL COMEBACKTHE Stock Exchange Veterans dinnerlast night had the largest turnout inits 15-year history, with 470 brokersout in force at The Brewery.

The events organiser Bill Sharp,head of institutional sales at

Alexander David, was delightedto see so many old friends,including Ron Martin, chair-man of Southend United FC,Brian Winterflood of

Winterflood Securities andClive Sinclair-Holden, chiefexecutive of Beowulf, thefastest-growing company on

AIM this year.Later, Martin Pope,

sales trader at RBS,auctioned off

the eveningsprizes, includ-ing memora-

bilia from W e m b l e y

Stadium, otherwise known as con-crete in a presentational box. Its so

bad, its brilliant, said one guest.The Capitalistalso caught up with the

Vets chairman Les Ames (picturedbelow), who found fame as a singer in

the 1970s after performing hissmash hit ballad Love Is All onTop of the Pops.

Ames declined to sing asong last night its not thattype of audience darling but revealed he is in talksabout taking part in a 70s hitsshow in the West End. But

Im not sure I have the time,said Ames, mindful

of his day job ashead of deal-

ing at WHIreland. Itsa difficultcircle to

square.

Left to right:Michael Hicks, TonyCarter, BrianW i n t e r f l o o d ,

Deborah Connors, Julian Palfreymanand Charlie Brownat the Stock

Exchange Veteransdinner at The

Brewery

The Vetschairman LesAmes is in

talks toappear in aSeventies hitsrevival showin a WestEnd theatre

The Capitalist10 CITYA.M. 15 APRIL 2011

EDITED BY

HARRIET DENNYSGot A Story? [email protected] The Capitaliston Twitter: @citycapitalist

Piano man: Jools Holland at Boisdale

8/7/2019 Cityam 2011-04-15

11/32

7KHFORVHVWWKLQJWRWUDIFZDVSXOOLQJRYHUP\ELNHIRUDIDPLO\RIGHHU

Banff National Park, Alberta

Explore more of Canada.

Visit www.canada.travel/BanffRockies

to start planning your trip.

243 ratings

Hank53Posted 4:13pm (Aug 12, 2010)

After that, anything would feel claustrophobic.

Melissa_55Posted 5:37pm (July 5, 2010)

Is that the Rockies? Looks amazing.

6HQGPost your comment

Like 32 Tweet 56 +Share

0:00 / 2:32

CONSUMER giant Reckitt Benckisersaw up to 2bn wiped off its value yes-terday after the shock announcementthat boss Bart Becht is standing down.

News of his exit stunned the mar-ket and its share price dived by nineper cent at one stage, eventually clos-ing down 7.5 per cent at 31.15.

Becht has earned an estimated200m over last six years, with thehefty pay and perks package justifiedby a string of impressive results.

Bechts long-term share options

and awards have soared in value as helifted Reckitts share price from 6when it floated in 1999 to 35 lastyear.

But the maker of goods such asNurofen and Cillit Bang has now beenleft with a gaping hole to fill to bringinvestors back on side.

Rakesh Kapoor, who is vice-presi-dent of global category development,will take on the role.

Andrew Wood, an analyst atSanford C Bernstein, said Bechts

retirement had been a shock.He is only 54 years old and we did

not anticipate it so soon.We know very little about the

character of the new CEO RakeshKapoor.... there was no sense he was aCEO in waiting.

Becht will stay on as a part-timeadviser to Kapoor and the companysboard until September 2012.

Kapoor is credited for growing thebusiness with the recent purchase ofSSL International, the Durex condommaker and steering the companythrough a tough consumer climate.

He earned 200m in six years.Now we know why: Bechts exit

reduced Reckitts value by 2bnBY JOHN DUNNE

CONSUMER


ANALYSIS l Reckitt Benckiser

p


3,500

3,300

3,100

3,130.0014 Apr

Switch off thepanic button untilthe figures are inWITH Bechts departure follow-

ing that of finance chief ColinDay last year, its not surprisingthat the market is spooked. Thecompany is now without thecore team that led it so success-fully through the last decade.

The 2bn man thats howmuch the markets marked downthe firm when they learnt ofBechts departure will be atough act to follow.

Theres no doubt that replace-ment Rakesh Kapoor has a lot toprove, and until hes had achance to get his feet under thetable the share price could bedampened. But 25 years at thecompany must count for some-thing, and management will behoping that next weeks first-quarter figures will boostmorale and restore value.

Nestles market cap fell by

4bn when its finance chief PaulPolman was passed over to takecharge in 2007, but the sharesquickly recovered and long-termperformance has been strong.

Dont hang Reckitt out to dryjust yet.

BOTTOMLINEAnalysis by Elizabeth Fournier

BART Becht has spent more than a decade at thehelm of Reckitt Benckiser. During that time thevalue of the company increased five-fold and it hasbecome one of the most profitable consumer goodsbusinesses in the world under his stewardship. Hetook the role in December 1999 when Dutch deter-gent maker Benckiser and Britains Reckitt &Colman merged.

He is one of Britains biggestcharitable donors, givingalmost 110m of Reckitt sharesto charity in 2009, after he col-lected more than 90m on the back of rising stock options.He has a mansion inBerkshire and is known forhis hands-on approach.After 16 years in the role, Ibelieve now is the right timeto retire, Becht said.

BY JOHN DUNNE

CONSUMER

Chief exec goes out with a bang

BART BECHT

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DEBENHAMS said yesterday itschief executive of eight years

would retire in September as itposted a 4.5 per cent rise in first-half profit and resumed its divi-dend.

Rob Templeman will be succeed-ed by Michael Sharp, the currentdeputy chief executive, the depart-ment store chain said.

Templeman, who has been at thehelm for eight years, will remain asa consultant for up to one yearafter his retirement.

Debenhams, which trades fromabout 170 stores in Britain, Irelandand Denmark and about 60 fran-chised outlets in 24 countries, said

it made an underlying pre-tax prof-it of 129.2m in the six months to26 February.

That was slightly above analystsconsensus forecast of 128m andup from 123.6m in the same peri-od last year.

Debenhams, ranked second afteremployee-owned department store

John Lewis, said first-half sales rose3.2 per cent, with sales at storesopen over a year down 1.5 per cent,

The firm, which ended the peri-od with net debt of 351.6m,returned to the dividend list forthe first time in three years with aone pence payout.

Debenhams said it expects trad-ing in its second-half to be difficultas disposable incomes come underpressure from inflation, govern-

ment cuts and higher taxes.But Templeman said: The trad-

ing environment has been difficultbut Debenhams has now producedsix consecutive halves of pre-taxprofit growth in what has been aconsistently challenging retail cli-mate.

Debenhams boss toretire as sales riseBYHARRY BANKS

RETAIL

FRENCH food group Danone stuck to its full-yeargoals yesterday despite rising commodity costs andtough economic conditions, after price hikes fuelledstronger-than-expected first-quarter sales.

The worlds largest yoghurt maker with brandslike Actimel and Activia said business picked up inall divisions, with water and baby food particularlystrong and it benefited from its dairy products merg-er with Russias Unimilk last November.

Danone, which competes with Nestle and Unilever,posted first-quarter like-for-like sales growth of 8.5 percent. It also confirmed its target of 6-8 per cent like-

for-like sales growth for 2011 and a full year operatingmargin up 0.2 per cent at 15.4 per cent.

Danone benefitsfrom price hikesCONSUMER

Consumer News12 CITYA.M. 15 APRIL 2011

NEWS | IN BRIEF

Dunelm hit by material costsBritish homewares retailer Dunelm saidrising raw material prices meant it wasunlikely to be able to continue improvingits profitability at the rate of recentyears. The group, which runs 111 mostlyout-of-town stores selling items such askitchenware, lighting, wall art and rugs,

said it was so far coping well with costpressures and a tough consumer envi-ronment. Sales at stores open at least ayear fell 1.3 per cent in the 13 weeks to2 April, its fiscal third-quarter, in linewith the decline reported for the 39weeks of the financial year so far.Whilst, to date, our buying scale andsupply chain structure have providedsome protection, cost price pressuresare likely to continue over the comingmonths, Dunelm said.

Dixons shed jobs in Spain exitElectrical goods retailer Dixons is clos-ing its 34 loss-making stores in Spainshedding around 1,200 jobs. The Britishgroup, which said last month it waslooking at exiting Spain as it issued aprofit warning, said it made the decisionto close its PC City stores in the countryas a result of a continued weak con-sumer environment. The management

committee of PC City has informed theemployee representatives about thedecision in order to start appropriateactions for the compulsory redundancyscheme, the firm said in a statement.

WH SMITH yesterday hiked its divi-dend by 18 per cent after reporting aprofit rise.

The stationer said first-half profitsin the six months to 28 February rosethree per cent to 64m on like-for-likesales that were down four per cent at686m.

Sales at stores open at least a yearfell five per cent, with a three per centdecline at its travel division exacerbat-ed by a six per cent drop at high streetshops.

Gross profit margins, however, wereup 170 basis points, following a long-

term trend in which the group hassteered away from low margin prod-ucts like CDs and DVDs, focused on

better sourcing and better control ofmarkdowns.

The results met City forecasts, andthe company said it now planned togrow with international expansion.

WH Smith already has 24 interna-tional outlets, including stores in

Australia, India and Kuwait, and isaiming to expand these to 40 this year.

The average spend in one of its trav-el outlets at airports, stations and hos-pitals is just 3.50 while in thecompanys high street stores it is 5.50.

The dividend rise represents a lift to7.2p per share.

Chief executive Kate Swann addedyesterday: In Travel we have grownprofit by nine per cent, demonstratingthe strength of the business model.Our high street business continues to

be highly profitable and cash genera-tive.

WH Smiths shares surged after thefigures were announced, closing 5.4per cent higher at 475.1p.

WH Smith raisesdividend as profit

jumps after cutsBY JOHN DUNNE

RETAIL

SOAP and shampoo maker PZ Cussons yesterday saidtrading remains challenging pressured by higher rawmaterial costs, but sees more optimism for its nextfinancial year led by growth in Asia and Nigeria.

The maker of Imperial Leather soaps and Carex anti-bacterial hand washes said results for its 26 January to13 April period were in line with its expectations, butthe outlook to the end of its financial year at the endof May will be hit by tough UK trading, the temporarydelay to Nigerian elections and raw material costs.

The group said the resilience of its more premiumbrands in the UK, growth in Asia and the underlying

improvement in demand in Nigeria all gave it cause forencouragement for its next financial year.

PZ Cussons hit bymounting costsCONSUMER

ANALYSIS l Debenhams

p


70

66

62

58

66.5514 Apr

ANALYST VIEWS: CAN WH SMITH CONTINUETO HIT TARGETS WITH CUTS? Interviews by John Dunne

KEITH BOWMAN | HARGREAVES LANSDOWN

The groups reputation for consistent if somewhat unexciting growthhas again been enhanced. An early adoption of the now increasingly fashionabletrend to concentrate on profit margins at the expense of sales has served the com-pany well. Furthermore, despite understandably cautious comments with regardsto the outlook, management is still attempting to push the boundaries. In all, WHSmith continues to be rewarded with a positive (buy) market consensus.

NEIL SAUNDERS | VERDICT

Its the familiar story of an increase in profits on the back of a decline inoverall sales, brought about by cost reductions and margin enhancements. Thedanger is that as cost savings become more difficult to extract, the business will

have a weaker consumer proposition and will continue to see sales slide; ultimate-ly this could damage profitability. We are not yet at that point, but on currentform this looks to be the inevitable direction that the firm is heading in.

NICK BUBB | ARDEN

The figures for the first-half numbers are in line, as always, and there isnot too much in the statement to get excited about. But the 18 per cent rise in theinterim dividend is a useful reminder that WH Smith continues to grind out mas-sive surplus cash flow (for dividend growth and earnings per share enhancingshare buybacks) and a five per cent yield is very attractive. There is overseasgrowth across the board with store openings in hospitals and stations aswell as in India.

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CHINAS foreign exchange reserves,the worlds biggest, hurtled past the $3

trillion (1.8 trillion) mark in March,up 24.4 per cent over the last year, itscentral bank said yesterday.

The reserves rose by $197bn(120.6bn) in the first-quarter of 2011and have now nearly tripled Japansholdings, the worlds second-biggestofficial currency reserves.

Heavy criticism from the US andother governments is mountingaround China, which is accused of dis-torting trade and the global economy.

CLAIMS for unemployment benefitsin the US unexpectedly shot up lastweek, official data showed yesterday.

New claims have been on a down-ward path for around two years, but jumped by 27,000 in the week end-ing 9 April to total 412,000.

Applications for state benefit typi-cally increase at the beginning of anew quarter, as payments are calcu-lated on the basis of the previousfour quarters earnings.

Yet the degree of volatility stillshocked analysts and comes as anunwelcome knock to the US recov-ery.

Id view this as one data point,and a data point that is volatile fromweek to week, said Brian Lazorishakof Chase Investment Counsel inVirginia.

However, one of the positivesweve had in the past year is contin-ued, albeit slow, improvement in the jobs picture, so any setback there

will be discouraging.Meanwhile, inflationary pressures

were revealed in a separate datarelease from the bureau of labourstatistics.

Core producer prices which donot include food or energy compo-nents rose 0.3 per cent in March,compared to February.

The jump pushed the annualisedrate of core price inflation to 1.9 percent, the largest gain since August2009.

Yet the rise in core prices was allconcentrated in light truck prices,said economist Brian Jones of SocieteGenerale in New York.

It could be due to seasonal adjust-ments and they tend to be volatile. Itcould even be a pickup in demand.

The headline producer priceindex number showed a 0.7 per centrise in prices on the month, largelydriven by energy prices, whichsurged by 2.6 per cent.

Compared to March last year,the price of finished goods was up5.8 per cent.

Shock upturn

in US joblessbenefit claims

TENSIONS in the Middle East couldlead to upward pressure on inflationin the Eurozone and affect economicgrowth, research from the EuropeanCentral Bank (ECB) showed yesterday.

Risks to the medium-term outlookfor price developments remain on theupside, reads the ECBs April bulletin.

They relate to higher than

assumed increases in energy prices,not least owing to ongoing politicaltensions in North Africa and theMiddle East.

The inflation rate in the Eurozonewas registered at 2.6 per cent in March.

The ECBs bulletin said it will con-tinue to monitor very closely all devel-opments with respect to upside risksto price stability.

Last week the ECB raised rates forthe first time in almost three years.

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ECB sticks with itshawkish sentiment

Chinas reservespass $3 trillion

BY JULIAN HARRIS

US ECONOMY

WORLD ECONOMY

Economists were surprised by the jump in US unemployment Picture: REUTERS

BYEUGENIO MONTESANOEUROZONE ECONOMY

Economics 13CITYA.M. 15 APRIL 2011

NEWS | IN BRIEF

German figures show growth

Berlin yesterday hiked its officialGerman growth forecast for 2011 from2.3 to 2.6 per cent, citing soaring con-sumer spending as the main reasonbehind the expansion. German authori-ties said that the average householdsdisposable income should rise by 3.3 percent this year and next.

Japan worries dampen economyJapans earthquake and tsunami lastmonth continue to hit the countryseconomy as Japanese business confi-dence plunged in April, the ReutersTankan survey showed yesterday. Themanufacturing and service-sector senti-ment indices tumbled to negative terri-tory for the first time since last year, asthe percentage of pessimistic respon-dents outnumbered the optimistic ones.

Swiss investor confidence boomsSwiss shareholder sentiment reached its

highest peak in eight months in April, asthe ZEW index, an indicator of economic

sentiment based on analysts opinions,jumped to 8.8 from minus 13.5 lastmonth, hinting the countrys economy,which has been boosting output and hir-ing, will maintain its growth momentum.

Canadian factory sales slideCanadian factory sales fell 1.5 per centin February after a 4.4 per cent gain inJanuary, the biggest slide in 18 monthsand way above market expectations of a0.2 per cent dip. Exports were badlyaffected by the strong Canadian dollar,but analysts remain confident that over-all first-quarter growth will be robust.

Singapore enjoys GDP boostSingapores economy continues to grow,according to figures released yesterdayby the Ministry of Trade and Industrythat revealed a GDP rise of 8.5 per centin the first-quarter of 2011. The increasemarked a rise of 23.5 per cent comparedto the previous quarter, led primarily bythe manufacturing, services and con-struction sectors. Singapore's centralbank allowed an immediate rise in thevalue of its currency dollar to help tackle

inflation, which it said would likely stayelevated.

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CREDIT Suisse hit back at an activistinvestor that called for a rethink of thebanks strategy on contingent convert-ible or coco bail-in capital yesterday.

Swiss shareholder EthosFoundation, an influential voiceamong institutional investors, said itopposed the banks decision to issue billions of francs of contingent con-vertible capital to support its trading.

But Credit Suisse slammed thestance as simply incomprehensibleand said it had the support of regula-tors and its investors.

Ethos executive director DominiqueBiedermann questioned the value ofthe investment banks trading activi-ties, arguing they do not work in thelong-term interest of shareholders andpay excessive salaries to staff.

These activities are very capitalintensive and carry risks that are notin line with the long term interests ofCredit Suisses shareholders. Withoutthese activities, the issuance of cocos isnot necessary, he said.

Credit Suisse plans to issue 6bnSwiss francs (3.8bn) of coco bonds equivalent to 42 per cent of its issuedshare capital to meet strict regulato-

ry requirements that require it to beable to absorb any losses from its riskytrading division.

Ethos said investors should opposethe plan and a SwFr1.5bn dividendpayment to reinforce the banks coreequity and avoid issuing cocos.

A spokesman for the bank said:Credit Suisse finds it simply incom-prehensible that Ethos is not support-ing these efforts to build a more stablefinancial system.

The measures we are taking are inline with the approach prescribed bythe regulatory authorities, and we arefully convinced that our measures arealso in the interests of our sharehold-ers, since any other form of capitalincrease would have a direct dilutiveeffect.

LONDON-based fund managerAshmore Group yesterday reported aneight per cent increase in its assetsunder management to $50.3bn(30.75bn), surpassing RBSs assetsforecast for the third quarter by 3.5per cent.

In its interim management state-ment, the emerging markets special-

ist said the rise was driven by $2.3bnof new money and $1.3bn from posi-

tive investment performance.Ashmores best performance for the

period ending 31 March came from itsother themed portfolio which pro-duced a 25 per cent rise in value.

The mandate, which handles thegroups currency hedging and overlaystrategy, grew to $7.0bn from $5.6bn.

The only investment expected tolose value is the special situationsfund, which mainly invests in corpo-rate restructurings.

Trading conditions are in line withmanagement expectations and the

group remains confident of itsprospects for the current year,Ashmore said in a statement.

The group also expects its acquisi-tion of a 63 per cent stake in EMM tobe completed by 31 May. The majorityholding, for which Ashmore agreed topay as much as $246m on 24February, will be included in itsfourth-quarter asset under manage-ment figures.

Ashmores share price closed at

360p yesterday, marking a rise of 2.10per cent.

Ashmore Groups asset rise trumpsforecasts in a strong third-quarter

PRUDENTIAL won a court dispute with members of its staff pensionplan yesterday over cuts to paymentsinto the scheme.

Members had argued that the insur-ance group did not have the right tointroduce a cap of 2.5 per cent on theannual increase in discretionary pay-ments into their pensions in 2005,after decades of basing the rise onretail price inflation. Members feltthey had been given a reasonable

expectation that the rule would not bechanged, but the court ruled that

Prudential had not breached its dutyof good faith to its staff.Katherine Dandy, a partner at

Sackers, which represented members,said the decision was very disappoint-ing for the members who had come toexpect a particular level of benefit.

A Prudential spokesman said itintroduced the new policy, in goodfaith, as part of a package of meas-ures designed to secure the financialfuture of its pension scheme.

Prudential wins in courtcase over pension dispute

INSURANCE

A SURGE in business customers and American tourists helped Eurostarpush its first-quarter sales revenue up10.7 per cent to 197m.

The total number of passengerstransported rose 7.5 per cent year-on- year to 2.15m. The firm, which oper-ates trains through the Channel Tunnel, says the royal wedding will

help push passenger numbers up fur-ther this month and pointed to the2012 Olympics as another revenuebooster.

Eurostar chief executive NicolasPetrovic said: We are pleased to reportstrong growth during the first quarterof 2011 in both sales revenues and pas-senger numbers. While market condi-tions remain uncertain, we have seenan increase in business passenger vol-

umes with a particular uplift fromclients in the financial services sector.

Eurostar said a rise in business trav-eller numbers helped to fuel a 12 percent rise in its annual revenue lastyear. Total ticket sales rose to 760mfor the year, up from 675.5m in 2009.

Last year the firm said it will buy 10new trains for 700m to add to itsexisting fleet as it extends services toAmsterdam and Geneva.

Rise in business passengers pushesEurostar revenues up over 10 per cent

TRANSPORT

ACTIVIST investor Elliott Advisorsturned up the pressure on Swiss

biotech company Actelion yesterday,pushing for further board changes.Elliott conceded that it could not

top Actelions proposal to add twopharma heavyweights, including for-mer GlaxoSmithKline head Jean-PierreGarnier (pictured), to the board.

But the hedge fund argued theirpresence would not do enough toimprove strategy, and called for share-holders to lift the current 11-personboard size limit to enable it to add six

of its own nominees too.Elliott has decided to support

the Garnier and [Robert]Bertolini nominations, Elliottsaid, but added the move does not

go far enough to create realchange that will increaseshareholder value.

Elliott wants share-holders to vote at theannual meeting inMay to remove seven ofthe current nine direc-tors and add six of itsown. But if sharehold-ers vote to retain someor all of the current

team plus Actelions two candi-dates, Garnier and formerSchering-Plough chief financialofficer Robert Bertolini Elliottscandidates would be blocked.

Elliotts directors fivepharma executives and a banker also wrote toshareholders criticisingActelions drug pipelineand governance.Sources close to Actelion toldCity A.M.Elliotts changingdemands were amoving target forthe board.

Garnier pick fails to quell ElliottBYALISON LOCK

PHARMACEUTICALS

Credit Suisse

slams attackon coco planBYALISON LOCK

BANKING

BYROBERT LEEDHAM

FUND MANAGEMENT


NEWS | IN BRIEF

BRC warns over warranty probeThe British Retail Consortium (BRC) haswarned an Office of Fair Trading (OFT)investigation into the sale of extendedwarranties on electrical goods could becostly and achieve little. The OFT sayscustomers could be losing out on up to350m after shelling out on lengthywarranties and wants to make sure theyare getting value for money. An OFTinvestigation will conclude in the sum-mer and could end with action againstsuppliers or a referral to theCompetition Commission. However, theBRC pointed to an earlier investigation,in which strict new rules were placed onthe sale of warranties. A spokesmantold City A.M.: Its hard to see what

another costly investigation willachieve.

Sony mulls summer holidaySony is mulling a complete two-weeksummer shutdown of some companypremises to save energy as Tokyo andJapan's northern regions face the peakperiod with vastly reduced power gener-ation capacity following the 11 Marchquake. The government last weekannounced energy saving targets thatwill require large-scale users to cut peakconsumption in the region by one-quar-ter, after the earthquake and tsunamishut down several big nuclear and ther-mal power stations. The disruption hashad a global impact, with Nokia,Research In Motion and Sony Ericssonshutting down factories and Toyota idlingplants both locally and in Europe. Sony is

also considering introducing daylight sav-ings time by starting work an hour later.

10.7%to 197m

Total salesrevenue up

7.5%to 2.15m

Totalpassengers up

FIRST QUARTER 2011: | EUROSTAR

ANALYSIS l Credit Suisse

CHF


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43

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HEALTHCARE giant Roche shruggedoff a fall in first-quarter sales yester-day, focusing instead on successes innew clinical trials.

Sales of SwFr11.1bn (7.6bn) werenine per cent lower than the samequarter last year, but the companysaid it was on track to meet full-yearrevenue targets.

Roche said its key blockbusterdrugs such as cancer treatmentHerceptin and heart attack or strokemedication Activase supported sales while sales of swine flu treatmentTamiflu fell as expected.

Chief executive Severin Schwansaid drug trial results were encourag-ing.

Since the beginning of the yearwe have already announced positiveresults from seven key phase II or IIIclinical trials, further underscoringour growth prospects for the comingyears, he said.

The strength of the Swiss francderailed the steady sales growth,however. Roche said it took a 1.1bnSwFr hit from the poor euro and dol-lar exchange rates to the franc.

Excluding Tamiflu, its pharmaceu-

tical division saw three per cent dol-lar revenue growth, but an eight percent fall in revenues when convertedto francs. Roches Japanese and inter-national businesses both registered11 per cent growth in dollar sales.

We are on track to achieve ourtargets for the full-year, Severinsaid.

Its key cancer drug Avastin sawrevenues fall six per cent as concernsabout effects on patients damagedUS and European sales.

Schwan said US healthcarereforms had also hit sales, estimat-ing an impact of 0.6 percentagepoints on first-quarter sales in termsof growth.

Roches Swiss-traded shares fell 0.2per cent to SwFr132.80 yesterday.

MUSIC streaming site Spotify faces afan backlash after announcing it willslash the amount of free music avail-able to new users.

The Swedish firm, which wasrecently valued at more than $1bn(612m), will limit users of its freeservice to just 10 hours a month half the current allowance.

It will also cut the number of timesany given track can be played to five,

down from 10.The move has been interpreted as

either a sop to record companies,with whom Spotify has been involvedin long and tortuous negotiations inthe US over the rights to their cata-logues, or a further push towards afully paid model.

Spotify recently announced it hasreached 1m paying subscribers butdenied it was eroding its free service.It has a total of 6.67m users, the

majority of which are subsidised byadverts.

A spokesman said: Its vital thatwe continue offering an on-demandfree service to you and millions morelike you, but to make that possible wehave to put some limits in place goingforward.

In February Digital Sky Technologies (DST) invested $100m(61.7m) in Spotify, valuing it at astaggering $1bn.

The move raised fears of a seconddotcom boom after Facebooks valua-

tion smashed through the $50bn bar-rier and Twitter was valued at $10bn.

Spotify slashes the amount of freemusic available to its army of users

BELGIAN health products distributorOmega Pharma yesterday forecastimprovements in Russia and south-ern Europe in the second-half of 2011and a profit margin this year at leastas high as in 2010.

The company, which sells non-pre-scription products such as wart treat-ment or sun tan lotion topharmacists, said yesterday it reiterat-

ed its outlook, but there was a slightchange.

It said that it expected full-yearturnover would be927m (819m), anincrease of eight per cent, whereaspreviously the company had saidturnover would be at least thatamount.

Omega reported first-quarter salesrose 7.8 per cent to 217.8m.

The average forecast was for an 8.4per cent rise in first-quarter sales,with a surge in France.

Sales in core market Belgium rose

by 12.7 per cent and in France by 14.1per cent.

Omega Pharma forecastsprofits will equal last yearPHARMACEUTICALS

GRAINGER, Britains largest residen-tial property owner, said it expectscompleted sales from its UK assets tobe worth 89m for the six months to31 March, up 1m compared to lastyear.

The Newcastle-based companys trad-ing update showed that the value of itsportfolios of UK residential and devel-opment operations will increase byaround two per cent at the half-year. Inaddition, there were 1m worth of

sales from its German portfolio. The results came despite tough

market conditions. Grainger also saidits pre-tax profit would benefit from apartial reversal of mark-to-marketmovements on its long-term financialderivatives and the purchase of HITricomm Holdings in the f irst-half.

The company, which will announceits interim results on 19 May, will con-tinue to comfortably meet its bank-ing covenants and reshape its debtwith 290m from new lenders, it saidin the statement.

Grainger expects sales torise despite tough marketPROPERTY

ONLINE gaming firm 888 yesterdaysaid talks over a possible takeover by

British bookmaker Ladbrokes werecontinuing after it posted its bestquarterly performance since with-drawing from the US market.

There is a discussion ongoing withLadbrokes. Theres not a lot of dis-agreement other than one, which isprice, and that may close or may not.That depends on buyer and seller,said chief executive Gigi Levy, whoannounced his intention to stepdown earlier this week.

Ladbrokes was weighing up a high-er offer for 888 after an initial propos-al failed to win the support of 888sfounding shareholders, the Shakedand Yitshak families, who control 61

per cent of the stock and hold the keyto a deal taking place.888 reported a nine per cent rise in

total revenue to $75m (45.9m) in thefirst-quarter boosted by a strong per-formance from its casino and bingoproducts and an improved showingin poker, where it has revamped itssoftware and introduced video to thesite.

The company added that trading atthe start of the second-quarter had

been strong.Shares in 888 lost 2.9 per cent to

close at 41.5p yesterday, valuing thebusiness at around 150m.

Results boost 888 bid talksBYHARRY BANKS

LEISURE

Roche looks

to the futureas sales fallBYALISON LOCK

PHARMACEUTICALS

BY STEVE DINNEEN

MEDIA


WHITE IPHONE COULD BE ON SALE IN WEEKS

APPLE is set to launch its much-delayed white iPhone 4, pictured above with Apple boss SteveJobs, in two weeks time, according to reports, which say the phone could be available on USnetworks by the end of the month. The launch was delayed last June, when Apple said: Whitemodels of Apples new iPhone 4 have proven more challenging to manufacture than expected.

Apple gave preview models of the handset to celebrities such as Stephen Fry late last year.

NEWS | IN BRIEF

Earnings down at Dori MediaDori Media Group yesterday posted anoperating loss of $3.2m (1.96m) forthe year ending December, down froma $1.6m profit last year. Group rev-

enues fell to $47m from $48.7m in2009, whilst gross profits dropped to$11.4m from $15.4m. President andfinance chief of the company NadavPalti said that the firm remained con-fident about its prospects for 2011.Trading for the first three months of2011 has been strong and our busi-ness operations are stable and cashgenerative, he said.

Aeon posts revenue increaseJapanese retail group Aeon yesterdayforecast a 1.5 per cent increase inoperating profit for the financial year,and said the effect of a post-quakedecline in discretionary consumerspending would likely be offset bydemand for basic goods. Despite aseven per cent fall in its share pricefollowing the events of the 11 Marchearthquake, Aeon forecast a 175bnyen (1.28bn) operating profit for theyear beginning in March with the aidof continuing demand for food andother essentials. Aeon owns the oper-ator of Japan's biggest conveniencestore chain, Seven-Eleven.

Shaft Sinkers profits rise 34pcPre-tax profits at South Africanunderground construction group ShaftSinkers Holdings rose by 34 per centto 16.7m from 12.5m for the yearto December. Having raised around30.6m from listing on the LondonStock Exchange on 23 December, rev-enue for the group was up 24 per centto 183.1m from 147.9m. Basic earn-ings per share rose 27 per cent to 30pfrom 24p. Although no final dividendwas proposed, Shaft Sinkers said itplanned to commence payment thisyear.

ANALYSIS l 888 Holdingsp


60

50

40

41.5014 Apr

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HSBCDavid McKenzie and Karina Challonshave been appointed as managing

directors of HSBC Private Bank.McKenzie, who is also promoted tohead of credit advisory, first joined

HSBC Private Bank from NatWest inSeptember 2001. Challons has spentthe last two years leading the bankstax and financial planning team.

Cushman & WakefieldThe property consultant has confirmed

Dean Maszlin as partner in its Londonasset management team, effective from18 April. Maszlin joins the companyfrom CB Richard Ellis, where mostrecently he worked on Drapers Gardensfor Exemplar and Canary Wharf Group.

Trilantic Capital PartnersThe transatlantic private equity firmhas appointed Michel Lonard as oper-

ating partner. Lonard will adviseTrilantic Capital Partners on invest-ments in the food and consumer goodssectors to support Trilantics portfoliocompanies throughout Europe.

Jato Dynamics

Andy Rothery has been promoted tochief executive, following two yearsspent as chief operating officer. Rotherywill broaden the companys productportfolio, focusing on emerging marketssuch as Brazil and China.

White & CaseElena Millerman has been made a part-ner to strengthen the law firms pres-

ence in the power and infrastructuremarkets. Millerman moves fromDebevoise & Plimpton, bringing morethan 10 years experience in projectfinance in North and South America.

ICF

The Investment Climate Facility (ICF)for Africa has appointed Neville Isdell,the former chief executive and chair-man of the board of directors for TheCoca-Cola Company, as co-chair. Isdell,who has sat on the ICFs board oftrustees since 2009, replaces NiallFitzGerald, deputy chairman ofThomson Reuters, who is stepping downas co-chair to pursue other interests.

CITY MOVES | WHOS SWITCHING JOBS Edited by Harriet Dennys

Lloyds TSB Commercial FinanceAndrew Gaunt has been promoted to associatedirector of Lloyds TSB commercial financesbusiness development team in the North Eastand Yorkshire. Gaunt moves from the lenderslarge and major corporates team in the region,

where he has spent the last five years as clientmanager, looking after a combined review limitof 150m. In his new role, Gaunt will be respon-sible for bringing in new business with turnoverof between 5m and 25m.

+44 (0)20 7092 0053morganmckinley.com

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

in association with

Defensive sectorssupport US market

S TOCKS that outperform in aweak economy helped buoy theDow and S&P 500 yesterday asconcerns about faltering growth

and inflation prompted investors toseek out less volatile names.

Energy shares also rallied as US

crude gained more than one per cent. The S&P 500 fell almost one percent early but found support near1,300, a level that attracted buyinginterest in early March.

Stocks have lately sagged as econo-mists have lowered forecasts for USgrowth. A poll of economists showed2011 gross domestic product forecastsfell to 2.9 per cent from 3.1 per cent.

GDP forecasts are continuing tofall, so [bets on defensives] are a safetytrade, said Peter Boockvar, equitystrategist at Miller Tabak & Co.

Adding to the bearish sentiment,Google shares fell five per cent afterthe bell after the Internet giant post-ed quarterly results.

The Dow industrials top percent-age gainers during the regular ses-sion were Coca-Cola, up 1.5 per cent,Kraft Foods, up 1.7 per cent andMerck & Co, up 1.2 per cent.

A Senate investigation of GoldmanSachs hurt the Wall Street giant and

some of its peers, while an unexpect-ed rise in jobless claims added to bear-ish sentiment that kept gains incheck.Goldman shares fell 2.7 per centand were a drag on the S&P financialsector, which was down 0.9 per cent.

The Dow Jones industrial averagerose 14.16 points, or 0.12 per cent, to12,285.15. The Standard & Poors 500gained 0.11 of a point, or 0.01 percent, to 1,314.52. The NasdaqComposite dropped 1.30 points, or0.05 per cent, to 2,760.22.

Adding to the energy sector boost

as oil rose, natural gas producer andpipeline companyEl Paso said it willdevelop a shale oil field without apartner. El Paso shares jumped 5.5 percent to lead gains in the S&P energysectors index, which rose 0.6 percent.

Weighing on the tech sectorFairchild Semiconductor sharesdropped 4.5 per cent as it disappoint-ed investors after it said last monthsearthquake that threw Japans elec-tronics supply chain into disarray hasyet to generate new business for thecompany.Supervalu forecast fiscal-year earn-ings above Wall Streets expectationsafter its quarterly profit fell less thanfeared. The supermarket operatorsshares shot up 16.9 per cent.

Shares of Arcos Dorados, a largeSouth American franchisee of fast-food chain McDonalds, yesterday

jumped by 24.7 per cent in their stockmarket debut.

BRITAINS top share index fell yes-terday, led by Reckitt Benckiserafter the company said its chiefexecutive was retiring, and with

banks weaker on renewed worriesabout sovereign debt levels.

The FTSE 100 fell 46.64 points, or 0.8per cent, to 5,963.80, its lowest close

since 31 March. The index is up 1.1 percent in 2011.Volumes were 83.5 per cent of the

average for the past 90 days, withsome investors remaining cautiousuntil more US companies report first-quarter earnings.

A bit of risk has been coming offthe table in the past week. A lot of thebig strategists have become more cau-tious, though its more tactical thanfundamental, at the start of US report-ing season, said James Buckley, fundmanager at Baring AssetManagement.

Banks suffered, part of a sectoralsell-off in Europe, as mounting wor-ries over a debt restructuring by over-borrowed Greece drove credit defaultswaps and yields on governmentpaper higher.

Michael Hewson, market analyst atCMC Markets, pointed to the sector

suffering after the IMF warned thatglobal banks will need to raise an

incredible $3.6 trillion worth of debtin the next two years, as they competewith indebted sovereigns. Barclays,HSBC, Lloyds and Royal Bank ofScotland fell between 1.1 and 2.3 percent.

Barclays Capital cut its target priceon Lloyds and kept its underweightrating on the bank, saying the UKsIndependent Commission onBankings stance on Lloyds will fur-ther dilute returns.

Consumer goods group ReckittBenckiser fell 7.5 per cent after thefirm said chief executive Bart Becht is

to retire, six months after announc-ing the departure of its chief financialofficer.

It was one of the most highlyregarded management teams, in theFTSE, Martin Dolan, an analyst atEspirito Santo, said. The fact thattheyve both gone now I think is basi-cally going to cause some people toreassess [the situation].

The stock traded over nine timesaverage volume of the last 90 days.

Miners fell, with some base metalprices slipping, as investors shiedaway from riskier assets. Analystscited concerns ahead of Chinese infla-tion and GDP data due today.

Chinese inflation in March acceler-ated to 5.4 per cent from a year earlier,Hong Kong media said yesterday. Thisreinforced concerns about the govern-ment tightening monetary policy inChina, the worlds biggest metals user.

Elsewhere, in the resources sector,commodities trading giant Glencore

published details of long-awaitedplans to raise up to $12.1bn in aLondon and Hong Kong offering.

Oil heavyweight BP fell 0.9 percent. BP and Russias Rosneftappear to have few options left tosalvage a 10bn share swap dealafter trying unsuccessfully to buyout BPs partners in its Russian ven-ture TNK-BP.

Among the midcaps, newspaper, books and stationery retailer WHSmith rose 5.4 per cent after post-ing a three per cent rise in first-halfprofit and hiking its dividend as

higher profit margins offset lowersales. Supermarket heavyweightTesco was flat, ahead of its resultson Tuesday, with a strong recentrun having put it near over-bought levels in technical terms.

Back in the wider market, techni-cal analysts were bearish. The 45-point gain [on Wednesday was] notenough to suggest that Tuesdaysslide was an aberration, said BillMcNamara at Charles Stanley.

FTSE falls with investors stillcautious ahead of US resultsTHELONDONREPORT

THENEW YORKREPORT

17 Jan 15 Feb 16 Mar 5 Apr

6,100

5,800

5,700

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6,000

ANALYSIS l FTSE

5,963.8014 Apr

BEST OF THE BROKERS To appear in Best of the Brokers email your research to [email protected]

ANALYSIS lAsos2100

1900

1700

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17 Jan 4 Feb 24 Feb 16 Mar 5 Apr

p

2050.0014 Apr

ASOSJP Morgan rates the online retailer neutral but has raised its target pricefrom 13.20 to 19. The broker was pleasantly surprised by ASOSs salegrowth in the last three months of the financial year, which more than off-set extra investment in promotional offers. JP Morgan thinks the rise inexpenditure is already paying off in sales transactions, though a slo

cityam 2011-04-15

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