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FTSE 100 t5,861.00 -62.69 DOW t12,479.58 -68.79 NASDAQ 2,783.21 +0.90 /$ 1.62 unc / 1.14t-0.01 /$ 1.42+0.01

LinkedIn

sparks techbubble fear

SOCIAL network website LinkedIn lastnight hiked the projected price of itsstock market float, sparking fears of atech bubble amongst observers.

The business-orientated competitorto Facebook raised the range of its ini-tial public offering by $10 from $32-$35 per share to $42-$45 per share.

It now expects to raise as much as$406m from the 7.84m shares it is sell-ing, and it would be valued at up to$4.25bn. The price puts LinkedInalmost 258 times above its $15.4mearnings for last year, raising analystconcerns over a possible repeat of thedot.com bubble.

LinkedIn also revealed yesterdaythat it did not expect to be profitablethis year.

The revenues of these firms arentanywhere like where they should befor the valuations being set, said RobEnderle, principal analyst at EnderleGroup. There is a feeding frenzy onsocial media and this feeding frenzycan create a pretty good size bubble.

However, the hike in price forLinkedIn indicates considerableappetite amongst investors for socialmedia companies. Many firms in thespace, including Facebook and

Twitter, are expected to go public inthe coming years.

Those firms will start attracting alot of investors but at some point, if

they cant bring revenues in line withvaluations, then the market will cor-rect and folk will be stranded,Enderle added.

BY RICHARD PARTINGTON

TECHNOLOGY

INFLATION stormed back to 4.5 percent in April, official data revealed

yesterday, provoking widespreadattacks on the Bank of England.

Bank governor Mervyn King wasforced to write a letter of explanationto chancellor George Osborne onMonday, detailing why inflationremains above target.

Since coming to office Osborne hasreceived a letter from King everythree months, as inflation is morethan one per cent above the Bankstwo per cent target.

At some point, the Bank will haveto acknowledge that it is not enough

just to forecast it will hit the inflationtarget in the future, said CitigroupsMichael Saunders.

It actually has to hit the inflationtarget on average on a sustained

basis, said Saunders, who has alsoaccused governor King of prioritisinga weak pound to boost the UKs nettrade figures.

The Banks committee has tendednot to be too concerned with sterlingremaining weak, and has acknowl-edged that it needs to remain weak to

boost net trade, added Nomuras UKeconomist Philip Rush.

And they completely ignore effectsthat come through the exchange rateon sterling, which are substantial.

The Banks stance is dragging the

BANK ACCUSED ASINFLATION SOARS

BY JULIAN HARRISUK ECONOMY

www.cityam.comIssue 1,384 Wednesday 18 May 2011 FREE

PRUDENTIALPUNISHED

FIDELITY TO VOTE

AGAINST CHAIR

OVER AIA BID P3

BUSINESS WITH PERSONALITY

whole target mechanism in themud, economics professor Patrick

Minford of Cardiff Business Schooltold City A.M. Its destroying its credi-bility, it constantly finds a reason notto raise rates.

The Bank remains insistent onkeeping interest rates at their histori-

cal low, despite admitting that it islikely to miss its inflation target con-stantly until 2013.

At this rate of inflation the value

of 1 will decline by half every 13 years, said Tory backbencher

Douglas Carswell. Not really the basis for creating a prosperous andproductive economy, is it?

INFLATION SOARS: P4-5, P14

Certified Distribution

04/04/11 - 01/05/11 is 103,899

GOLD AND SULLIVAN GOBACK TO DRAWING BOARDPOYET SNUBS HAMMERS P2, 30 & 31

Governor Mervyn Kings Bank of England has beenaccused of failing to take thethreat of inflation seriously

Picture: REX

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News2 CITYA.M. 18 MAY 2011

OFT looks foraudit changeUK regulators believe the market forauditing services is anti-competitiveenough to warrant a full investiga-tion and are looking for ways toimprove it, the Office of Fair Trading(OFT) said yesterday.

An OFT investigation and a high-profile House of Lords inquiry hasconcluded that the Big Four auditors PriceWaterhouseCoopers, KPMG,Ernst & Young and Deloitte hold toomuch of a stranglehold and preventsmaller firms from competing.

FTSE 100 companies change theirauditor on average once every 48years and 99 per cent of them usesone of the Big Four.

We believe that the statutory testfor a Competition Commission refer-ence has been met, but are keen to

understand more about the remediesavailable in the market, said OFT exec-utive director Clive Maxwell.

James Roberts, a senior audit part-ner at BDO, said more shareholderinvolvement in choosing auditors would encourage more suppliers, as well as allowing audit firms to raisecapital for growth as listed firm RSMTenon has done and protecting smallfirms from risk of litigation.

The OFT will consult in May andJune and decide whether to refer thecase to the Competition Commissionlater in the year.

BYALISON LOCK

REGULATION

FED SEEKS ANNUAL US BANK STRESSTESTSThe Federal Reserve wants to subjectUS banks to annual capital tests,reserving the right to veto dividendpay-outs if they do not pass. A draft ofthe new rule is set to be approved bythe Federal Reserve Board and put outfor public comment within weeks.Bank executives told the Financial Times that they have begun dis-cussing the proposal with Fed offi-cials, who remain wary of a return tothe over-generous shareholder pay-outs that left financial institutionsunder-capitalised during the crisis.

OAKTREE CAPITAL SOWS SEEDS OFNYSE LISTINGOaktree Capital Management plansto list its shares on the New YorkStock Exchange in a deal that would

value the asset manager at between$8bn and $9bn, a source said.

POLICE REPEL AFRICAN BARRICK MINEINVASION

Seven people have been shot dead bypolice at a mine run by AfricanBarrick Gold in Tanzania, which thecompany said was the target of anattempted invasion. The beleagueredFTSE 250 miner said about 800 peopleillegally entered its North Maramine site, in the northern reaches ofTanzania, on Monday in an attemptto steal gold ore.

SONY COUNTS COST OF HACKINGSony will lose money and customeras a result of the hacker attack on itsPlayStation Network, Sir HowardStringer, its chief executive, has warned. In his first interview sincetaking the gaming network offlinein later April, Sir Howard said Sonyhad not determined whether it willtake a one-time charge related to the breach. Sony may see PSN usersabandon the service in the wake of

the prolonged outage, Sir Howardadmitted.

TOP LAWYER SACKED OVER 1MEXPENSES CLAIMSA lawyer hired to recover funds forBernard Madoffs creditors has beenfired by one of the worlds biggest lawfirms for falsely claiming more than1 million in expenses. Staff at theLondon office of Hogan Lovells werein shock after the dismissal ofChristopher Grierson, a senior part-ner earning more than 800,000 ayear.

LLOYDS CHIEF PREPARES TO FACECRITICS OVER PAYLloyds Banking Group is braced for achorus of criticism over a chief execu-tive welcome package that could beworth up to 13.4m. At the centre ofthe storm will be Antnio Horta-Osrio, attending his first annualmeeting since taking charge of the

taxpayer-backed bank at the begin-ning of the year.

GENDER GAP OF 6,500 FOR WOMEN'SPENSIONSWomen may be striving for equality inthe workplace, but are still second-class citizens when it comes to pen-sion provision, according to newfigures. These show that women retir-ing this year will get a pension that is6,500 less than that paid to men.According to Prudential women retir-ing this year can expect an annualincome of 12,900. In contrast a manretiring can expect an income of19,400.

WILDCAT STRIKES SPREAD IN IRAQ ASBP LIFTS FIRST OIL CARGOThe threat of wildcat strikes engulfingIraq's oil industry spread to BP'sRumaila field yesterday on the daythe British energy major got its firstpayment for boosting production at

the site. Iraqi state oil workers tried tostop foreign workers entering the site.

RONALD MCDONALD CALLED OUT BYHEALTH GROUPSMore than 550 health professionalsand organisations have signed a letterto McDonalds asking the maker ofHappy Meals to stop marketing junkfood to kids and retire RonaldMcDonald.

SLOW TURNOVER RATE FOR CEOSAbout 11.6 per cent of CEOs left their job last year, the slowest rate ofturnover since 2003, according to ananalysis of 2,500 public companiesreleased yesterday by consulting firmBooz & Co. The rate dropped from14.3 per cent in 2009. The drop inturnover came on the tail end of theworst recession in decades and mighthave been due, in part, to companiesand CEOs hunkering down and avoid-ing change as they weathered the

storm, said Booz & Co. senior partnerGary Neilson.

WHAT THE OTHER PAPERS SAY THIS MORNING

Why BPs Arctic venture went sour

LIGHTNING really has strucktwice for Bob Dudley, BPs belea-guered chief executive. Houndedout of Russia by the partners in

BPs joint venture project BP/TNK, ofwhich he was head, Dudley went onto take the top job at BP following theGulf of Mexico oil spill.

Hailed as the man to take the oilgiant forwards and tasked with the job of putting the Gulf of Mexicodebacle behind it, Dudley has remark-ably been knocked off his perch againby testy Russian oligarchs.

When BP first announced it

planned a 10bn tie-up with Rosneft, which sits on some of the worldslargest untapped reserves in the Arctic, there was a sharp intake of breath in some of the City's invest-

ment banking rooms.It wasnt just the size of the dealthat took the breath away but the factthat BP was undertaking the transac-tion without any of the mainstreamadvisers. There was no Credit Suisse,no Rothschild, no Bank of AmericaMerrill Lynch or even a Goldman tonavigate the route through those icyRussian waters. Instead BP chose atried and tested adviser, PhillipLambert from Lambert Energy.

Lambert is an expert on the worldsenergy markets and a very talented-man but there must now be a feelingamongst some at BP that he could-have done with additional gold-platedadvice and assistance on what hasproved to have been an extremelypolitical and complicated project.

Sources say that Morgan Stanleysmassively experienced investment

banker Simon Robey was called in tohelp with negotiations towards theend of the process, but wasnt this acase of too little, too late?

On the central point of whether BP

was in breach of its shareholderagreement with the oligarchs in theTNK joint venture when it struck itsalternative deal with Rosneft, therewas some amazement amongst manythat BP had not gained consent fromits TNK partners ahead of its proposeddeal.

Surely you would have thoughtthat the Rosneft agreement wouldhave included a guarantee aboutthere being no conflict with a thirdparty, said one who attended thecourt proceedings that resulted in thedeal being blocked initially.

Commodities trader and minerGlencore may be taking the wholething to extremes by appointing 23investment banks to manage its$11bn flotation, but surely BP couldhave done with the odd one or twomore.

PIPE DREAMSWest Ham fans are fond of singingabout blowing bubbles and havingdreams but their proposed move tothe Olympic stadium has always

seemed to me to be a bit of apipedream.Not only has the club committed

itself to keeping a running trackbetween the field and the spectatorsat the stadium, to enable athleticsevents to be staged there, but therehas always been the question of whyNewham Council believes it is right tolend the Stadium Company up to40m.

Now the Hammers have been rele-gated and the owners have sacked themanager and put star players up forsale. West Ham fans are a notablyloyal lot but even if the entire 30,000of them move over to Stratford the60,000 capacity will rarely be testedand with that the economics will fail..This is a dream that should fade anddie. MORE IN SPORT: P26-27

[email protected]

BOOKMAKER Betfred yesterday insist-ed that it could come from behind topip the racing industry preferred bidfor the Tote, the state-owned bettingcompany.

A consortium led by Sir MartinBroughton, the former chairman ofLiverpool Football Club, and theBritish Horseracing Board are closingin on a deal to buy the turf accountantin a deal worth about 200m.

But Betfred yesterday made publicthe details of its rival bid, and said itwas gradually winning support for itsoffer.

I cant say that the whole of racingis going to accept our offer. But wehave got a lot of support in racing, alot of the racecourses are backing ouroffer, Betfred financial director BarryNightingale told City A.M.

Betfreds offer would involve pay-ment upfront for the Tote, whilst thebid by Sir Martins Sports InvestmentPartners would involve an IPO.

BYRICHARD PARTINGTON

LEISURE

Betfred makes Tote caseSir Martin Broughton is facing a challenge for the Tote from Betfred. Picture: REUTERS

NEWS | IN BRIEF

Ex-Tesco boss to advise US firmFormer Tescos boss Sir Terry Leahy is tobecome a part-time senior adviser to USprivate equity house Clayton Dubilier &Rice. The position will be Sir Terrys firstmajor role since standing down as chiefexecutive of the supermarket chain earli-er this year.

Robert Tchenguiz challenges SFOEntrepreneur Robert Tchenguiz yester-day challenged the Serious Fraud Officeover his arrest earlier this year. He filed a

judicial review at the High Court, brand-ing his arrest unlawful, aggressive anddisproportionate. Robert and his broth-er Vincent were arrested in searchesrelated to the SFO's investigation intothe collapse of Icelandic bank Kaupthing.

Buckworth to lead ShearmanCity law firm Shearman & Sterling hasannounced that project finance headNick Buckworth will become managingpartner of its London office followingcurrent head Anthony Wards appoint-ment to the firms global executivegroup. Buckworth, who joined Shearmanin 1996, will be replaced by partner TimPick.

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OFT executive directorClive Maxwell willconsult on remedies toimprove the UK auditmarket

EDITORS LETTER

DAVID HELLIER

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GREECE could embark upon a volun-tary restructuring of its debt, EU offi-cials admitted for the first timeyesterday, saying that a soft restruc-turing is one of the options available.

At a summit of EU finance ministers yesterday (Ecofin), Eurogroup chair-man Jean-Claude Juncker said theoption depends on Athens meetingdeficit reduction targets: If Greecemakes all these efforts, then we mustsee if it is possible to make a soft

restructuring of Greek debt.Economics commissioner Olli Rehn

added: A voluntary extension of loanmaturities, could also be examined.

A voluntary restructuring is likely toinvolve Athens creditors agreeing toextend the maturity on sovereignbonds they own without a rise in yield.

Meanwhile, Ecofin also reached anagreement to ban naked short-sellingof sovereign bonds (short-selling in which the trader does not own theunderlying asset), but not of sovereigndebt credit default swaps (CDS). Hedgefund industry sources said the move iseffectively a victory for traders because

no one short-sells government bonds they buy interest rate swaps.

LEADING City fund manager Fidelity isplanning to vote against the re-elec-tion of Prudentials chairman HarveyMcGrath in protest at the botched bidfor Asian insurer AIA last year,City A.M.learned yesterday.

It is among a group of institutionalinvestors expected to oppose the re-election of McGrath, Prudentialschairman since 2008, at the annualmeeting on Thursday.

All directors including chief execu-tive Tidjane Thiam are up for re-elec-tion but investors wrath is focusedon McGrath for mishandling share-holders and regulators alike in the$35bn (21.5bn) AIA takeover.

City A.M. understands Fidelity hasconsistently opposed McGraths chair-manship since the bid and views the vote as the clearest opportunity todemonstrate its displeasure. It holds1.76 per cent of Prudentials sharesand first made its views on McGrathclear some time ago, calling forchange in the boardroom.

About ten to 20 per cent of thePrus institutional investors arethought to be voting against

McGraths re-election, though thefinal results will only be shown attomorrows meeting and may differfrom this.

While this level of opposition would not be enough to toppleMcGrath, who has been the Pruschair since 2008, it would underminehis credibility and may prompt callsfor his resignation.

One shareholder told City A.M.yes-terday that such a vote would prettymuch put him on borrowed time.

You could argue that the damageis done and if the company movedinto another M&A situation in say thenext six months, would you be confi-dent about his stewardship? And ifnot, you should maybe not supporthis re-election, he said.

A number of the 163-year-old insur-ance giants investors have sharedtheir unhappiness at McGraths lead-ership in recent weeks.

Prudentials advisers on the bid Credit Suisse, HSBC and JPMorgan are also currently being investigated by City regulator the FinancialServices Authority, which has orderedthe insurer to commission a Section166 report from Clifford Chance intofailures of advice, systems or controls.

Fidelity to

vote againstPru chairman

BPS RIVALS are circling Russian firmRosneft after the oil groups historicplan to gain access to the Arctic oilreserves finally collapsed yesterday.

BPs difficulties with Russian part-ner AAR have not deterred Chevron,Shell and Exxon, who yesterday all saidthey were in talks with Rosneft over avariety of new projects.

Exxon and Shell narrowly missedout when Rosneft was picked for a10bn share swap in January. Whilethe companies would not confirmtheir interest in the South Kara Seafields pursued by BP, industry insiderssaid Rosneft remain keen to find a part-ner with expertise in offshore drilling.

BP will meet with the Russian oli-garchs who scuppered the deal at aboard meeting of their joint ventureTNK-BP to be held tomorrow.

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BP rivals circle asRosneft deal axed

EU admits Greece may need toundertake voluntary restructure

BYALISON LOCK

INSURANCE

EUROZONE ECONOMY

BYMARION DAKERSENERGY

News 3CITYA.M. 18 MAY 2011

EMBATTLED IMFboss DominiqueStrauss-Kahn waslast night undergrowing pressure toresign as managingdirector and allowthe fund to start a

formal search for hissuccessor. One IMFboard member seek-ing to reach him inRikers Island jailsaid that it wouldideal if he resigned,while US treasurysecretary Geithnersaid it was time toappoint an actingdirector.

PRESSURE MOUNTS ON STRAUSS-KAHN TO STEP DOWN

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BANK of England governor MervynKing sent his sixth letter in 15months to chancellor GeorgeOsborne this week, as inflationshows few signs of returning to itstwo per cent target.

King is obliged to write a letter ofexplanation every three months as to why inflation remains more thanone per cent above target.

Its always a matter of concernwhen inflation is above the target,

Osborne said last night, but theargument made by the governor ofthe bank in his letter to me is con-vincing, which is that inflation is setto fall next year and be back on tar-get.

King yet again laid the blame onhigh global commodity prices andthe governments VAT hike whichcame in this year.

But yesterdays shockspike to 4.5 per cent inthe consumer price index(CPI) was largely attributedto soaring travel costs,prompted by the Royal Wedding and cluster ofother bank holidays.

Air fares rose an eye-water-ing 29 per cent, while pricesof alcohol and cigarettes hit arecord monthly spike of 5.3per cent. The monthly one percent uptick in CPI was theequal sharpest of all time.

Core inflation whichexcludes energy, food, tobaccoand alcohol jumped to 3.7 percent in April from 3.2 per cent inMarch.

Inflation excluding direct taxes(CPIY) was also up by half a per-centage point, to three per cent.

The retail price index (RPI) fellslightly, to 5.2 per cent.

Kings letter

is backedby OsborneBY JULIAN HARRIS

UK ECONOMY


UKs saversget crushedby inflation

JUST one in 100 savings accounts pro-vide a real rate of return to basic ratetaxpayers, it was revealed yesterday.

With consumer price inflationjumping to 4.5 per cent, the number ofaccounts providing a real return plum-meted further, financial researchgroup Defaqto calculated.

With high inflation on one handand a prolonged low-base rate on theother, the current economic environ-ment is really impacting on savers,said Defaqtos David Black.

A basic rate taxpayer at 20 per centneeds a savings account paying 5.63per cent per annum in order toachieve a return. A higher rate payer at

40 per cent needs at least 7.5 per cent.Only 0.7 per cent of savings

accounts would be sufficient for ahigher rate taxpayer. The effect ofinflation on savings means that10,000 invested five years ago, allow-ing for average interest, inflation andtax at 20 per cent, would have thespending power of just 9,481 today,announced the Moneyfacts website,which conducted separate research.

BY JULIAN HARRIS

UK ECONOMY

HEWLETT-PACKARD (HP) yesterdayslashed its profit outlook as it boostsspending to resuscitate its troubledservices business.

The sluggish consumer PC marketand the impact of Japans earthquakeare also expected to hurt the compa-nys profits for the rest of the year.

HP released its results a day before itplanned after an internal memofrom chief executive Leo Apotheker warned of another tough quarterahead. Revenue in the fiscal second-quarter ended 30 April rose to$31.63bn (19.5bn), up three per centfrom the previous year

BYHARRY BANKSUS RESULTS

DAIMLER and Rolls-Royce are ontrack to win control of Tognum assome shareholders buckled yesterdayand followed the engine makers man-agement with a pledge to tender theirshares.

Some large investors buried thehatchet and called the improvedoffer which was raised to26 (22.7)from 24 a share -- fair after earlierhaving asked for around 30 a share.

The increased offer values Tognumat 3.4bn.

BYHARRY BANKS

M&A

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HP outlookhit by Japan

Tognum bidedges closer

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NewsCITYA.M. 18 MAY 2011 5

ANALYSIS l The UK's inflation is closer to eastern European levels, above peer western European countries

%

Romania Estonia Hungary UK Poland Euro averageUS Germany France Switzerland

10

8

9

7

6

5

4

3

2

1

0

NEW Bank of England interest rate set-ter Ben Broadbent left analysts nonethe wiser over his voting intentions

yesterday, in a cautious testimony tothe Treasury Select Committee.

The former Goldman Sachs econo-mist told the committee he was notentirely sure how he would have

voted this month, refusing to signalany leaning towards a rate hike.

I really dont know, Broadbentsaid. Ive not followed all the num-

bers.He appeared to downplay the need

for immediate policy tightening, com-mented Simon Hayes, economist at

Barclays Capital.

His testimonyemphasised down-side risks to activity, alack of concern aboutinflation expecta-tions and confidencethat inflation will fall

back towards target,Hayes concluded.

From June,Broadbent replacesthe Banks chiefhawk AndrewSentance, who has ledcalls for a gradual normali-sation of interest rates since lastsummer.

UK ECONOMY

INFLATION in the UK leap-froggedLithuania, Latvia and Poland yes-terday. Britain now has roughlythe equal third highest inflationin Europe.

UK price risesthird-highestacross Europe

UK ECONOMY

Broadbent drops noclues over intentions

Bank of England governor Mervyn Kinghas been writing explanatory lettersabout high inflation non-stop since thebeginning of 2010.

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HSBC yesterday said that it aims toincrease its headcount in China andSingapore by 2,000 in the next five years.

The hiring drive, which will in parttarget private bank managers andIslamic finance experts, will have to becounter-balanced by cuts elsewhere asthe bank has set a cost reduction tar-get of $2.5-$3.5bn by 2013-2015.

But chief executive Stuart Gulliverhas exempted recruitment in Asiafrom the cost-cutting: Asia is our

heartland and an area where we facesignificant wage inflation pressures.But this is where the growth is. Werenow working to get a grip on costs but

were not going to compromise on tal-ent, he said last week.

In its strategic review last week, the

bank said it will shed costs and head-count by reconsidering its presence in39 countries, with its US retail bankand credit cards business underreview for a sale.

The bank has also outlined a targetto produce a pre-tax profit of over$1bn each from its presence in India,Singapore and Malaysia/Indonesia.

HSBC Asianhiring drive toadd 2,000...

BAE Systems has been slapped with a$79m (48.8m) fine by the US govern-ment for breaking military exportrules, drawing a line under corrup-tion probes on both sides of the

Atlantic. The arms and defence firms pay-

ment comes on top of $450m in finespaid by BAE in the US and the UK last

year.BAE pleaded guilty last year to con-

spiring to make false statements tothe US government in connection

with certain regulatory filings and

undertakings, relating to defencedeals in Saudi Arabia, Tanzania,Sweden, the Czech Republic andHungary.

The latest penalty is payable overthree years, with a $10m discount ifthe firm improves its anti-corruptionmeasures.

This brings an end to the investi-gations and uncertainty that havesurrounded the company for a whilenow, said one analyst who covers thecompany.

BAE shares closed down 0.6 percent at 337.1p yesterday.

Glencore float on track asprices shares at 530p each

COMMODITIES giant Glencore isexpected to price its up to $11bn(6.7bn) initial public offering (IPO) ator above the midpoint of its previous-ly announced range.

The Swiss firm will price shares at530p per unit or more, giving thecommodities trader and miner a valu-ation of 36bn.

Glencore had initially said itsLondon share sale would be priced at

between 480p and 580p per unit.Demand for the companys shares

is said to have forced bankers on thefloat to close its books ahead of sched-ule, despite fears that crumbling

commodity prices could knockappetite.

It has a book covered several timesover, meaning potential investors

who have placed orders at the lowerend of the range could miss out onacquiring shares in the company.

Conditional dealing of Glencorestock is due to start on the LondonStock Exchange tomorrow, whilstunconditional trading will beginearly next week.

Glencore is planning to raise up to$11bn in a joint London and HongKong issue. It will be the largest-everLondon stock market floatation, and

will propel the company straight intothe FTSE 100.

BAE handed $79mfine for corruption

BY JULIET SAMUEL

BANKING

DEFENCE services group BabcockInternational said yesterday its acquisi-tion of rival VT Group drove a 57 percent rise in annual profit, and that itexpects outsourcing contracts topower growth this year.

Babcock, which maintains RoyalNavy submarines, reported an underly-ing pre-tax profit of 228.2m for the

year to the end of March, driven bystrong growth at its support servicesand international businesses that off-set an eight per cent cut in UK defencespending.

Babcock creditsVT Group for asurge in profits

DEFENCE

DEFENCE

CAPITAL MARKETS


BRITAINS banks could face a barrageof new bank levies and taxes if they failto keep credit flowing in line with theMerlin deal struck with the Treasury,Prime Minister David Cameron has

warned.Speaking before a committee of

MPs, Cameron said that banks couldface further bank levies, taxes, bonustaxes and all the rest of it If theydont fulfil their side of the deal, thenclearly the government wouldnt haveto fulfil its side of the deal.

The Treasury had promised to avoidfurther penalties for banks if RBS,Lloyds, HSBC, Barclays and SantanderUK made available 190bn of creditthis year, versus 179bn lent last year.

But the number is a capacity, nota target, meaning that banks only haveto show the credit is available rather

than to boost lending by 11bn. Thedeal has sparked criticism that it will

be impossible to measure. But aTreasury source told City A.M. that itcould determine whether banks hadmet their obligations through busi-ness surveys and other economic data.

Cameron: Banksface more leviesif Merlin fails

ANALYSIS l HSBC Holdings

p

21 Feb 11 Mar 31 Mar 20 Apr 17 May

740

720

700

680

660

640

620

600

638.8017 May

TALENTED City workers are increas-ingly prepared to move abroad to take

advantage of rising salaries in emerg-ing markets, with Singapore and HongKong seen as top choices, according toa survey by recruiting websiteeFinancialCareers.com.

The survey of 444 London bankersfound that 34 per cent were prepared

to move country and that only 12 percent remain committed to staying

with their current employer for thenext year. Over half said they definite-ly intend to move employer.

But firms have noticed their staffsrestlessness: 26 per cent of respon-dents said that their employer hastried to incentivise them to stay. Butonly a third of employees said that acounter-offer could persuade them tostay where they are.

...As a third of bankers saythey would move abroad

HSBC chief executive Stuart Gulliver is going on a hiring spree

BY JULIET SAMUEL

RECRUITMENT

BY JULIET SAMUEL

BANKING

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VODAFONE saw its full-year profitssurge despite taking a 6bn impair-ment charge on its businesses inSpain, Greece, Portugal, Italy andIreland.

It was buoyed by fast-growing mar-kets in India, South Africa and Turkey,and the rapid uptake of higher-marginsmartphones. Pre-tax profits grew 9.5per cent to 9.5bn, on revenues up 3.2per cent to 45bn. Service revenue,which includes ongoing facilities suchas voice, data, texts and internet accessbut not one-off costs like handsets, wasalso ahead of forecasts.

UK revenue was 5.3bn, up five percent year-on-year, driven by almost1m additions to its contract customerbase. Vodafone said it is gaining cus-tomers from both EverythingEverywhere and O2, its main rivals inthe UK.

Chief executive Vittorio Colao saidhe could not shed any new light onwhen its senior US joint venture part-ner Verizon may resume paying a div-idend on Vodafones 45 per centstake.

He said Vodafone will continue tocooperate with its partner and wouldnot speculate on whether his firm will eventually sell its interest or

indeed buy out Verizon.He also slammed the way Indian

authorities are hounding his compa-ny for a disputed 2.5bn tax-bill relat-ing to its purchase of HutchisonsIndian operations.

Colao insists that as the acquirer,Vodafone is not responsible for pay-ing capital gains tax on the transac-tion, which was handled offshore andtherefore not necessarily underIndian juristiction.

He suggested an IPO of up to threeper cent of Vodafone Essar which itwill be required to sell after the clo-sure of its 3bn buyout of partnerEssar as a result of foreign ownershipregulations may rely on a positiveoutcome in the tax case.

He said the Mumbai stockexchange would benefit from havinga company of Vodafones dignity onits books.

Vodafone seesprofits surgeBY STEVE DINNEEN

TELECOMS

Focus on Vodafone8 CITYA.M. 18 MAY 2011

Vittorio Colao slammed the way Indian authorities have pursued Vodafone

Higher data revenues save the dayEUROPEAN telecoms firms are hav-ing a torrid time. Earlier this month,Deutsche Telekom and Telecom Italiafailed to hit expectations for first-quarter earnings, while Dutch telcoKPN and Belgacom both issued profitwarnings.

The fact that Vodafone met consen-sus for earnings and beat at the topline while its rivals flounder means itis probably stealing market share inEurope. That is certainly true in Italy, where Vodafone has replaced Telecom Italia as the Number 1 inmobile. Vittorio Colao, a reservist inthe Italian army, will view thatachievement with personal pride.

It isnt all plain sailing. Spain, aconstant source of woe, saw organic

service revenues fall by 6.9 per centwhile growth in the UK was 4.7 percent, below consensus of 6.5 per cent.

No-one expects revenues fromvoice or text messages to grow signif-icantly in mature markets so it isreassuring to see that data revenues

were up 26.4 per cent. The big ques-tion is whether data will cannibalise voice calls and texts, rather thancomplementing them. On that, thejury is out, but Vodafone has had suc-cess so far by selling carefully-craftedbundles of all three services.

Vodafone trades at a premium toits European peers, around 5.8 timesearnings forecasts for this yearagainst a sector average of 5.2. Thatreflects its presence in India and the

access it gets to US businessesthrough its Verizon joint venture.

Whether it deserves a richer ratingcomes down to whether you think Vodafone is a utility company orwhether it has growth prospects.

We reckon the democratisation of

the smartphone, leading to an explo-sion of data usage in India, meansthere is growth to be found.Vodafones shares have had a bad runin recent weeks due to the poor num-bers from rivals, only partially cor-rected by yesterdays small rally.There is more value to be had.

BOTTOMLINEAnalysis by David Crow

CITY VIEWS: DO YOU HAVE A SMARTPHONE?Interviews by Phoebe Torrance and Scarlett Archer

Yes, my heads always in it! I use it for bothwork and social purposes, and I also have aseparate smartphone just for work.

NIPON RAVEL | XCHANGING

I've had one for a while now and I definitelywouldn't survive without it. Its great beingable to combine work and my personal life.

PAM TREVETT | AVIVA

No, I haven't got around to getting one forsocial use, though I would like to get one in

the future as my work provides me with asmartphone, which comes in very useful.

PAUL COBLEY | LVS

ANALYSIS l Vodafone Group

p


182

180

178

176

174

172

170

168

166

169.7017 May

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CITY BIRDSSWOOP ON

GULLS EGGSLUNCHEON

THE Citys summer season is officiallyunderway, marked by yesterdaysMacmillan Gulls Eggs City Luncheon atthe Merchant Taylors Hall.

The quirky institution serves guestsgreen speckled gulls eggs which areonly in season for four weeks of the year as they get stuck into some serious net-

working. It is like Linked In in 3D, saidMax Audley, partner at Olswang.

Now that so many people in the Cityspend their time in front of electronictrading screens rather than enjoying liq-uid lunches, the Gulls Eggs lunchreminds people you are alive.

Mark Thomas from River and

Mercantile, Brian Winterflood of Winterflood Securities, and Rathbonesinvestment director Malise Reid Scott

were also among the 600 bankers,lawyers, wealth managers and hedge fundtraders who ate their way through 3,500gulls eggs to raise more than 100k forMacmillan Cancer Support.

The events founder Mark CannonBrookes of Smith & Williamson, whochaired the event for 17 years, wouldntname the well-known aristocrat with agrouse moor in the North of England who

FINAL COUNTDOWN TOM Barnes, the Spreadex trader whohas been entertaining his colleagues

with his appearances on Countdown,has produced a string of nine-letter

words urbanised, epilators andtenancies to win his sixth consecu-tive game and an automatic place in thequarter-final on 30 May.

Add in the fact that Barnes wonMondays game by the shows highest-ever margin of victory, and his chancesof winning a set of Countdown diction-aries in the Grand Final on 3 June arelooking very strong indeed.

MATCH OF THE DAY THERE was no banker bashing whenSpurs sponsor Investec took on its clientsat a football game at White Hart Lane, asthe bank drew 2-2 with the opposition.

Investecs goal scorers were GraemeBaker and Jon Sawbridge, while Man ofthe Match was Jay Hockey, an equity deal-er from Cazenove Capital, who receivedhis trophy from Spurs players PeterCrouch and Rafael van der Vaart.

originally donated the rare eggs although he did let slip that said landown-er owns large swathes of London.

Meanwhile, current chair Zoe Couper,founder of Couper & Partners, has been-

reinvigorating the event by broadeningthe guest list to include private equityfirms and Mayfair hedge funds.

No doubt they will be first in line forthe rumoured launch of an additionalevent near Christmas, to be held ontheir West End doorstep.

EVERSHED FIGHTS ON ALSO at the Gulls Eggs lunch wasPatrick Evershed, investment managerat Hargreave Hale, who declared he will

fight on in his unfair dismissallawsuit against New Star, the fundmanager founded by John Duffieldthat was bought by HendersonGlobal Investors in 2009.

Legal proceedings were suspendedfor six months, after Evershed (pic-tured right with former colleagueClare Gore Langton of Rathbones)underwent a triple bypass shortly beforeChristmas on doctors orders.

But Evershed, 70, returned to theoffice just nine working days after leav-ing hospital and is now fighting fitand determined to win the ongoing dis-pute, after spending 400,000 in legalcosts. I am totally confident I will win,he told The Capitalist.

The Gulls Eggs lunch marks the start of the Citys summer season Picture: Micha Theiner/City A.M.

PatrickEvershed hasbounced back

from a tripleheart bypassoperation tocontinue hisfight againstNew Star

The Capitalist10 CITYA.M. 18 MAY 2011

EDITED BY

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

End game: Spreadex trader Tom Barnes

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GROWTH in UK home and motorinsurance boosted Aviva in the firstthree months of the year, offsetting asluggish performance in its life divi-sion, the company said yesterday.

Aviva, the UKs second-biggestinsurer, saw global non-life insurancepremiums rise nine per cent to 2.7bnin the quarter, compared with thesame period in 2010, as UK insurancesales rocketed by a fifth to 1bn.

UK non-life performance was fur-ther boosted by large rises in insur-ance premiums, with car insurance up24 per cent and home insurance see-ing a six per cent rise. However, ana-lysts expressed concern that the UKmotor insurance market, where no-

win-no-fee injury claims are causingmany insurers huge losses, may affectfuture performance in the business.

Its life insurance division by con-trast contracted in the quarter asmany of its core markets delivereddouble-digit sales declines. Overallsales of long-term saving products fell14 per cent to 8.8bn from 2010s level,though profitability rose to a 13.7 rate

of return, up from 12.3 per cent.Chief executive Andrew Moss said

Aviva had prioritised profitability oversales growth. Life sales are down on2010, primarily because we have driv-en new business returns higher bychanging our product mix to focus onmore profitable business, he said.

Poor market conditions in Europesaw life and pension sales slump 24per cent to 3.2bn, while action toimprove US profitability caused new

business sales to fall 21 per cent.Moss said Aviva was mindful of

near-term macro-economic challengesin some European markets butremained confident about our long-term growth prospects.

Aviva enjoys

UK sales jumpBYALISON LOCK

INSURANCE

ANY further major catastrophe willhave a dramatic effect on the insur-ance industry, the head of the Lloydsof London market said yesterday.

A run of serious natural disasterssince the start of the year, includingthe earthquake and tsunami in Japan,have depleted insurers reserves andanother large event could eat into

their capital base, Lloyds chief execu-tive Richard Ward said.Industry losses this year already

exceed the total 2010 loss and manyglobal insurers and reinsurers havealready abandoned their full-yearprofit expectations after paying multi-million pound claims.

Lloyds has recorded losses of about2.4bn so far this year and Ward

warned that the next big catastrophecould well be a capital event, if insur-

ers did not raise premium rates quick-ly. Prices are dangerously low at pres-ent, he said in a conference speech.The insurers who write unprofitable

business are inevitably the first to col-lapse when disaster strikes.

He added that the global scope ofrecent disasters and their impact onindustry and travel showed anincreasingly systemic nature to catas-trophes. Risk travels further andfaster, he said.

Chief of Lloyds warns insurersto raise rates or risk collapseBYALISON LOCKINSURANCE


Richard Ward of Lloyds Picture: GETTY

ANALYST VIEWS: WHAT STOOD OUT INAVIVAS RESULTS? Interviews by Alison Lock

KEVIN RYAN | INVESTEC

The big attraction in a UK context is its composite business model. Cashfrom the non-life business essentially covers shareholders dividend and this placesit in a very good position. The only note of caution is that it is winning significantnew business in UK motor where premiums rose 60 per cent year-on-year.

BARRIE CORNES | PANMURE GORDON

The non-life operation was the star performer. Whilst the life operationcontinues to deliver, the non-life can make a significant difference to its valuationover the next few years. It is a strength that is missing amongst its UK peer group.Aviva remains on track and its valuation remains very attractive.

EAMONN FLANAGAN | SHORE CAPITAL

Aviva reported a mixed bag: life new business was down 14 per cent,albeit with improved margins, with double digit falls in France, Poland and Spainall due to tough market conditions. General insurance was more consistently posi-

tive, with the UK the main driver. We view the shares as undervalued.

ANALYSIS l Aviva

p


435.6017 May

480

470

460

450

440

430

420

410

NEW legislation to make insurancecompanies responsible for asking forrelevant information from customers

before issuing policies was introduced by the government yesterday.

The Consumer Insurance Bill aimsto shift the emphasis from a duty onthe consumer to disclose informa-tion, to insurers having to ask the cor-rect questions.

Fresh rules aimfor better dealfor consumers

INSURANCE

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BUDGET airline EasyJet will todaylaunch a campaign warning the gov-ernment against changing the air pas-senger duty as proposed in the Budget,claiming such a move would reduceBritish GDP by 2.6bn.

EasyJet today releases a report, writ-ten by Frontier Economics, which willclaim that moving the levy would alsoreduce tourist spending by475m a year and cut pas-sengers by 3m.

The report also poursscorn on the environ-mental credentials ofhiking taxes on airlines,by claiming a rise plus achange in the taxation bands for short-haulflights would increaseCO2 emissions by360,000 tonnes ayear.

Airlines cur-rently paybetween 11 and170 per passen-ger for any

flight taking off from the UK.Chancellor George Osborne said in

March the government would leavethe air passenger duty in its currentform, citing problems with interna-tional law that prevented a unilateralchange to air taxation.

But he added in the Budget thatintensive work with our internation-al parters would look at moving to aper-plane rather than per-passengertax, which would charge half-emptyplanes the same rates, and alter thedistance benchmarks used in calcu-

lating the tax. The government also froze a

planned inflation-linked rise inthe current tax, at a public costof 145m.

Several airlines have spokenout against previous plans to

alter the duty, with BA head Willie Walsh labeling one

hike a disgrace.But easyJet chief

Carolyn McCall(pictured) willfocus on theextra cost toholidaymak-ers.

Plan to alter

air tax sparksindustry rageBYMARION DAKERS

AVIATION

YELLOW-PAGES publisher Yell plansto increase its presence in digitalmedia in a bid to counter a chronicdecline in its print business.

It yesterday posted pre-tax profit of66.3m, compared with 70.3m last year. Revenue fell 12.4 per cent to1.9bn.

However, while print revenuedropped by 18.6 per cent, digital

media revenue grew by 9.4 per cent.Chief executive Mike Pocock, whotook control of the firm in January,said: You will see that digital will beapproximately three quarters of ourbusiness by 2015, versus 25 per centas it is today.

Chief financial officer Tony Batessaid the firm will attempt to paydown some of its mammoth debt pilethis year. Yell, which narrowly avoid-ed insolvency in 2009, has net debt of

2.8bn, about 17 times its currentmarket value of 167m.Bates expects Yell, which also runs

units in the US, Latin America andSpain, to pay down around 200m ofdebt this year, saying: We expect thebusiness will continue to throw a sig-nificant amount of cash this year.

Yell shares, which have lost morethan half of their value since thebeginning of the year, surged 6.6 percent yesterday to close at 7.13p.

Yell shares surge as it pledgesits future to digital media

PUBLISHING


Yell chief executive Mike Pocock says he is committed to online advertising Picture:

Hedge funds hit 1 trillionin capital as leverage falls

THE combined value of the globalhedge fund industry has hit a record$2.02 trillion (1.2 trillion), accordingto Hedge Fund Research (HFR).

Investors have flocked to the vehi-cles to place assets due to above-inflation returns during a time oflow interest rates and uncertainmarkets.

Hedge funds typically offerinvestors inflation-protected per-formance, having outperformed

benchmakers of inflation since 1990.

The investment vehicles have per-formed in a similar way to the risingprice of commodities, which havesurged in recent years.

Meanwhile, hedge fund industryleverage was found to have declined inthe last 12 months, according to HFR.

Average standard leverage decreasedacross all hedge fund strategies from1.27 to 1.10 times investment capital.The percentage of funds which do nottypically use leverage rose to approxi-mately one third of all funds, up four

per cent compared to last year.

HEDGE FUNDS

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Economics 13CITYA.M. 18 MAY 2011

City panel says British economywill avoid a double-dip recession

In association withPoliticsHome.com

Apply to join today atwww.cityam.com/panel

THE UK economy is not heading fora double dip recession, according toour Voice of the City panel.

City A.M. and PoliticsHome askedmembers of the panel, which is madeup of Londons financiers and businesspeople, to predict the state of theBritish economy in 2015.

Just three per cent said theyexpected recession, compared with 85per cent who predicted some kind ofgrowth.

Forty-five per cent expected mod-

erate growth; 35 per cent expectedslow growth; and five per centexpected strong growth.

Eleven per cent said they expectthe economy to be stagnating in 2015,

when Britain is most likely to go backto the polls.

PoliticsHome interviewed 489people from the specially recruitedVoice of the City panel by emailbetween 12 and 16 May.

To answer this weeks questions ontakeover rules, public sector reformand the 2012 US election, fill in theapplication form atwww.cityam.com/panel before 12pmtoday.

Members of the panel who respond

to at least 80 per cent of surveysbetween now and September will beentered into a prize draw to win a lux-ury weekend in Paris.

Full Ts&Cs available on request.

PoliticsHome.comPoliticsHome.com

Londons house prices arestill leading from the front

HOUSE prices in the south east con-tinue to outperform the rest of theUK, off icial data showed yesterday.

Prices in London for March were5.6 per cent higher than the sametime last year, the Department forCommunities and LocalGovernment said.

Annualised prices also rose in theeast (2.9 per cent) and in the rest ofthe south east (2.5 per cent), yet fellin many other regions.

Overall British prices were up 0.9per cent in March, yet actuallydropped 1.1 per cent if London andthe south east are excluded.

House prices fell 0.5 per cent inthe first quarter of the year as a

whole, compared to the last threemonths of 2010 when they alsodipped by 0.4 per cent on the previ-

ous quarter, said Howard Archer ofIHS Global Insight.

The average price of a home in thecapital stood at 342,541 in March,the DCLG said, based on completedmortgages. In the rest of the UK, theaverage price is 185,764.

The supply of housing needs to beallowed to increase to preventharmful volatility in the UKmarket, a separate report from the

James Rowntree Foundation alsosaid yesterday.

HOUSING

An average London home now costs 342,541, official data revealed Picture: REX

NEWS | IN BRIEF

American housing slump persistsOfficial data revealed more bad news forAmericas ailing housing market, yester-day. US housing starts and permits forfuture home construction both fell inApril, as an overhang of homes on themarket discouraged builders from takingon new projects, pointing to prolonged

weakness in the housing sector. Housingstarts fell 10.6 per cent, down to anannual rate of 523,000 units. Comparedto April last year, residential construc-tion was down 23.9 per cent, the largestdecline since October 2009. Residentialconstruction is being crowded out by anoversupply of used homes.

US industry hit by Japan quakeUS industrial output was broadly flat inApril as the earthquake in Japan inMarch interrupted the supply of parts toauto makers, a Federal Reserve reportsaid yesterday. Factory production fell0.4 per cent in April, its first decline in10 months. Excluding motor vehicles andparts, factory production rose 0.2 percent in April.

German investors morale dipsGerman stocks were hit yesterday as theZew index pointed to another drop in

investors confidence. The index of senti-ment over the coming six months fell to3.1, from 7.1 in April its lowest levelsince November last year, although stillabove the long run average. The meas-ure of current economic conditionsimproved, hitting 91.5. The six monthindicator signals that investors havebecome slightly more concerned aboutthe sustainability of Germanys growthspurt witnessed throughout 2010 and inthe first-quarter of this year, respondedFrank Engels of Barclays Capital.

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CENTRAL London property groupDerwent embarked on a money-rais-ing drive to pay for acquisitions yes-terday, selling off part of its CoventGarden estate and issuing 175m

worth of convertible five year bonds.Derwent sold five properties in

King Street and Floral Street toCapital & Counties, who paid for the68m purchase in cash from its ownshare placing earlier this month.

Tenants in the properties includeF&C Asset Management andCarluccios restaurant.

Derwent chief executive JohnBurns said the price paid was signif-icantly above the valuation given tothe properties in December.

Derwents bankers have also placed175m of convertible bonds, whichhave an annual coupon of 2.75 percent.

The bonds have been priced at thetop end of the premium range andthe transaction was substantially

oversubscribed at that level, addedBurns.

Weve got a big developmentpipeline to fund over the next few

years and were keen to look at newacquisitions. Weve also got substan-tial refinancing in 2013, addedfinance director Damien Wisniewskiin a conference call.

Derwent said in its interim man-agement statement yesterday morn-ing that open market lettings have

been strong so far this year, withrents at the end of March 8.3 per centabove those seen in December.

Derwent sells

bonds to beefup war chestBYMARION DAKERS

PROPERTY


NEWS | IN BRIEF

WPP Digital invests in nParioThe digital arm of WPP has announceda $5m (3.1m) strategic investment fora minority stake in nPario to improvedata-driven decision making for mar-keters and advertisers. The alliance

with nPario, a leading provider of tech-nology designed to analyse consumerdata for marketing, will ensure mar-keters and publishers have access toaudience insights using multiple sys-tems and research partners.

Publicis buys Rosetta for 354mAdvertising group Publicis will buy US-based Rosetta Marketing for $575m(354m) to improve its digital offerings.The acquisition will be the companysthird US digital advertising deal inrecent years. Publicis plans to raise itstarget revenue from digital, which isseeing double-digit sales growth, from28 per cent last year to 35 per centover the next three years.

Hilton Food in line with forecastsHilton Food Group has said its trading isin line with expectations, and is set tocontinue that way for the remainder ofthe financial year, despite falling con-sumer spending. The meat packagingcompany has revealed that volumescontinue to build at Tesco storesabroad, resulting in double-digit volumegrowth.

Experian results due out todayIn yesterdays Best of Brokers column itwas mentioned that results from con-sumer credit group Experian were dueon Thursday. Experians full-year resultswill actually be released today, and weapologise for any confusion.

DERWENT used long-time broker andadviser UBS to jointly run its 175mconvertible bond sale.

Leading the team at UBS is TimGuest, head of real estate. Guest is aqualified solicitor who first worked atLovells before joining Morgan Grenfell,now part of Deutsche Bank, to work incorporate finance. Guest has been withUBS for more than 20 years, and is also

a member of the investment commit-tee at Apache Capital Partners.

Also acting as joint bookrunner isHSBC, with a team led by global headof equity-linked origination PhillippeDischamps.

Dischamps has been with the bankfor just short of a year, having workedfor RBS and ABN Amro beforehand.He is also known for his 20 years incapital markets at JP Morgan.

JP Morgan Cazenove and RBSHoare Govett are acting as joint globalco-ordinators and joint bookrunners.Julian Hall, head of EMEA equity-linkedorgination, and equity capital marketsvice president Rupert Snuggs lead theRBS Hoare Govett team.

ADVISERS: DERWENTS BOND TEAM

TIM GUEST

UBS

Carluccios in Covent Garden is a tenant of one of the properties Picture: ALAMY

ANALYSIS l Derwent London

p


1850

1800

1750

1700

1650

1600

1550

1725.0017 May

Consumers expect a slight interest rate rise

THE UK Consumer Prices index(CPI) annual rate of inflationrose to 4.5 per cent in April, upfrom four per cent in March and

is now at its highest level sinceOctober 2008.

This will increase the pressure onthe Monetary Policy Committee toraise interest rates and a look at the

YouGov SixthSense report on the lat-est Bloomberg/YouGov HouseholdEconomic Activity Tracker (HEAT)does little to ease concerns about aprolonged period of inflation. We cansee that people are noticing pricesgoing up and inflationary expecta-tions remain high.

Already over half of people arebecoming more price conscious whenshopping, not surprising when you

consider that only 13 per cent expectcash available for household spend-ing to increase over the next 12months (42 per cent expect it todecrease) but eight in 10 expect prices

to rise over the next year. Over half ofthose expect them to rise by five percent or more.

MPC FACES A DIFFICULT DECISION The challenge for the MPC is thatalthough general economic confi-dence did improve over the lastmonth it still remains very low (-24)and they will fear that an interest raterise will reverse the minor gains that

we have seen. Perhaps though thepublic has already factored a rise in;three quarters expect rates to go upover the next year but most do expectthat rise to be slight. Quantifying

that the median expectation is forinterest rates to be at 1.5 per cent thistime next year.

Not an easy job then but the publicviews that might impact the decisionare; high inflationary pressures, lowconsumer confidence and a slightinterest rate rise over the next year

priced into expectations.Stephan Shakespeare is chief executive ofYouGov

BRANDINDEX

STEPHAN SHAKESPEARE ANALYSIS l Interest rate expectations%

Fall

Remainlargely

unchanged

Rise slightly

Risesubstantially Dont

know

70.0

60.0

50.0

40.0

30.0

20.0

10.0

0

ANALYSIS l Price expectations for next year

%

Fall

Staythe same

+ 1-2%

+ 3%+ 5%

30.0

25.0

20.0

15.0

10.0

5.0

0

5% +

8/6/2019 Cityam 2011-05-18

15/28

WALMART posted a bigger-than-expected jump in quarterly profit yes-terday despite a further drop in salesat US stores.

A strong performance overseasfuelled the profit as the US marketlagged behind.

Walmarts international sales rose11.5 per cent to almost $28bn(17.2bn) for the three months to theend of April. Markets includ-ing China and Mexico per-formed particularly well.

Sales at US shops open atleast a year fell 1.1 per cent the eighth straight quarter ofsales declines at theworlds largest retail-er. Walmart UShas been hurt byconsumers fac-ing higher fueland food costs.Meanwhile thecompanys totalsales rose 4.4per cent to$103.42bn, topping WallStreets average forecastof $102.93bn.

Walmart, which

owns Asda, earned $3.4bn, or 98 centsper share, in the first-quarter to 30April, or 87 cents per share, a year ear-lier. The figures showed that Asdasales at shops open over a year rose0.1 per cent excluding fuel and VAT.

Chief executive Mike Duke (pic-tured) said in April that consumersspending power has been affected inthe face of rising fuel and other infla-tionary pressures, with many shop-pers spending more on the first dayof the month when they receive theirpaychecks. He said consumers havealso begun to consolidate trips and domore one-stop shops.

Another US retail heavyweighthome improvement chain HomeDepot yesterday reported net income

up to $812m in the first-quar-ter.

Sales fell 0.2 per cent to$16.82bn, missing ana-lysts average estimate of$17.02bn.

Meanwhile Saks, which operates 46department stores,reported first-quarter

net income of $28.4m,compared with $18.8m, or 11cents per share, a year earlier.

Revenue rose 8.7 per centto $726m.

Walmart in

overseas liftas US drags

FRENCH group Carrefour yesterdaysaid discount chain Dia was likely to be valued at more than 3.6bn(3.1bn) when it is spun off in July.

The company believes separatingDia will allow it to focus on developingits own brand and highlight the valueof the chain. It is under pressure toboost its share price from top investors

French luxury tycoon Bernard Arnaultand US private equity firm ColonyCapital, who are down almost 40 percent on stakes bought largely in 2007.

Carrefour also said its hypermarketdivision was performing well. It hadorginally planned to spin off 25 percent of its European property businessbut shelved the scheme.

Carrefour is not meant to be a con-glomerate, chief executive LarsOlofsson said.

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Carrefour says Diaworth over 3.1bn

BY JOHN DUNNE

RETAIL

ENTERPRISE Innssix-month pre-taxprofit dropped to61m from 91mand adjusted pre-taxprofit dropped to74m from 86m lastyear. Revenue for the

half year to 31 March2011 totalled 346mcompared with374m in the previ-ous year. Chief execu-tive Ted Tuppen (left)said: It is gettingeasier ... we are work-ing our way throughthe difficulties facingthe industry.

BYHARRY BANKSRETAIL

Consumer News 15CITYA.M. 18 MAY 2011

Wickes to buy 13 Focusshops from administrator

FOCUS DIYs administrators yesterdayagreed the sale of 13 stores to WickesBuilding Supplies, saving 345 jobs inthe process.

Ernst & Young said it was indetailed discussions with a numberof interested parties over the sale offurther stores.

Focus went into administrationearlier this month after being hit by

the weak housing market. B&Q-owner

Kingfisher has already agreed to buyup to 31 stores for 23m. Ernst & Young said all 178 Focus storesremained open for business. Sincestepping in, we have been trading atrecord levels as we have been able tooffer very competitive prices acrossthe full product range, said jointadministrator Simon Allport.

We are grateful to all the groupsloyal customers, employees and sup-

pliers for their continued support.

RETAIL

PROFIT DROPS FOR ENTERPRISE

8/6/2019 Cityam 2011-05-18

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BRITISH workspace rental companyRegus said revenues grew 8.1 percent in the first four months of 2011and that it was well placed for fur-ther growth despite remaining cau-tious on the economy.

Regus, which offers ready-to-useoffices for rentals as short as half aday, yesterday said revenue for thefour months to 30 April rose to368.4m.

Regus continues to make

progress despite a muted economicbackdrop and is trading in line withmanagement expectations, chair-man Doug Sutherland said in a state-ment.

Regus, which in March posted a 67per cent drop in 2010 earnings after

a year of expansion, tough tradingand cost cutting, said investment inits business would continue acrossall regions.

Shares in the company, whichoperates in 88 countries and whoseclients include Yell and AT&T, closedat 110.20p yesterday, valuing thebusiness at just over 1bn.

Regus stayscautious asrevenues rise

INDIA-FOCUSED energy firm EssarEnergy yesterday said that it was ontrack to complete projects worthnearly $5bn (3.1bn) this year.

The news sent Essars shares upthree per cent to 424.5p, on reliefthat construction delays at Indianpower plants reported in Marchseemed to be over.

The firm, which last week raised$550m through a convertible bondoffering, said that 14 growth proj-ects across India were on track, withsix due for first production this year.

The company now has a net debtof $4.76bn, which Essar said yester-day was in line with its forecasts.

Esssars $350m purchase of ShellsStanlow refinery is due to completelater this year, subject to shareholderapproval.

The firm notched up record pro-duction at its power plants in thethree months to the end of March,rising 10 per cent to 1,845m units.

On the refining side of the busi-ness, Essars Vadinar plant was oper-ating at more than 140 per cent of itsnameplate capacity to report a slight

rise in year-on-year production.Two thirds of the oil produced was

sold to domestic consumers, withthe rest being exported. Essars grossrefinining margin has risen 50 percent since last year, with the firmgenerating $8.71 a barrel during thequarter.

Essar floated in London last Mayas a spin-off of Indian conglomerateEssar Group, which still owns morethan 75 per cent of the company.

Essar is considering floating moreof its businesses on the London stockmarket.

Corporate customers keepAvis Europe in good shape

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and social calendars. With an anticipated 100,000 on Investec Derby Day

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CAR rental firm Avis Europe said yesterday that January to Aprilrental income rose 5.2 per cent,partly due to increased volumesfrom its corporate customers.

The company, which serves cus-tomers under the Avis and Budgetbrands, said billed days its meas-ure of volumes -- were ahead of lastyear in nearly all of its markets andit expected the trend to continue.

Avis has operations in Europe, Africa, the Middle East and Asia,and about 86 per cent of its revenuecomes from France, Germany, Italy,Spain and the UK.

The company, whose key stake-holder is Belgian auto companyDIeteren, said it worked with carmanufacturers to maintain its fleetsupply following the Japan disaster,and did not expect any impact to itskey summer trading period.

Our expectations for the full-year remain unchanged and we con-tinue to expect good progress forthe year and a further increase inour underlying pre-tax margin,Avis said.

Shares of the Berkshire-basedcompany closed 0.3 per cent higherat 196.4p yesterday, valuing thebusiness at about 384m.

Essar Energys shares jump asexpansion gets back on track

BYHARRY BANKS

SUPPORT SERVICES

ENERGY

CONSUMER


NEWS | IN BRIEF

TalkSport says ads will sufferNorthern Irish broadcaster UTV Mediasaid revenue from continuing opera-tions for the first four months of thenew financial year grew three percent, but remained cautious for therest of the year amid an uncertaineconomy. The owner of TalkSport

admitted advertising sales were likelyto compare unfavourably to last yearduring the World Cup, and predictedthat advertising from its radio armwould fall nine per cent across Mayand June.

Cluff Gold bullish on BaomahunAIM-listed miner Cluff Gold plans tobegin construction work at its SierraLeone Baomahun gold project byJanuary and start production by mid-2013. Baomahun, estimated to produceover 150,000 ounces of gold per year,would be the miner's biggest project ina region where it has operations alreadyin Burkina Faso and Ivory Coast. CluffGold plans to invest about $200m(123.3m) to develop the mine.

Evraz Group gives trading updateRussian steel company Evraz Groupyesterday said revenue for the first-

quarter ended 31 March 2011 was$3.89bn (2.4bn), and its adjustedearnings before tax for the quarterwere $740m. Moving ahead, the com-pany expects the second-quarter earn-ings before tax to be in the range of$750m-$825m.

ANALYSIS l Regus

p


120

115

110

105

100

95

90

110.2017 May

BEST OF THE BROKERS

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

ANALYSIS lAfren175

165

155

145


p145.60

17 May

AFRENJP Morgan Cazenove (JPM) rates the oilexplorer overweight with an upgraded tar-get price of 195p. JPM sees Afren as its toppick in the UK exploration and productionsector, and has raised its net asset value esti-mate by 36 per cent on higher oil prices pre-dicted by the brokers Europe oil team, aswell as reserves upgrades at the firm.

ANALYSIS lLondon Stock Exchange940

900

860

820


p879.00

17 May

LONDON STOCK EXCHANGEUBS rates the bourse neutral and has a12-month target price of 910p. The brokersees the Maple consortiums rival bid forTMX as more attractive than the LSEsoffer, with 15 per cent upside. UBS thinksthe firm must raise its offer by at leasteight per cent to make an impact, whichwould halve the deals earnings accretion.

ANALYSIS lRobert Wiseman Dairies360

340

320

300


p

323.9217 May

ROBERT WISEMAN DAIRIESBrewin Dolphin rates the dairy grouphold and has dropped its target pricefrom 355p to 310p. The broker thinksrecent price rises achieved by the firm have

now been outstripped by soaring oil-relat-ed costs, which it calculates translate to a22 per cent drop in pre-tax profit to20.5m for the year.

8/6/2019 Cityam 2011-05-18

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GE CapitalThe financial services unit of GeneralElectric has appointed Neil Kerridge asoriginations director to its corporatestructured finance team, where he willdevelop new business opportunitieswith large and mid-market corporates.

Kerridge joins from Lloyds TSBCommercial Finance.

OtkritieRussian financial services providerOtkritie has appointed DmitriShatsky as head of business applica-tions development. Previously,

Shatsky worked at RTS StockExchange and the Eastern EuropeanInvestment Bank.

Amlin Corporate InsuranceSpecialist insurer Amlin has appoint-ed Kim Hvirgel as chief executive of

its Netherlands subsidiary, ACI, sub-ject to the approval of the DutchNational Bank. Hvirgel is expected to

join ACI on 1 June, and PatrickCoene, the current chief executive,will step down on the same day.Hvirgel was previously chief execu-tive of Codan Forsikring.

Pictet Asset ManagementThe asset management arm of Swissbank Pictet & Cie has appointedMicael Hagelin as senior businessdevelopment manager. Hagelin joinsfrom Janus Capital International.

Veritas Asset ManagementLucy Colback has been appointed asfund manager and investment analyst towork across the groups Asian strate-gies, based in London. Previously,Colback held senior roles at HorizonAsset, Bear Stearns Asia, Merrill Lynchand Schroder Investment Management.

CITY MOVES | WHOS SWITCHING JOBS Edited by Harriet Dennys

HSBC Private BankAntoine Cahuzac has been appointed asCEO of HSBC Private Bank France andbecomes a member of the GPB EMEAexecutive committee. Cahuzac joinedHSBC France in 1985, rising to head of

global banking MENA, based in Dubai,before returning to France in 2008 as asenior corporate adviser to the chiefexecutive. In his new role he will reportto Christophe de Backer, CEO of HSBCFrance and Alexandre Zeller, CEO,EMEA of HSBC Private Bank.

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in association with

US stocks drop on

poor retail earnings

THE Dow and the S&P 500 fellfor a third day yesterday afterdisappointing figures fromWal-Mart and Hewlett-Packard, although a late rebound

suggested investors may be lookingfor a short-term bounce.

Both the S&P 500 and Nasdaqdipped below their 50-day movingaverages, but those levels appearedto bring in buying interest.

Recent weakness in sectors tied toeconomic growth and the sharpdecline in commodities havespurred talk of a prolonged pull-back.

Short-term traders see an opportu-nity, judging by lategains in certain energy names andfinancials strong performance yes-terday.

The cyclical stocks are easy to buyout there. Were not having anytrouble buying them for clients,said Kevin Kruszenski, head of listedtrading at KeyBanc Capital Marketsin Cleveland.

There will be a tradeable bounce,but it still feels like they are underdistribution, he said, using tradersparlance for selling.

Lately investor concern has cen-tered around lacklustre economicfigures. Wal-Mart Stores, thenations largest retailer, said same-store sales have now fallen for twoyears.

Earnings from blue chips as wellas data are showing evidenceof an economic slowdown, saidChad Morganlander, a portfoliomanager at Stifel Nicolaus & Co inFlorham Park, New Jersey. Early evi-dence of deterioration within the USconsumer is showing in numbersfrom Hewlett-Packard and Wal-Mart.HP, the worlds largest technologycompany, tumbled 7.3 per cent to$36.91 after cutting its forecast dueto problems stemming from Japansearthquake and soft PC sales.

The Dow Jones industrial averagedropped 68.79 points, or 0.55 percent, to 12,479.58.

The Standard & Poors 500 Indexdropped a mere 0.49 of a point, or0.04 per cent, to 1,328.98. But theNasdaq Composite Index gained 0.90of a point, or 0.03 per cent, to2,783.21.

BRITAINS leading share index

was driven down by weaknessin commodity issues andbanks on concerns over global

growth which countered results-driven gains by market heavyweightVodafone.

At yesterdays close, the FTSE 100index was off 62.69 points, or 1.1 percent, at 5,861.00, extending its losingstreak to a fifth session. It ended below the 5,900 level for the firsttime since 19 April.

Miners were the worst blue chipperformers as copper prices fell backafter US housing starts and futurehome construction numbers slippedin April.

Once again its a commodity sell-off thats caused the market to suf-fer... Concerns about global growthremain on the menu and its simplynot a palatable prospect for investorsto have to stomach, said AngusCampbell, head of sales at CapitalSpreads.

Plumbing supplies groupWolseley, which has a big exposure

to the US housing market, shed 2.9per cent with US DIY retailer Lowesalso cutting its outlook.

US blue chips were 1.1 per centlower by Londons close, pressuredby the weak data and by a negativeoutlook from Hewlett-Packard , theworlds largest technology company.

Tech blue chips also suffered inLondon, with chip designer ARMHoldings shedding 4.6 per cent as ithosted analyst and investor presenta-tions on Tuesday.

Drugmakers were weak as well,led byGlaxoSmithKline, which shed2.5 per cent after cautious com-ments from Morgan Stanley.

It would look to take profits in itsless favored stocks, such as GSK, saidone London-based trader.

Banks stayed under pressure dueto European sovereign debt uncer-tainties. The chairman of euro zonefinance ministers Jean-ClaudeJuncker suggested Greek debt couldundergo a soft restructuring if Athens embarks on major reformsand accelerates privatisation to raisefunds.

We are all a bit jumpy about theEurozone now, awaiting anotherfudge on Greece, said DavidMorrison, market strategist at GFTGlobal.

Vodafone, the worlds largestmobile operator by revenue, gained0.9 per cent, adding nearly 3 pointsto Britains top share index after sur-prising investors with an upbeat out-look and resilient full-year results.Essar Energywas the top blue chipriser, up three per cent after issuingan upbeat trading update, and oilservices firm John Wood Groupadded 0.3 per cent on news it will beadded to the influential MSCI index.

But engineer IMIwas the top FTSE100 faller, down six per cent withtraders citing disappointment that itwill not be included in the MSCI, assome investors had expected.

Investors were also cautious aftera jump in British consumer priceinflation in April to its highest annu-al rate since October 2008.

Commodities rock FTSE as

hits lowest level since AprilTHELONDONREPORT

THENEW YORKREPORT

24 Feb 11 Mar 21 Mar 20 Apr 16 Mar

6,100

5,800

5,700

5,600

5,500

5,900

6,000

ANALYSIS l FTSE 5,861.0017 May

8/6/2019 Cityam 2011-05-18

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The European

sovereign debtbomb is tickingThere are doubts how long the stronger EUnations can continue to prop up the ailingMediterranean economies, writes Craig Drake

J

EAN-CLAUDE Juncker, chairman ofthe Eurozones finance ministers,said yesterday that Greece may have

to ask investors to either extend thematurities of its bonds or agree to a softrestructuring. This follows on from theGreek foreign minister Dimitris Droutsassaying that the country was open to softdebt restructuring if needed. But in reality,the markets seem to lack any confidencethat the troubled country can halt the

vicious cycle of unsustainable bond-yieldsfollowed by EU bailout.

A report from Barclays Capital wasdamning about the ability of Greece toextract itself from its current position.Greece is in a negative feedback loop in

which high restructuring probabilityimplies precarious debt dynamics, whilesuch dynamics imply even higher defaultprobabilities. We do not see any triggers

very high growth or draconian fiscaladjustment that could move yields fromcurrent levels to those (6 per cent or below)needed to stabilise debt dynamics in thenear term. The analysts added that: Inour view, Greece is probably insolvent.

But Greece isnt alone in its predica-ment. On the other side of theMediterranean, the Portuguese have takenthe choice of the rock over the hard place.Faced with unsustainable bond yields, thecountry did its best Oliver Twist impres-sion, going cap in hand to plead please,sir, I want some more from the European

bailout fund. They were given a 78bnbailout, which was signed off yesterday.

With eye watering bond yields across theMediterranean countries, fears abound asto how long the German purse can contin-

ue to bail out those profligate nations thathave run themselves into trouble.

The German tax-payer is the lynch-pin in

the continuation of the European singlecurrency experiment. Though it has cometo the rescue of beleaguered economiesless well managed than its own, anyattempts to write off this accrued debt havefaced strong opposition from GermanChancellor Angela Merkel. Merkel has shotdown any suggestion of allied Europeanforces renegotiating the terms ofPortuguese bonds, voicing fears that arestructuring program could lead to ahuge amount of investor flight out ofEurozone bonds.

Unfortunately, as her opposition slowedtalks of debt restructuring, Merkel mayhave already exacerbated the investorflight that she wished to avoid in the firstplace, with the euro taking a buffetingagainst the dollar over the last week.

Of most concern to me is that investorsare too complacent about the risk of conta-gion and default

cityam 2011-05-18

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