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Osborne failsto defuse tax

timebombGOVERNMENT finances are stillstuck on an unsustainable pathdespite chancellor George Osbornesefforts to cut the budget deficit, theOffice for Budget Responsibility(OBR) warned yesterday.The aging population means rising

healthcare costs could cripple thestate over the next 50 years unlessthe next government is prepared toimplement an extra 17bn of spend-ing cuts or tax rises in 2017, the inde-pendent analysts said.And if governments delay this extra

squeeze further, finances will deteri-orate and debt interest payments riseuntil a future government is forcedto deal with the problem meaningthe shock will be sharper the longerthe government waits.The current deficit reduction plan

should mean the government willrun a primary budget surplus formuch of the 2020s that is, beforedebt interest payments are takeninto account but will plunge backinto deficit in the 2030s.Without further changes, the

national debt will rise to almost 90per cent of GDP by 2060-61, accord-ing to the OBRs central forecast.

Much of the problem comesbecause 26 per cent of the popula-tion will be over 65 years old in 2061,compared with just 17 per cent now,adding substantially to medical andcare bills. However, the report didnote that coalition reforms havereduced the burden of state sectorpensions by changing the upratingof pensions to use the consumer

price index measure of inflation, notthe higher retail price index, the gov-ernment has saved roughly 126bn.

Tadashi Ishii of Dentsu (left) and Aegis chief executive Jerry Buhlmann

JAPANESE advertising agency Dentsuhas, after a string of attempts, finallycracked the global market with a3.16bn bid for Aegis.

Shares in Britains second biggest adagency jumped 45 per cent to 234pafter Dentsu unveiled its 240p pershare offer, a 48 per cent premium toWednesdays closing price.

The deal the second biggest the adindustry has ever seen comes justdays after Publicis acquired top Britishagency Bartle Bogle Hegarty.

It also falls in the wake of ad giantWPPs 348m deal for AKQA a com-pany that Dentsu tried to buy twoyears ago for $600m (389m).

The Tokyo-based firm was similarlyunsuccessful in its 2009 attempt toacquire Microsofts digital agency net-work Razorfish for $700m, losing outto a rival offer from Publicis.

But Dentsus multi-billion bid forAegis, which comes with irrevocableundertakings representing 30.5 percent of its shares and unanimousboard backing, will catapult the firminto the advertising magic circle.The joint income of Dentsu and

Aegis 3.8bn based on 2011 rev-enues nears that of US giant IPG, thead worlds fourth biggest agencybehind Publicis, Omnicom and WPP.

Dentsu will become Asias biggestmarketing agency when it absorbsAegis clients 20 per cent of whichare based in Asia and the second

biggest in Europe.However, senior ad industry sources

pointed out that the two groupscould face client conflicts, citingDentsus work for Toyota and the$3bn a year General Motors accountAegis won from Publicis in January.

An Aegis spokesperson dismissed

these concerns, saying it is not a signif-icant issue, adding that the group alsohas internal competing clients itworks with BMW as well as GM which

he said was healthy for the business.Analysts have not noted client con-

flicts as a problem and think that arival bidder is unlikely.Alex DeGroote at Panmure Gordon

said the support of Vincent Bollor Aegis biggest shareholder makes acounter bid improbable, also noting

that most other would-be buyers havebeen active on other deals lately andmight not have the spare cash.

Dentsu said it would finance the

deal with a loan from the Bank ofTokyo-Mitsubishi UFJ and its own cashpile, which was boosted recently whenPublicis bought back644m (508.5m)worth of its shares from the Japanesefirm, ending a nine year long relation-ship. The deal, expected to complete inthe fourth quarter of this year, will

require approval from 75 per cent ofAegis shareholders when it is put tothe vote on 16 August.

BY TIM WALLACE

FTSE 100 M5,608.25 -56.23 DOW M12,573.27 -31.26 NASDAQM2,866.19 -21.79 /$ M1.54 -0.01 / 1.26 unc /$ 1.22 unc

ALLISTER HEATH: Page 2

MORE: Page 3

BUSINESS WITH PERSONALITY

LONDON2012

days to go

MARC SIDWELL: WHY PHILANTHROPISTS NEED SKILLSee The Forum, Page 20

SIMON WALKER: LETS EXPAND HEATHROW See Debate, Page 21 14THE GIVING BUSINESS

BY LAUREN DAVIDSON

AND JAMES TITCOMBRISING SUN

Certified Distribution

30/04/12 till 27/05/12 is 132,076

Japans Mad Men buy Aegis in 3.2bn deal to shake up ad industry

WPP10bn

GLOBAL AD GIANTSBY 2011 REVENUE

OMNICOM9bn

PUBLICIS4.6bn

IPG4.5bn

DENTSU& AEGIS3.8bn

www.cityam.com FREEISSUE 1,673 FRIDAY 13 JULY 2012

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Follow me on Twitter: @allisterheath

IN BRIEFWells Fargo pays $175m finenWells Fargo yesterday agreed to

pay $125m (81m) to resolveallegations it discriminated againstcertain borrowers on the basis of raceand national origin in its mortgagelending, the US government saidyesterday. Wells Fargo also agreed tocontribute $50m to help those buyersmaking down payments or improvingtheir homes in some metropolitanareas around the country. Thesettlement, which needs approvalfrom a judge, would end theinvestigation into whether the fourth-largest US bank between 2004 and2009 knowingly targeted minoritiesfor risky mortgages that came withhigher costs, according to documentsfiled in the US District Court for theDistrict of Columbia.

Diamond picks top lawyer

n Barclays embattled former chiefexecutive Bob Diamond is beingrepresented by top white-collardefence lawyer Andrew Levander overhis role in the Libor-fiing scandal.Levander, a partner at the firmDechert, is one of the biggest namesin the defence bar in the UnitedStates. He is currently alsorepresenting former New Jerseygovernor Jon Corzine in investigationsinto the collapse of the failedcommodities brokerage MF Global. Hehas also represented directors ofLehman Brothers and hedge-fundmanager and philanthropist EzraMerkin, who was sued over money lostin the Ponzi scheme run by BernardMadoff.

Firms slam governmentsslow progress on aviationBUSINESSES yesterday lashed outat the coalitions attempts to kickthe future of Britains aviationpolicy into the long grass.Transport secretary Justine

Greening yesterday formallyunveiled a watered-down consul-tation with focus on noise reduc-tion and green issues instead ofoptions for adding capacity to UKairspace as expected.

Some suggestions in the consul-tation were welcomed, such asasking rail firms to integrate tick-eting with airlines.A new train service connecting

towns on the proposed HighSpeed 2 route directly toHeathrow is also being consid-ered, though the governmentadmitted it does not plan to con-sult on this option until 2013 atthe earliest.

But many business groups,including the Institute ofDirectors, warned the govern-ment against ignoring the ele-phant in the room of increasingcapacity in the south east ofEngland.

These are fundamentally shortterm measures, which still dontaddress the overriding need formore runways, said the IoDs sen-ior economic adviser Corin Taylor.

Co-op nears cut-price Lloyds dealThe Co-operative Group is close toagreeing final terms with Lloyds BankingGroup to buy 630 of its branches in a dealexpected to be struck at a steep discountto the previously mooted 1.5bn price tag.But Lloyds, 40 per cent owned by thegovernment, would be in line foradditional payments from the mutual ifthe business performed well, sources say.

Honeywell warns on debt gridlockA prominent US chief executive has urgedbusiness leaders to press politicians to

agree on a solution to the countrys debtproblems as concern rises that gridlock inWashington is damaging the economy.David Cote, Honeywell chief executive,warns that the lack of political will totackle the issue is creating uncertainty forcompanies facing investment and hiringdecisions, and could lead to years of lowgrowth or even another financial crisis.

Activist stake in P&G approvedBill Ackman, the activist investor, hasreceived clearance to take a stake inProcter & Gamble in a sign that he couldbecome a new source of pressure on thecompany, which has lost the faith of someinvestors.

A Big Mac and fries and myprescription, pleaseWill pharmacists be offering to supersizetheir customers orders? Analyst areasking this question after reports that theformer boss of the worlds largest fast-food chain Macdonalds, James Skinner, islikely to become the next head of Boots.

Beeb chooses a buyer for TV CentreThe BBC is to sell its sprawling TelevisionCentre complex in West London to thedeveloper Stanhope for 200m.

Emerging market oil demand tosurpass OECD, IEA forecastsDemand for oil from emerging marketswill overtake that of the developed worldfor the first time next year, theInternational Energy Agency has forecast.

Euro tumbles as Asian funds shun EUchaosThe euro has plunged to multi-year lowsagainst a range of currencies on fears of adeepening slump in Italy and Spain, andugly disputes between Eurozone leaders.

GM Europe president steps asideGeneral Motors ousted the head of itsstruggling Opel/Vauxhaull division Karl-Friedrich Stracke amid growingfrustration with the pace of theturnaround of the European business,people close to GM said.

Frances Sanofi Mulls Job CutsSanofi is considering cutting severalthousand jobs in France after the Frenchpharmaceutical giant lost patentprotection in the US on some of itsblockbuster drugs earlier this year.

SECURITY firm G4S was battling torestore its reputation yesterdayafter an MP said the firm had letthe country down followingconcerns that it will not be able tosupply the 10,400 security guardsit promised as part of a 284mdeal to protect Olympic venues.

The company could facesubstantial penalties after the

government was forced to call upan additional 3,500 militarypersonnel for the event, some of

whom were supposed to be onleave following tours of duty in

Afghanistan.Defence secretary Philip

Hammond yesterday toldparliaments defence selectcommittee that his departmentwill be reimbursed the fullmarginal cost of the additionalmilitary contribution, although itis unclear how much money can

be clawed back from the firm.We have encountered some

delays in progressing applicantsthrough the final stages but weare working extremely hard toprocess these as swiftly aspossible, G4S said in a statement.

The PR disaster could bringlong-term damage for G4S, whichis currently eyeing governmentcontracts, including some to runparts of Britains police forces.

G4S denies its

Olympics guardis a shambles

Justine Greening unveiled the watered-down consultation yesterday

2 NEWS

BY JAMES WATERSON

BY MARION DAKERS

To contact the newsdesk email [email protected]

IN the long run, we are all dead, as

John Maynard Keynes used to say.But plenty of us will still hopefullybe around by 2061, by which time

the Office for Budget Responsibilityinforms us the public finances willonce again be in crisis. The UK faces ademographic timebomb which will, in

my view, test our current welfare statemodel beyond destruction.The proportion of the population

aged 65 and above is expected to risefrom 17 per cent in 2012 to 26 per centin 2061, assuming net inward migra-tion flows of half the recent level. Theresult, according to the OBR, is thaton current policies public spendingother than on debt interest will risefrom 35.6 per cent of GDP in 2016-17to 40.8 per cent of GDP by 2061-62.

Even that may be too optimistic: theOBR is almost certainly underestimat-ing non-interest spending by 2016;

EDITORSLETTER

ALLISTER HEATH

Demographic timebomb will force government to downsize

FRIDAY 13 JULY 2012

and health spending is expected torise from 6.8 per cent of GDP in 2016-17 to 9.1 per cent of GDP in 2061-62 onthe central estimate, which feels likefar too little given the huge expecta-tions from voters. Even more signifi-cantly, higher spending is bound toreduce sustainable GDP growth.

But even if we assume that the OBRis not too optimistic, the impact willbe disastrous: net debt will fall from74 per cent of GDP in 2016-17 to atrough of 57 per cent in the mid-

2020s, before rising to 89 per cent ofGDP. That is the kind of level whichleads to a permanent reduction ingrowth. There is simply no way thatthe state will continue to afford toprovide as many services as it doestoday. Of course, one could increaseimmigration but that is unlikely to

be politically palatable.So whether we like it or not, individ-uals will have to save more for theirown retirement and in most casesalso contribute more to their ownhealthcare costs. The sooner weaccept that the current model is bro-ken the better.

WE NEED MORE PROFITSCOMPANIES are not spending muchon factories and computers. That isone central reason for our non-recov-ery. Net of depreciation, businessinvestment by non-financial compa-

orating. The net rate of return on cap-ital for non-oil non-financial compa-nies has dropped to 11 per cent, thelowest level for two years.

It is not just that returns haveslumped: the cost of capital has goneup substantially, in a devastating pin-cer movement. One metric that shows

this is the earnings yield on UK equi-ties, which has shot up from 6.5 percent in early 2011 to 9.9 per cent inthe second quarter.

Profits have become a dirty word intodays Britain. But companies wontopen their wallets and spend and hireunless they think it is worth theirwhile and that is something thatthose who want to tax and regulateeverything that moves would do wellto bear in mind.

nies is down from 3.3 per cent of GDPin 2008 to a catastrophically low 1 percent of GDP in the first quarter.Increasing that number would be thebest way to kick-start growth.There are lots of reasons for this cor-porate reluctance, includingEurozone fears. But there is an even

more fundamental reason why firmsare not investing more: they are notmaking enough money from theirexisting capital, while the opportuni-ty cost of investing has gone up.

Manufacturing has become hugelyunprofitable, an analysis of the offi-cial figures by Citigroup reveals. Thenet rate of return on capital for man-ufacturing remained at an appalling-ly low 4.9 per cent in the first quarter,the same as for the prior two quartersand the lowest since 1991. Services(excluding finance) are doing betterbut even there the situation is deteri-

Ministers have shied away frommaking a decision on expandingHeathrow or pressing ahead with anew hub in the Thames Estuary,both of which are ruled out by theMay 2010 coalition agreement.A call for evidence on the matter,

which had been pencilled in for thismonth, will now take place later inthe year, the department for trans-port said in yesterdays consultationpapers.The Labour party, keen to play up

the divisions among the coalitionmembers on this issue, said in a

statement: It makes no sense forthe political parties to work sepa-rately on this and come up with dif-ferent solutions.The British Chambers of

Commerce added: Unfortunately,aviation strategy has become a polit-ical plaything.

That simple fact will not escapethe attention of British business.The government has been consult-ing on this issue for years, and therehas been too much talk and too lit-tle action.

BOTTOM LINE: Page 13

BARCLAYS: Page 9

THE DEBATE: Page 21

The new jobs website for London professionalsCITYAMCAREERS.com

WHAT THE OTHER PAPERS SAY THIS MORNING

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BANKS linked to the Libor scandal

face up to $22bn (14.3bn) inregulatory fines, legal bills and civildamages, according to the mostdetailed estimate so far.

The total cost to banks, calculatedby Morgan Stanley in what it admitsis a crude estimate, takes intoaccount the impact the rate-riggingscandal will have on market shareand deals for the banks.

Of the sixteen banks involved, itwarns that taxpayer-owned bankRBS is likely to face one of thebiggest fines, with a legal bill of upto $1bn. Deutsche Bank faces asimilar hit, according to theestimates, which say the penaltieswill reduce 2012 earnings per shareby anywhere from two per cent to33 per cent.

The analysts estimated thatregulatory fines and litigationsettlements would reduce book

value per share by a median of 0.5per cent in 2012.

Morgan Stanleys estimates weregiven in a best-to-worst casescenario for each bank and based onthe Barclays agreement, as well asthe individual banks exposures toLibor-pegged assets.

Other estimates of the final billhave come in higher, with someanalysts putting the total across theindustry at $200bn or more.

Banks face billof up to $22bnin Libor scandal

BY KATIE HOPE

DESPITE his failed attempts tomerge Aegis with ad agency Havas,French businessman Vincent Bollorwill no doubt be pleased with the3.2bn sale to Dentsu announcedyesterday.

The Japanese company said it willbuy most of Bollors 26.4 per centstake in Aegis, which the investorhas been building up since 2005.WPP boss Sir Martin Sorrell called

the deal another trading coup for[Vincent] Bollor, who agreed to sell15 per cent of his Aegis holding toDentsu for 420p per share, or a totalof 422m, regardless of whether the

takeover offer gets the green light.He will also offload another five

per cent at the same price, pocketing140.7m leaving the French tycoonwith a 6.4 per cent stake which willearn him a further 180.8m if theacquisition is approved.

Bollor has said he will vote infavour of the deal at the shareholdermeeting on 16 August.The Paris-born businessman was

unsuccessful in his attempts to wina seat on the Aegis board, stating

Bollore profitshandsomely in

Aegis takeoverBY LAUREN DAVIDSON openly that he intended to bring theBritish firm closer to French agencyHavas, where he is chairman and thelargest shareholder.

However, Bollor has since calledhis Aegis holding a strategic invest-ment, fuelling speculation he wouldbe open to selling down his stake.

The multi-billion deal will also begood news for Harold Mitchell, whojoined Aegis when it bought his mar-keting firm Mitchell CommunicationGroup for 208m in 2010.Australia-born Mitchell owns a 3.9

per cent stake in the British adagency and stands to pocket 112.3mif the Dentsu takeover is approved. Greenhill managing director Richard Hoyle

led the team advising Aegis on its 3.2bn

sale to Dentsu.Hoyle has been a long-standing adviser toAegis, having worked on the agencys210m purchase of Australian ad firmMitchell Communication and last years saleof market researcher Synovate to Ipsos.The 36-year-old, who joined Greenhill fromCredit Suisse in 2000 after a position atBarclays de Zoette Wedd, also advisedRobert Wiseman Dairies on a 279.5m saleto German group Mller.Greenhill has recently advised debt-laden

Yell Group on the troubled firms capitalrestructuring operation.Greenhill advisers Pieter-Jan Bouten andHiroto Yamada worked under Hoyle on thesale.Tim Wise and David Harvey-Evers at JPMorgan Cazenove also worked with thecompany on the deal.Dentsus acquistion of Aegis was advisedby banking giant Morgan Stanley in the

international operation.Hironobu Wakabayashi advised on theJapanese firms deal from Tokyo while IanHart led the team from London withLaurence Hopkins and corporate brokerAndrew Foster.Hart, who was co-head of European merg-ers and acquisitions at Citigroup beforemoving to Morgan Stanley in 2009, hasalso recently advised oil giant Royal DutchShell on the oil giants 1.12bn offer forCove Energy.

ADVISERS GREENHILL AND OTHERS

RICHARD HOYLEMANAGING DIRECTOR,GREENHILL

Aegis Group PLC

12 Jul6 Jul 9 Jul 10 Jul 11 Jul

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FRIDAY 13 JULY 20123NEWScityam.com

French businessman Vincent Bollore is reaping giant rewards from his Aegis stake

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SHARES in funds house Ashmoretumbled 6.7 per cent yesterday afterit said it has lost about a fifth of themoney it manages in equities duringthe last quarter.The London-based manager, which

focuses on investments in emergingmarkets, reported a 20.5 per centdrop in equities to $6.2bn (4bn) inthe three months to the end of June,as the volatility rocking the worldsequity markets ate into its holdings.Ashmore also said in a trading

statement yesterday performancefees would likely fall to 25m, downfrom the 85.4m earned in the previ-ous year, with almost all of the feescoming in the first half of the year.Ashmore is among the first UK

fund managers to update the mar-ket on performance during the quar-ter.The firm said its assets under man-

agement dropped a worse-than-fore-cast 3.3 per cent to $63.7bn in theperiod.

Ashmore share

price down asequity shrinksBY HARRY BANKS

This decrease included net out-flows of $600m and investment loss-es of $1.6bn.

Last years purchase of US-basedEmerging Markets Management hasnot yet beefed up the equities divi-sion as hoped. The acquisition boost-ed the percentage of its assets held inequities to 20 per cent from one percent, but that has since dropped toless than 10 per cent.Ashmore also said clients exited its

multi-strategy products during themost recent quarter, predominantlyfrom one of its Japanese retail funds.

Yahoo confirms password leakMORE than 400,000 Yahoousernames and passwords werestolen and published onlineyesterday after hackers exploited avulnerability in the firms computersystems on the same day that the

internet firm held its AGM.Logins for Google, AOL andMicrosoft services were also amongthose compromised in the attack.The three companies said theyrequired affected users to resetpasswords for sites including Gmail,AOL, Hotmail, MSN and Live.com.

Yahoo issued a statementapologising for the breach, the latestsetback for a company that has losttwo chief executives in a year and is

struggling to revive stalled revenuegrowth.

At the firms annual meetingchairman Alfred Amorosoacknowledged that Yahoo hadexperienced a tumultuous year.But interim chief executive RossLevinsohn told those in attendance

that he was optimistic about thecompanys progress.The breach prompted criticism

from security experts who said thata major internet firm like Yahooshould do a better job at protectinguser data.

This points to some very laxsecurity practices, said RobDOvidio, associate professor ofcriminal justice at Drexel University.

He pointed out that the hackers

were able to produce more than400,000 passwords written instandard text within a day. Thatindicates that Yahoo either did notencrypt them at all or used anencryption method that was easy tocrack, he said.

The most popular passwords in

the group were 123456,password, welcome and ninja,according to an analysis by anti-virus software maker ESET.

Professional networking siteLinkedIn was recently criticised forsimilar failings. Security expertsattacked the company for failing touse sophisticated encryptionpractices to secure its passwords,millions of which were releasedfollowing a breach last month.

BOEING SECURES $15BN UNITED ORDER

US PLANE maker United Continental yesterday unveiled what it described as a historicorder to buy 150 Boeing planes in a deal valued at $14.7bn (9.7bn). UnitedContinental, the holding company that owns United Airlines, the worlds largest carrier,said it will begin taking delivery of the 737 MAX 9 planes in 2018.

Ashmore Group PLC


350

310

320

330

340

360 p 308.0012 Jul

Net outflows in the final quarter were $600m, disappointing but indica-tive of the market conditions that prevailed. We expect to reduce forecasts, butwe still consider that Ashmore offers long-term structural growth andtherefore we retain our Buy recommendation.

ANALYST VIEWS

Assets under management [are] three per cent below our expectations.Performance fee guidance a shade lower for 2012 but significantly lower for 2013.Consensus downgrades likely. Overall, despite recent falls we look forfurther share price weakness. Neutral.

We continue to believe that emerging market debt will continue to grow

as an asset class and we are positive longer term. However, market conditionsremain challenging for most asset gatherers and we expect 2013 consen-sus to fall. Lacking any positive catalyst, we retain our cautious stance.

HOW WAS ASHMORESUPDATE?

By Marion Dakers

STUART DUNCAN PEEL HUNT

HALEY TAM CITI

SARAH ING SINGER CAPITAL MARKETS


FRIDAY 13 JULY 20124 NEWS cityam.com

BY JAMES WATERSON

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EUROPES battered manufacturerscould be about to embark on a majorseries of restructurings and layoffs,analysts warned as Peugeot Citroenannounced plans to close one factoryand scale down operations at another.The French government has pledged

to keep the plants open and stop theplan which would see 8,000 jobs cut.

But the company warned it will posta net loss in the first half of 2012, anda700m (554m) operating loss in thecore car-making division.Analysts warned the move could

open up the floodgates on a wave ofrestructurings, with others includingRenault, Fiat and Opel all consideringor engaged in changes.The government has appointed an

expert to examine Peugeots finances,which will report back in a fortnight,with social affairs minister MarisolTouraine saying we cannot acceptsomething like this.

It came as off icial data showed thatindustrial production in theEurozone fell 2.8 per cent in the year

Peugeots woes

show dire stateof EU industry

BY TIM WALLACE to May, with French output down 3.8per cent, Italys down 6.9 per cent andSpains down 6.1 per cent.

Meanwhile an Italian governmentdebt auction provided some slightrespite from the crisis.

In a sale of one-year notes, the stateraised 7.5bn at an interest rate of2.697 per cent down sharply from3.97 per cent just a month ago, show-ing tensions have receded slightly.

However, markets are still uncon-vinced the Italian government is safe its 10-year borrowing costs still standat a worryingly high 5.91 per cent.

Eurozone banks flee from ECBsnew zero per cent deposit rateBANKS responded immediately tothe European Central Banks (ECB)

decision to slash its deposit rate tozero, with hundreds of billions ofeuros now kept in current accounts,not the deposit facility onWednesday night the first day ofthe lower rate.

ECB data showed 325bn (257bn)was held in the facility, down fromthe800bn left there on theprevious day and the 700bn at thesame point last month.

Governing council member Josef

BY TIM WALLACEBonnici described the figures asencouraging, arguing the rate cutprovides an incentive for thebanking system to look what

alternatives there are to improvetheir earnings.But economists were sceptical,

pointing to the shift of cash from thedeposit facility to the zero-payingcurrent accounts.

Indeed, for banks it is now easierto just leave excess liquidity in thecurrent account rather thanarranging a transfer of the funds inthe deposit facility, said CitisJurgen Michels.

In the current account, banksalways received a zero per cent re-numeration on excess liquidity only the required minimum reserve

holdings are re-numerated with therate on the main refinancing rate(currently at 0.75 per cent).

Meanwhile data out yesterdayfrom Debtwire Analytics showedinvestors still shying away from high-yield corporate bonds, favouringsafer products. The research showedcompanies issued 25.6bn of highyield bonds in the first half of 2012,down sharply from the 37.7bn inthe same period of 2011.

Eurozone industry is struggling

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THE SO-CALLED Troika ofinternational bailout providers

yesterday gave Ireland a relativelyclean bill of health afterconducting a nine day long reviewmission in the Eurozone state.

Despite challengingmacroeconomic conditions,Irelands policies remain on trackfollowing the bailout supplied bythe Troika, which comprises theInternational Monetary Fund(IMF), EU and European CentralBank (ECB).

While growth is set to remainmodest and unemployment is

very high, the Troika said:Irelands programme

Troika give thumbs up to Ireland

but IMF finds holes in Greek planBY JULIAN HARRIS implementation remains strong.

The recent notable decline inbond yields underlines theincreasing confidence in Irelandsstrong capacity to implementadjustment policies, it said.

Meanwhile, the IMF saidyesterday that it had found policydelays in a number of areas of theGreek bailout programme.

The rescue fund wascommenting after talks in Greece

which could lead to more lenientconditions for the countrys

bailout package. So far, sometargets were met, a number weremissed, and in some cases wedont have data to assess and will

have to wait a little longer to getthe full picture, the IMF said.


FOREIGN secretaryWilliam Hagueannouncedyesterday that thegovernment will runa comprehensiveaudit examiningthe impact of EUlaws on the UK. Theaudit is set forcompletion in 2014,

yet Labour arguedin parliament that aquicker examinationwas needed, giventhe evolvingrelationship amongEU states within andoutside of theEurozone. Haguedenied the auditcould prompt theUK to leave the EU.

HAGUE REVEALS AUDIT OF BRUSSELS POWERS

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BARCLAYS yesterday lost its firstmajor business since the Libor-fixingscandal began, as a Japanese bankpulled out of a bond issue wortharound $1bn.The state-backed Japan Bank for

International Cooperation hadincluded Barclays among three banksadvising on a five-year bond offeringbut left it out of the final offering.

Barclays was dropped because ofreasons related to reputational andcounterparty risk issues, said abanker with knowledge of the deal.

Leicestershire county council addedto the firms woes by announcingplans to withdraw the 6m it holds ondeposit with the bank. Although a rel-atively small sum it is highly symbolicbecause the council directly linkedthe decision to the Libor-rigging.

Meanwhile bookmaker Paddy Powerstopped taking bets on the identity ofBarclays next chief executive after

Barclays losesbond issue asLibor hits deals

BY JAMES WATERSON yesterday taking 36 different bets forRich Ricci, currently head of the firmsinvestment banking operation.

Punters were willing to back RichRicci at any price so its a safe assump-tion that the cat is out of the bag, saida spokesman.

The US Department of Justice wasyesterday urged by politicians to stepup its investigation of Libor yesterday,with a group of Democratic senatorsweighing in for the first time.

Aveva hit by shareholder springas 35pc vote against pay dealIN A sign that shareholder uneaseover executive pay dubbed the

shareholder spring is continuing,software maker Aveva yesterday sawover a third of its shareholders voteagainst approval of the directorsremuneration report at its AGM.

While the remuneration reportwas easily passed with 65.52 percent in favour, versus 34.47 per centagainst, it is yet another example ofthe backlash over pay that has costsome executives such as Aviva bossAndrew Moss, and Sly Bailey, head

BY KATIE HOPE of newspaper group Trinity Mirror,their jobs.

The vote came after Aveva, whichprovides engineering data and

design information technologysystems, said earlier yesterday it wastrading in line with expectations.

It said the oil & gas sector hasremained resilient, offsetting aslowing of demand elsewhere.

The power business was alsostrong but the maritime division issuffering, the company said.

The engineering & design systemsdivision demand from theengineering contractors is helping

to drive continued growth. Thefirm said that whilst the majorityof rental contracts renew in thesecond half of the fiscal year, it

has seen no change in customerpreference for the rental modelduring the period.

The group continues to be cashgenerative and has a strongbalance sheet.

Latin America and NorthAmerica continue to perform inline with its expectations, it said.In Asia Pacific, the China businessis fully operational and the otherareas continue to perform well.

HSBC veteran Sandy Flockhart is retiring due to ill health having served almost 40 yearsat the bank. HSB C said Flockhart will step down as a non-executive group director, andfrom his position as chairman of HSBC Bank the banks UK operations at the end ofJuly. Flockhart is fighting cancer.

HSBC VETERAN SANDY FLOCKHART RETIRES

Barclays PLC


170

164

162

166

168

172 p

163.5012 Jul

THE PENSIONS industry was puton the defensive last night after astinging attack from Labour leaderEd Miliband in which he claimedthat it could be the focus of thenext big scandal to knock thefinancial sector.

Miliband claimed that he isaware that some people are facingfour or five per centadministrational charges on theirpensions, costing them tens ofthousands of pounds over time.

But the Association of British

Insurers lashed out at the Labourleaders scaremongering, adding

that it could deter people fromsaving for their retirements.

Pension charges have beenfalling steadily for the last decadeand are continuing to fall, it said,citing an average rate of just 0.52per cent for new schemes.

Meanwhile, the government hasdelayed the publication of itsplans to raise the state pension ageand replace the current system

with a single tier pension.Instead of releasing the details

yesterday as planned, a whitepaper will be published in the

Autumn with the aim of bringingthe changes into force in the next

parliament.

Pensions firms hit back afterLabour says charges are rip offBY JULIAN HARRIS

AND TIM WALLACE

PENSIONS NEGLECTED: Page 1 7


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Scream buyer revealed

Edvard Munchs Scream painting was exhibited in London earlier this year before the auction in New York

THE GREAT (BUT WET) CITY RACE

THOUSANDS ofrunners were out inforce in the City

yesterday despitethe rain,participating inStandardChartereds GreatCity Race 2012.With just twoweeks to go beforethe Olympics, theSquare Mileenjoyed its owndemonstration ofsporting prowessas office workerstook to the steetsto run 5k insupport ofStandardCharteredsdesignated charitySeeing is Believing.Several of theemerging marketbanks seniormanagementjoined in the race.

A waxwork of Usain Boltgreeted Heathrow visitors

UNSUSPECTING travellers atHeathrows Terminal 5 found asporting super hero in theirmidst yesterday morning whenJamaican running sensation,Usain Bolt, greeted internationalarrivals with his trade mark To DiMark lightening bolt pose.

The Bolt in question was theathletes new MadameTussauds wax figure payinga visit as the airportwelcomes record numbersof passengers arriving forthe Olympics.

The superfast athlete willtake up residence in theworld famous attractionin a couple of weeks, buthundreds of fans weregiven an advancepreview at Terminal 5

yesterday.We are very proud of

our new figure of Usain Boltand wanted to treat some ofthe thousands of peoplecoming in to London in thecoming days with a surprise

welcome from one of thebiggest names taking part in

the competition, explainedMadame Tussauds generalmanager, Meike Schulze.

Sadly theres nothingsuperfast about thegovernments plans to

expand airportcapacity in the UK.Yesterday the

government for thesecond time delayeda strategydocument lookingat possible ways toexpand airport

capacity until theautumn at theearliest, promptingcriticism frombusiness.

Got A Story? Email

[email protected]

11cityam.com

cityam.com/the-capitalistTHECAPITALISTFRIDAY 13 JULY 2012

THE identity of the bidder whoset a record for the highestprice for any work of art at anauction when he bought

Edvard Munchs The Scream inMay can be revealed. According tothe Wall Street Journal the New

York financier Leon Black is t hebidder who offered nearly 74,000for the work of art.The identity of the buyer had

been a well kept secret since theauction in May because Sothebyswas keeping it secret. Yesterday theauction house declined to confirmthat Black was indeed the buyer.

Black became a buyout executivefor Drexel Burnham Lambert and

rose to become the billionairechairman and chief executive ofNew York firm ApolloGlobal Management.

His fortune, which Forbes saidtopped $3.4bn as of March, got aboost when Apollo went public inMarch 2011. Apollo said it manages$105bn in assets.A few years ago the firm became

a talking point in the UK after it

was reported that it had takeon onAdam Applegarth, the formerchief executive of Northern Rock at

the time of its collapse, as anadviser to its European dis-tressed debt fund.

The Munch painting wasexhibited in London aheadof its auction in New York,where art investorsenjoyed seeing it in all its

glory.David Norman of Sothebys

said of the sale: The sale ofthe Scream is the most excit-

ing moment I have experi-enced here in my three

decades.

Bolts here but theres nothingfast about UKs aviation policy

New Yorkbillionaire Leon

Black owns theScream.

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IN BRIEF888 bets on Spanish dominancen Shares in online gaming company888 Holdings jumped 15 per centyesterday after the firm said it expectsearnings for the first half of the year to

significantly exceed expectations.It has become Spains second-biggestpoker site after securing an e-gaminglicence and following a governmentcrackdown on illegal online bookies.888 warned that it expects lowerearnings in the second half of the yeardue to increased marketing costs.

Infosys falls on sales downgraden Shares in software group Infosysplummeted yesterday after theBangalore-based company downgrad-ed its revenue forecasts to five per centannual growth from a previous esti-mate of up to 10 per cent.The outsourcer has struggled to keepup with its competitor Tata ConsultancyServices for growth, and despitereporting a 33 per cent rise in year-on-year profits for the three months to

July, Infosys shares fell eight per cent.

Digital growth propels Centaurn Centaur Media has increased itsearnings estimates thanks to improveddigital revenues. The business publish-ing group expects an 18 per cent profitmargin on a two per cent increase insales. Centaur has also announced theacquisition of digital marketing groupEconsultancy.com for an initial 12m.The groups digital operations nowaccount for 30 per cent of its totalturnover, up from 26 per cent last year.

LONDONS Alternative InvestmentMarket (Aim) was the venue for thevast majority of UK initial publicofferings in the last three monthswhile the main market remained inthe doldrums, according to figuresfrom Ernst & Young out yesterday.Aim hosted 11 listings in the sec-

ond quarter, compared to just oneIPO on the London Stock Exchange that of Abu Dhabi-based NMCHealth.

Both exchanges saw new entrantscut in half compared to 2011,reflecting a global slump in theequity capital markets as turmoil inthe Eurozone puts the brakes oncorporate fund-raising goals.The amount raised through IPOs

picked up slightly during the threemonths to the end of June to hit213.19m, though the market trailsfar behind the same quarter in 2011,which saw 7.74bn raised, includingGlencores mammoth 6bn float.The main market saw several for-

Big companies

shy away fromLondon floatsBY MARION DAKERS eign firms withdraw from planned

listings, including Russian groupMegafon and state-owned GeorgianRailway.The junior market seemed to bely

the gloomy figures, attracting arange of small-cap firms, includingUK software group WANdisco andChinese online retailer GlobalMarket Group.

But by the end of the quarter, onlysix out of 11 firms to join Aim closedabove their float price, partly a vic-tim of global turbulence in equities.

HAVE THE O2 NETWORK PROBLEMSAFFECTED THE FIRMS REPUTATION?Interviews by Jamie Sutherland

Im not an O2 user, but I would say this hasntaffected how I see the company. This is just oneof those annoying things a bit like the NatWest fiasco its ahuman glitch, and its bound to happen sometimes. It doesdemonstrate the weakness of these systems - we cant relyon this technology yet they want us to use it for everything.

These views are those of the individuals above and not necessarily those of their company

RUPERT BUSHMANAVIVA

BY JAMES TITCOMB

O2 has been forced to apologise afternetwork problems caused millions ofits customers to lose mobile phonecoverage.

Chief executive RonanDunne said theembarrassing failure hadaffected more than 7m ofthe networks 23m UKsubscribers.

The outage meant thatusers were unable toreceive phone calls ortext messages, and werealso not able to connectto mobile data servicesfor 24 hours from

Wednesday afternoon.O2 restored 2G

mobile access, allowing phone andtext reception, yesterday morning,and 3G data networks were fullyrestored in the afternoon.

The first thing I would like to dois apologise to our customers,Dunne told Sky News. When askedif he was embarrassed by the fault,he replied: Yes, yes I am.

The blackout is believed to havebeen caused by a faulty

upgrade as the networkprepared for increasedmobile usage during thissummers Olympics.

O2 said customerswould be compensated.

CITYVIEWS

Aiming high: IPO market propped up by small caps

8,000 25

20

15

10

5

0

7,000

6,000

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4,000

3,000

2,000

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0

No.

ofIPOs

No.ofIPOsMoneyraised

Fundsraisedm

Q12010 2011 2012

Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

O2 CEO Ronan Dunne hasapologised for the outage

LORD Neuberger of Abbotsburywill become Britains top judge inOctober when he becomespresident of the Supreme Court,it was announced yesterday.

As a result the 64-year-old willgive up his current position asmaster of the rolls, the secondmost senior judicial position inEngland and Wales, where he isresponsible for the civil divisionof the court of appeal.

Together with the other

Lord Neuberger of Abbotsburyto lead Britains Supreme Court

BY JAMES WATERSONmembers of the court, I will domy best to ensure that itcontinues to play its proper rolein upholding the rule of law, andapplying and developing the lawin a coherent and principled andpractical way, appropriate fortodays world, he said.

Neuberger has directexperience of the City. Afterattending Westminster Schooland Christ Church, Oxford hespent three years working atRothschild investment bank

before being called to the bar in1974.

O2s network blackout is an

embarrassment admits bossELISABETH Murdoch, daughter ofmedia mogul Rupert Murdoch, isto step down from the day-to-dayrunning of Shine the firm shesold to her fathers NewsCorporation in a 415m deal last

year.Elisabeth, who will continue to

hold the role of chairman, willhand over the chief executive roleshe has held since 2001 to chiefoperating officer Alex Mahon.

As Shine further diversifiesacross genres, geographies andplatforms, I believe that thecontinued growth of the companyrequires the chairman and chief

executive roles to be distinct andseparate, said Murdoch.

Murdochs girl

in Shine retreatBY KATIE HOPE


Lord Neuberger of Abbotsbury will give up his current position as master of the rolls

ADDICTS of HBOs Mad Menand fans of Lost in Translationmay not find Tokyo an obvioushome for an advertising group

with global ambitions. But thats notwhat the numbers say. Japan is thesecond largest advertisingmarketplace in the world. The heirsof Madison Avenue still keep the

United States a long way out in front,accounting for 33.9 per cent of theglobal advertising spend as againstJapans 10.3 per cent in 2010. But forcomparison, the UK only trails infifth, at four per cent.

When it comes to futureadvertising growth, the future is alsoaway from more famous centres ofexcellence. Aegis estimates that halfof all advertising growth from 2011-2015 will come from the big

emerging economies of Brazil,Russia, India and China. Americashould still account for a verycreditable 19 per cent of global adgrowth, but that leaves it very muchin second place.

Given that reality, Dentsus3.16bn offer for London-based Aegisseems even more generous. WhileAegis will give Dentsu a leadingposition in Western Europe, the two

BOTTOMLINE

MARC SIDWELL

firms own presentation admits that2012 growth in ad spend will be just1.5 per cent in Western Europe, whileit will be 8.7 per cent in Asia Pacific,which is also, largely thanks to Japanand China, a considerably biggermarket in the first place.

So why is Dentsu paying Aegis somuch to bring it along to the party

in the emerging east? Partly because,whatever the regional growth story,Europe and North America remaincritical markets. The new group willretain Dentsus eastern focus, with70 per cent of projected revenuesfrom Asia-Pacific, but with a healthybalance of 15 per cent from WesternEurope and 12 per cent fromAmerica. There it will have anemerging story of their own, as thefastest-growing network in the US.

Suntory time in the worlds second-biggest ad marketEMERGING ISSUESOn the other hand, was Ashmoressinking share price yesterday a signthat betting on Asia-Pacific is a badidea after all? The emerging marketsinvestment specialist fell almostseven per cent after producing atrading statement that showed itsassets under management had

dropped 3.3 per cent in the quarter,to $63.7bn (41.35bn). Outf lows froma Japanese retail fund product wereeven implicated among the losses.

If the dedication of Ashmore toemerging markets were behind thesedisappointing numbers, that wouldbe a far bigger story, one withimplications not just for Aegis andDentsu, but for global growth andcountless investment strategies.Happily, there are other, less

dramatic explanations.Exhibit A, most of Ashmores

losses werent from outflows butfrom underperforming investments.That still doesnt sound promising,but bear in mind that the problemswere largely in equities and multi-strategy, rather than Ashmorestraditional strong suit of EM debt.

Exhibit B, Ashmores fees areexpected to be 25m in 2011/12,almost all earned in the first half ofthe year. Thats less than a third ofthe 2010/11 figure of 85.4m, quiteenough to alarm investors withoutoffering a big picture explanation foreveryone else to worry about. Forthat, youll just have to turn totodays GDP figures from China.

Marc Sidwell is City A.M.s managingeditor

Im not on O2, but my father is, and I couldnt getin contact with him at all yesterday. Id definitely

never switch to O2 now. I think it will affect its business,especially now that were coming up to the Olympics stay-ing in contact is now even more important. If it happensagain, itll find customers leaving.

RUSSELLMOULDERFRIENDS LIFE

Half of the company wasnt able to access theiremails or make calls. Because were all on the

move, its been a bit of a nightmare. Im the person whoshad to deal with all this, so Ive had a massive headacheover this whole issue. But were not considering movingaway from O2 yet I do think it is just a one-off.

ED GALVINAOS STUDLEY

SOURCE:LSE

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IN BRIEFFenner in 100m refinancingn Conveyor belt maker Fenner saidyesterday weak order numbers from

the US coal market have been offset bystrong demand in other regions. It alsosaid it had secured a 100m refinancingpackage with banks. The Yorkshire-based company said that its Dutch andAustralian businesses were forgingahead. Liberum Capital analyst BenBourne said: Since March, the grouphas continued to make solid progresswith revenue and earnings in line withexpectations.

Oxford Instruments in sales liftnOxford Instruments, which makeshigh-tech tools for industry, said yes-terday that it had made a strong startto the year with sales of productsahead of the previous year. The compa-ny said that it had performed well inthe three months from 1 April. It said ina statement: Our markets remain

strong despite continued economicuncertainty, particularly in Europe.

Actelion plans research cost cutsnEuropes top biotech company Actelionsaid yesterday it would slash costs and cutback on research to focus on its pul-monary arterial hypertension business, ina bid to ensure growth when its key drugTracleer goes off patent in 2015. Actelionsaid it would review its pipeline and stopor license out projects which did not fit itsfocus, but didnt elaborate. The firm doesnot see earnings growth until 2014, whennew medicines and cost cuts are expectedto offset falling Tracleer revenues.

PREMIER Oil yesterday said it hadagreed a $1bn (647m) deal toexplore the Falkland Islands withRockhopper.The FTSE-250 British company said

Rockhopper, an explorer that madean oil discovery in the Falklands in2010, was the ideal partner.

It will pay an initial $231m in cashfor the deal as well as providingaround $770m to help build infra-structure.The pair say that oil is expected to

start pumping in the Falklands inmid-2017.The deal, which will give Premier a

60 per cent stake in the Sea Lion oilfield, will add about 200m barrels ofoil to its resources.

The Sea Lion field is large in com-parison to fields in the North Sea,although small fry compared withthe around 50bn barrels of oilthought to lie offshore Brazil.Tensions are running high in the

Falklands region with the UK andArgentinian governments having

BY JOHN DUNNE frosty relations in a long running dis-pute over the sovereignty of theislands. But Premier dismissed con-cerns about investing in the political-ly sensitive project which hasprompted Argentina to threaten legalaction against oil firms active in theFalklands for what it sees as illegaldrilling.

I dont want to sound flippant, butthe oil industry deals with this typeof political risk, of border disputes, ofdisputed territories all around theworld, frankly, Premiers financedirector Tony Durrant said yesterday.

Centrica buys two US powersuppliers in $110m cash dealCENTRICA, which owns British Gas,said yesterday that it had agreed to

buy two New York-based powerproviders from Iberdrola USA for$110.2m (71.18m) in cash tostrengthen its position and increaseits customer base in the north eastof the country.

The British utilitys NorthAmerican subsidiary, Direct EnergyServices, will buy Energetix andNYSEG Solutions, which operate outof Rochester and Binghamton, NewYork.

Direct Energy would add 245,000customers in New York state with

BY CITY A.M. REPORTER the acquisition.Direct Energy president and chief

executive Chris Weston said

yesterday: This acquisition supportsDirect Energys strategy to grow andadd scale to its US north eastdownstream power and gasposition.

Centrica has made a series ofacquisitions in the region, withyesterdays deal marking its thirdsince last year. It has alreadyacquired the New York-based energyretailer Gateway Energy Services andthe Indiana-based gas supplybusiness Vectren Source.

Centrica is expected to continue

its hunt for businesses to buy in theUS, in a bid to meet its target ofdoubling profits at its NorthAmerican business between 2009

and 2014.An additional payment of $5mmay be made to extend brandownership beyond an initial fouryear period under yesterdays deal,expected to close in the third quarterof 2012.

The transaction is subject toregulatory approval and is expectedto close in the third quarter of 2012.

Shares in Centrica, which haverisen over seven per cent since thestart of the year, closed 0.1 per centhigher at 319.1p.

ANGLO-AUSTRALIAN miner RioTinto said yesterday chief financialofficer Guy Elliott would retire atthe end of next year, and that thecompany would be creating a newposition to oversee the groupsstrategy.

Elliott, a 32-year veteran of thecompany, was finance director

when Rio Tinto made its ill-fated$38bn (24.6bn) takeover of Alcanin 2007. He announced six monthsago that he would not take hisannual bonus because of that deal,

which nearly crippled the

Rio Tinto in shake-up as chief

financial officer set to retireBY CITY A.M. REPORTER company. The new positionoverseeing group strategy and

business development will betaken on by Doug Ritchie,currently the head of the groupsenergy division. Ritchie starts theLondon-based role in January next

year. Diamonds and Minerals headHarry Kenyon-Slaney will assumethe Brisbane-based role of RioTinto Energy chief executive from1 September 2012. He will bereplaced by Alan Davies, whocurrently heads Rio Tinto Iron OreInternational Operations and who

will also join the executivecommittee.

THE SALE of Cove Energy entersits eighth month today, withpursuer Shell extending its offerfor a fourth time.

So far Shell has persuaded just3.27 per cent of investors to acceptits 1.12m bid.

Mozambique-focused Cove,which opened its data room topotential bidders on 13 December,is also fielding advances from Thaicompany PTT, which has securedacceptances from 0.25 per cent ofshareholders for its 1.22bntakeover package.

Shell yesterday pushed back itsacceptance deadline to 25 July inthe hope that more investors will

Cove Energy sale drags into itseighth month as Shell extends

BY MARION DAKERS back its bid.Analysts at Investec have

suggested that, with the saleprocess dragging on, the TakeoverPanel could call a sealed auctionfor Cove next week.

Under the rules for competitivetakeovers, final offers must beannounced a maximum of 46 daysafter competing bid documentsare filed giving a deadline of 17

July for Coves suitors, before thepanel steps in.

PTTs current offer is set toexpire today, unless the state-controlled firm extends its bid.

Shares in Cove ended the day up0.9 per cent at 275.01p above the220p per share on offer from Shelland the 240p bid tabled by PTT.


Chief financial officer Guy Elliott is set to retire after more than 30 years with the miner.

Wet weather hits insurers withflood payouts set to top 200m

INSURERS face a bill of hundredsof millions of pounds followingthis summers floods, an analystsaid yesterday.

Barrie Cornes of PanmureGordon estimated that Aviva,which insures around 12 per centof households in the UK, will behit with a charge of 20-40m forflood damage during the first six

months of 2012.He sees RSA taking a hit of

BY JAMES WATERSON AND

JAMIE SUTHERLAND

around 8-15m and Legal &General paying out 5-12m for thesame period.

Since then the wet weather hascontinued, causing flash floods intowns across the UK and raisingthe prospect that payouts willincrease in the second half of theyear.

On Wednesday environmentminister Caroline Spelmanannounced plans to include a levyon all household insurancepremiums to subsidise cover for

those in high-risk areas. It is anattempt to ensure that insurance

remains affordable even after thecurrent deal which sees insurerspromise affordable cover in returnfor government spending on flooddefences expires next year.

Meanwhile AA Insurance saidyesterday that cars have sufferedat least 35m worth of damage inthe last fortnights storms. Itsstaff have dealt with over 400claims in the past two weeks. Itcan often be prohibitivelyexpensive to repair damagecaused by hail or flood, with a

large percentage of these vehiclesbeing written-off.

BTG PACTUAL, Brazils largestindependent investment bank, hasteamed up with former Vale chiefexecutive Roger Agnelli to set up anew mining venture, the bank saidin a securities filing yesterday.

The partnership with Agnellisinvestment company, AGNParticipacoes, will involveinvestments worth up to $520m tofinance the development and

growth of the business throughacquisitions and proprietaryprojects, BTG said in the filing.

Agnelli will serve as chairman of

the joint venture, known as B&AMineracao, while Eduardo

BTG Pactual and former Vale bossto form new Latin America minerBY CITY A.M. REPORTER Ledsham, also a former Vale

executive, will become chiefexecutive, according to astatement released at a newsconference.

The association allows BTGPactual to enter the mining sectordirectly after venturing over thepast three years into projectsmostly related to Brazils buoyantconsumer goods sector. BTGPactuals merchant banking unit

will represent the interests of theshop in B&A.

We believe in the enormouspotential of natural resources

wealth that Latin America has,

Agnelli was quoted as saying in ajoint statement.

Premier Oil PLC


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355

365

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380 p 366.3012 Jul

Premier in $1bnmove to pumpoil in Falklands

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IN BRIEFBarratt to build 463 Fulham homesn Housebuilder Barratt Developmentsannounced yesterday that itssubsidiary Barratt London, inpartnership with L&Q, the housingassociation, has bought a derelict 8.5acre site in Fulham from Sainsburys.It currently houses a Sainsburys storeand car park and a large, derelictwharf building. Barratt is set totransform the 420m site into 463riverside flats and a new Sainsburyssupermarket as well as restaurantsand cafes and the use of a jettyconverted into a wildlife park.

SUPERGROUP chief executive JulianDunkerton said yesterday he was look-ing forward to a new dawn for thecompany, insisting it had drawn a lineunder operational errors that sparkedthree profit warnings last year.

Shares in the fashion retailer, down62 per cent over the year, perked up 16per cent yesterday after it met fore-casts with an underlying profit of42.8m in the year to 29 April, down15 per cent on the previous year.The group had forecast 50m-54m

at the start of the financial yearbefore arithmetic errors, timingissues in its wholesale business and ITwarehousing problems caused thegroup to warn on profit.

Dunkerton said, while the currentenvironment was challenging andwet weather unprecedented, trad-ing in the first quarter was in linewith management expectations.

The group, which trades asSuperdry, opened 26 stores in the UKand Europe, taking the total to 103

Supergroup in

bullish mood asit eyes growth

BY KASMIRA JEFFORDand upped it overseas outlets to 101.

Dunkerton said the group would befocusing on expanding floor space thisyear at existing and successful storesand would be growing in a controlledand measured way.

We have grown 674 per cent in fouryears. Its a phenomenal growth andwhat we have done is let our investorsdown on a couple of fronts this lastyear, he admitted.

Obviously we are still going togrow... but we have got to make surewe do not have any hiccups along theway.

SuperGroup PLC


390

340

360

330

350

370

380

400 p 386.2512 Jul

ABFs George Weston


LONDON 2012 IMAGE OF THE WEEK

THE Olympic flame visited Stonehenge thisweek, as the sprinter Michael Johnson tookpart in the fifty-fifth day of the torch relay. Intotal, the flame will visit more than 1,000cities, towns and villages across the UK, andwill be carried by 8,000 nominated bearers.

Between now and the start of theOlympics, City A.M. is publishing itsOlympic Image of the Week. If you havea shot you think our readers wil l like,please email [email protected] withIOW2012 in the subject line.

EU sides with big telcos on fibrebroadband rental space plansEUROPEAN regulators yesterdaybacked away from forcing bigtelecom operators to chargesmaller rivals less for rentingspace on their networks,changing tack in their efforts tospur the buildout of fibrebroadband.

The European Commission hadargued that the only way to gettelcos to pick up the pace ofbuilding faster fibre networkswas to make renting old copperlines less lucrative.

The idea triggered months ofpublic sniping between regulators

BY CITY A.M. REPORTERand major telecoms, with TelecomItalia CEO Francesco Bernabecalling the proposal simplycrazy.

Large European telecomcompanies welcomed the rethinkwhile representatives of roughly100 alternative Internet providerscomplained that the changemeant customers would continueto be overcharged.

Network tenants like Fastweband Iliad say rents are too highwhile the copper wire owners saythey need the cash from rents toinvest in fibre infrastructure.

Governments and EU officialsare growing increasingly

concerned that the regionseconomy could fall behind Asiaand the United States through alack of broadband connectivity.

In 2012 alone, 35m Chinesehouseholds will be connected tovery fast broadband, said NeelieKroes, an EU Commission vice-president in charge of the DigitalAgenda.

We need to do much better tochange that.

At the end of 2011, the EU hadjust one quarter of Japans 20mfibre customers in 2010 eventhough Japans population is

under a quarter of the EUs 500mcitizens.

GERMANYS SAP, the worldslargest maker of businesssoftware, yesterday delivered astronger-than-expected rise inprofits led by robust sales, defyinga weakening trend that has hitrivals.

SAP said its software revenues,when measured by IFRSaccounting standards, rose 19 percent to a record 1.06bn for thesecond-quarter.

It had previously predicted a 15to 20 per cent increase at constantcurrencies.

Quarterly operating profit

before special items rose 15 percent to 1.17bn.

SAP defies technology gloom

with stronger software salesBY CITY A.M. REPORTER

SAP shares, down 9.4 per cent inthe last three months, traded up2.6 per cent at 47.50.

The results are much betterthan the market had come toexpect recently, one stock markettrader said.

The company didnt give anoutlook and the general feeling isthat technology spending might

weaken further as the Eurozonesdebt crisis deepens and US jobcreation stagnates.

There has been plenty ofevidence of a weak second-quarterin the tech sector. US softwarefirms Qlik Technologies andInformatica Corp as well as Indiansoftware services provider Infosys

have issued estimates belowmarket forecasts.

Qatari royals acquire Valentinon Italian fashion house Valentino hasbeen snapped up by the Qatari royalfamily for 700m (552m), the latestpurchase of a top European luxurybrand by an emerging marketinvestor. The haute couture label lovedby Jacqueline Kennedy Onassis andAudrey Hepburn said yesterday that

Mayhoola for Investments S.P.C, aninvestment vehicle backed by aleading Qatari, had bought it fromprivate equity fund Permira andminority investors the Marzotto textileentrepreneurs.

Betaworks to buy Digg for $500kn New York technology developmentfirm Betaworks is buying news-sharing website Digg for $500,000.Digg, an early social media company,was at one time valued at $164m. Asof May, Digg was recorded as havingan audience of more than 7m a month.

Primark and a Jubilee bake-offhelps AB Foods lift its revenuesASSOCIATED British Foodsyesterday said it was on track for a

big rise in full-year adjustedearnings as cash-strappedshoppers braved wet weatherto snap up budget fashions atits Primark clothing chain.

The FTSE 100 company,which also owns brands such asSilver Spoon sugar and Twiningstea, said a 16 per cent growth insales at Primark helped boost

group revenues by 11 per centfor the 40 weeks to 23

BY KASMIRA JEFFORDJune.

The retailers UK stores enjoyeda good trading period with theexception of April when cold and

wet weather led to weaksales, the company said.In the sugar business,

year-to-date revenuesrose 28 per cent. The

group said the recentcommercialenvironment had beenstrong in Europe and to a

lesser extent Africa, butprices in China had

continued to fall since thehalf-year.

ABFs grocery

business where year-to-daterevenues rose three per cent faced fierce price competition

because of pressure on UK

household incomes, though theSilver Spoon sugar brand received aboost from home-baking for streetparties over the Diamond Jubileeholiday weekend.

Finance director John Bason saidhe was a strong believer that theOlympics would have a positiveaffect on the UK economy: People

will be looking to Primark in thecapital. People will be eating foodand we provide basic staples forfood. I think the Olympics will be

good for us.

CARREFOUR, Europes biggestretailer, defied fears of anotherprofit warning yesterday, sendingits shares soaring as newmanagement said that while

trading remained weak inausterity-hit countries like Spainand Italy, it was not getting worse.

The French group said it wascomfortable with the marketconsensus for 2012 earnings beforeinterest and taxes of 2.03-2.09bn,

which would mean a year-on-yearprofit drop of five to eight per cent.

Carrefour said second-quarterlike-for-like sales dropped 1.3 percent, dragged down by fallingdemand in recession-hit Italy andSpain and sluggish French

No profit warning for Carrefouras trading still weak in Eurozone

BY CITY A.M. REPORTER hypermarket revenue. Second-quarter sales were 21.72bn(17.2bn), slightly above the averageof analyst estimates of 21.65bn.

Stripping out fuel andcurrencies, revenue at its Frenchhypermarkets fell 5.7 per cent

against a 5.8 per cent fall in thefirst quarter. Finance chief Pierre-Jean Sivignon said the first halfusually contributes around 35 percent to full-year profit.

Quarterly like-for-like salesexcluding petrol fell 7.4 per cent inSpain and 4.3 per cent in Italy.

However, the downward salestrend slowed in Spain in the secondquarter from the first quarter, andin Italy, non-food hypermarketsales were improving, Carrefoursaid.

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NEW JOBLESS claims dipped to a four-year low last week in the US, accord-ing to yesterdays estimates from theDepartment of Labor.

Dropping 24,000 in the week end-ing 30 June, initial claims last weekreached just 350,000, adjusted for sea-sonal trends.

But analysts warned the seasonaladjustment applied to the data dis-guised a jump of almost 70,000 innew claims suggesting the labourmarket is weaker thanthe headline figuresuggests.

The drop is ameaningless blip,argued PaulAshworth at CapitalEconomics.

Monthly seasonaladjustment is quiteaccurate, but adjusting

BY BEN SOUTHWOOD weekly is very unreliable.Much of the discrepancy in the fig-

ures comes from a later holiday for UScar firms, which close completely fortwo weeks what is known in the UKas a factory fortnight.

Although claims have droppednow, there is a good chance theyll goup when firms build up inventoriesand workers get their holiday, saidAshworth.

Meanwhile San Francisco Fed presi-dent John Williams announced thecentral bank is prepared to take moreaction to cut unemployment per-

haps including another OperationTwist.

If further action is called for,the most effective tool would be

additional purchases of longer-maturity securities, includingagency mortgage-backed securi-ties, Williams said.

We stand ready to do what isnecessary to attain our goals

of maximum employ-ment and price sta-

bility.

TOURISTS are flocking to theChunnel for their European trips,but hard-up business travellers havecut back on journeys, Eurostar saidyesterday.

The train operator said passengernumbers rose two per cent to 4.8min the first half of the year, bolsteredby robust growth in leisure travel.

The number of passengersoriginating from outside Europerose by a whopping 11 per cent, witha surge in tourists from the US andthe Far East travelling by Eurostar.

The firm said the DiamondJubilee in June was its busiest everweekend, and that Eurostars role asan Olympic sponsor will deliver afurther boost.

Overall, sales rose one per cent ona year ago to hit 425m.

But chief executive NicolasPetrovic was less upbeat aboutbusiness traffic, which weakened inthe second quarter after a flat startto the year.

Whilst leisure sales have held upover the last six months, there is nodoubt that corporate clients andbusiness travellers, particularly inthe financial services industry, arefeeling the squeeze and are cuttingback on their travel budgets as theyadapt to the economicenvironment, he said.

Leisure travellifts Eurostar as

firms stay putBY MARION DAKERS

Household wealth rises despiterecession but pensions neglectedBRITONS household wealthcontinued to grow between 2006-08and 2008-10, but off icial figuresrevealed yesterday that nearly twothirds of people are failing to putany money into a private pension.

Total household wealth whichincludes property wealth, fundsfrom pensions, and other financialassets grew by 12.9 per cent to10.3 trillion between 2006-08 and2008-10, the Office for NationalStatistics (ONS) announced.

The rise was mainly down to an

increase in pension wealth, thereport said, yet also revealed that a

BY JULIAN HARRIShuge number of people are notsaving for their own retirements.

Across the UK, 64 per cent ofpeople were not paying in to aprivate pension in 2008-10, with 42per cent of adults having no privatepension savings at all, it said.

Furthermore, the figures revealedwide variations in the distribution ofwealth. Regionally, wealth was, onaverage, highest in the south east ofthe country. The average level oftotal wealth for a household in thesouth east was over half a millionpounds (562,000) in 2008-10.

In the north east of England, bycomparison, the mean level of

wealth was 322,000, while for theUK the average was 418,000.

The top 10 per cent of householdsheld 43.7 per cent of totalhousehold wealth (at 4.5 trillion)in 2008-10 the figures showed. Yetthis proportion was slightly downon the 43.9 per cent of householdwealth that the top 10 per cent heldin 2006-08.

The wealth of the very rich isgrowing at an ever-increasing rate,even as the economy sinks intodouble dip recession, the TUCsBrendan Barber complained. Yet SamBowman from the Adam SmithInstitute said inequality is a resultof regional differences in the cost ofliving... and if we want to cut it we

should be fighting corporate welfareand cutting taxes for the poor.

Number of housing transactions per month

Apr 12Apr 11Apr 10Apr 09Apr 08Apr 07Apr 06

140,000

120,000

100,000

80,000

60,000

40,000

20,000

0

John Williamswants to cutjoblessness

RECORD numbers of touristslanded in the UK in the 12months to May, official datashowed yesterday.

Yet the number of Britonsholidaying abroad fell comparedto the previous year, the Office forNational Statistics (ONS) revealed.

Brits holiday visits in the yearto May totalled 35.9m, down threeper cent on the previous 12 monthperiod. Overall British journeysoverseas which include businessand family trips dropped one percent to 56.6m, the data showed.

Brits cut back on holidays buttourism to UK hits record high

BY JULIAN HARRIS But in the year to May a total of12.3m holiday visits were made tothe UK an all time high fortourism to Britain, and up threeper cent on the previous 12month period. Total visits to theUK also climbed by three per cent,coming in at 31.3m.

Tourists spent 18.2bn in theUK over the year in question arise of six per cent while Britsabroad spent 31.2bn, a decline oftwo per cent.

This resulted in a deficit to theUK of 13bn compared with14.5bn during the same periodto May 2011, the report said.

JAPANS economy is growingrelatively strongly and does notneed any help from a loosermonetary policy, its central bankannounced yesterday, marking astark contrast with the downbeattone of other major central banks.

In the week after the EuropeanCentral Bank and Bank of Englandloosened policy to combat thesovereign debt crisis and a dayafter the Fed hinted at futurequantitative easing, the Bank of

Japan pointed to a pick up ingrowth in the economy.

Business sentiment has beenimproving moderately,

particularly in domestic demand-oriented sectors, said the Bank,

Bank of Japan rejects easing as

it projects healthy GDP growthBY TIM WALLACE and exports have shown signs of a

pick-up.Domestic demand is largely

driven by reconstruction work,while public investment is alsorising, it added.

The Bank is also hopeful thatdeflation will be overcome, andpredicts inflation on theconsumer price index (CPI) tocome in at zero this year and 0.7per cent in the next fiscal year.

But not all economists areconvinced.

An end to deflation next yearseems optimistic to us, saidLombard Street Research. Theeconomy has a significant degreeof spare capacity: above trend GDP

growth this year will not besufficient to eliminate this.

Over 12.3m holiday visits were made to our shores in the year to May 2012


House prices stall in June butannual picture remains solidAFTER six months of growth, houseprices inched down in June,

according to a report released todayby LSL Property Services.The average UK house price crept

down to 224,102, a 0.1 per cent fallon the month, said LSL. On anannualised basis, however houseprices were up three per cent.

Despite the recession and theongoing financial crisis abroad,house prices have seen a period ofsteady annual inflation, saiddirector David Newnes.

BY BEN SOUTHWOODThe report reinforced the trend of

regional disparity, with London andthe south east increasingly divergentfrom the rest of England and Wales.

Prices in ten boroughs of thecapital reached record highs, withthe average London house priceoutstripping the national average bymore than 185,000, said Newnes.

This came after the Council ofMortgage lenders reported yesterdaythat lending had reboundedsignificantly in May after alacklustre April.

The number of house purchaseloans soared 33 per cent to 48,300,

while their value exploded 36 percent to 7.2bn according to theindustry bodys data.

THE CONSTRUCTION sector isideally placed to create hundredsof thousands of jobs in the shortrun, leading to stronger economic

growth in the long term, the

Confederation of British Industry(CBI) claimed yesterday.But for the potential 215,000 jobs

to be created, the governmentneeds to push local authorities andhighways bodies to bring forwardinfrastructure spending on projects

which can get underwayimmediately.

It is more important than everthat we recognise the role ofconstruction, both as a catalyst for

CBI: State should act now tounlock 215,000 building jobs

BY TIM WALLACElocal job creation across the UK inthe short-term, and as the leadmover in the 250bn infrastructurerenewal needed to underpineconomic growth in the long-term, said the CBIs Rhian Kelly.

To get spades in the ground on

infrastructure delivery, there mustbe an urgent focus across the UKon bringing forward repair,maintenance and improvementprojects, for example on roads, todeliver immediate and tangibleresults in terms of local jobs and

growth.That is on top of the 250bn the

CBI says is already needed to boostBritains infrastructure and raiselong-term economic growth.

US job market

upturn illusorywarn analysts

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FRIDAY 13 JULY 201218 cityam.com

LONDON REPORT

Ignis Asset ManagementJeremy Soutter has been

appointed global head of productdevelopment at the assetmanagement firm. He will join on1 August from Aviva Investors,where he has held a similarposition for 13 years. Soutter hasworked in asset managementsince the early 1980s, notably atGartmore Fund Management,Lloyds Bank and Henderson.

MacfarlanesThe law firm has appointed Martin Zetter to the newly-created roles of head of transfer pricing and senioreconomist in its tax and structuring group. He joins fromErnst & Young, where he was director in its financialservices transfer pricing group.

QuantumFXThe institutional division of Alpari has appointed Maxine

Dennis as institutional sales executive. She will beresponsible with developing the forex firms relationshipwith banks, brokers and hedge funds. Dennis has 20 yearsexperience in the City, and previously served as senior spotdealer at Citibank and as a director and FX trader at UBS.

Simmons & SimmonsAlyson Lockett has been elected to the board of theinternational law firm. She is a finance lawyer in its Londonbanking team, with a particular focus on distressed debt.Her appointment coincides with the retirement of RichardPerry from the board after the completion of his term.

Pioneer InvestmentsThe investment management group has appointed BrianClay as head of its UK wholesale business. He joins fromJanus Capital, where he was head of sales for its

intermediary wholesale and sub-advisory business. Clayhas over 20 years experience in financial intermediarysales, and has also served as a business developmentmanager at Franklin Templeton Investments in London.

Bluefin Corporate ConsultingAlbert Kuller and Maria Nazarova-Doyle have beenappointed to the business consultancys investment team.Kuller joins from the Pension Protection Fund. He haspreviously held roles at McGraw Hill and Bloomberg.Nazarova-Doyle joins from PromSvyazCapital, the Moscow-based investment management company.

Berwin Leighton PaisnerThe law firm has appointed Chris Webber as a seniorassociate in its banking and financial services litigationdivision. He will join the firm on 24 July, and previouslyserved as counsel at Bingham McCutchen, the US legalpractice.

WHOS SWITCHING JOBS Edited by Tom Welsh

+44 (0)20 7092 0053morganmckinley.comSPECIALISTS IN GLOBAL PROFESSIONAL RECRUITMENT

Technologyshares pushWall St lower

US stocks edged lower yesterday,led by technology shares, whilediminished chances ofmonetary stimulus from major

central banks prompted investors toshy away from risky assets.The Dow briefly moved into positive

territory in sync with Procter &Gambles advance, with the blue-chipaverage bouncing off technical sup-

port at 12,500, analysts said. The S&P500 earlier traded below its 50-daymoving average at 1,334.

We tested (1,334) and bounced, butthe flavour of the market is still some-what tenuous, given the testing ofthese technical support levels and alsothe strength in the 10-year bond, saidBucky Hellwig, senior vice president ofBB&T Wealth Management inBirmingham, Alabama.The benchmark 10-year US Treasury

note was up 11/32 in price, with theyield at 1.482 per cent.

The Dow pared most of its loss, get-ting a lift from the shares of Procter &Gamble up 4.6 per cent at $64.22 after a source said activist investorWilliam Ackman appears to be build-ing a stake in the US household prod-ucts company. Merck & Co. shares alsobolstered the Dow. Mercks stock rose4.1 per cent to $42.91 after a pivotaltrial of Mercks experimental osteo-porosis drug odanacatib has shownthat it reduces the risk of fracture.

But overall, market sentiment wasweak, especially after the lack of anymonetary easing by the Bank of Japan,and few clues in the minutes from theFederal Reserves June policy meeting,released on Wednesday. The lack ofpolicy moves suggested major centralbanks were still cautious about theneed for further easing.The Dow Jones industrial average

was down 5.56 points, or 0.04 per cent,at 12,573.27. The Standard & Poors500 Index was down 4.32 points, or0.32 per cent, at 1,334.76. The NasdaqComposite Index was down 18.84points, or 0.65 per cent, at 2,866.19.Technology shares have been among

the worst performers recently, boggeddown by profit warnings from compa-

nies such asAdvanced Micro Devicesand Applied Materials. For themonth, the S&P technology sector isdown 4 per cent and the PHLX semi-conductor sector is off 8.7 per cent.

US-listed shares ofInfosys tumbled11.1 per cent to $38.80, after earlierdropping to an all-time low of $38.12.The Indian IT heavyweight cut its salesforecast more than expected as tech-nology spending was hurt by globaleconomic uncertainty.There was some solace from data

that showed the number of Americansapplying for jobless benefits fell lastweek to a four-year low, though someof that improvement may be tempo-rary. But analysts said it did little tosway the view the economic recoveryhas hit a soft patch.

Oil prices turned around in after-noon trading, with Brent crude jump-ing above $101 a barrel after the

United States announced increasedsanctions against Iran.

BRITAINS top share index droppedin weak volume yesterday to postits biggest daily fall in nearly threeweeks as growth concerns and

fading hopes for near-term US monetarystimulus hit investor sentiment.

Minutes from the US Federal ReservesJune meeting, released overnight, suggest-ed the central bank would be prepared togive stimulus through a third round ofquantitative easing (QE) but the economicoutlook would need to worsen first.That hit key commodities like copper

which in turn weighed on the heavyweightmining sector, among the biggest drags onthe index, and fanned concerns about thesector outlook as the second-quarter earn-ings season kicks off.

Nervousness ahead of key second quartergrowth data from major metals consumerChina, due today, also kept investors onedge. Markets overreact both ways, andthis time is on the downside. As Europe isstagnating, China is slowing and Americais losing momentum, expectations goinginto the earnings season are very low, saidMike Lenhoff, chief strategist at BrewinDolphin.

The FTSE 1000 closed down 56.23 points,or one per cent, at 5,608.25, extending fallslater in the session as US stocks tumbled,putting them on track for their sixth con-secutive daily fall.Technical charts also pointed to further

weakness for the FTSE 100.The recent development now points to

at least an attempt to end the June correc-tion (higher). If playing out as thought, themarket will soon be challenging the 5,435support and, if broken, new lows will beconfirmed, said a strategist at SEB.Trading volumes were again thin, at 67.5

per cent of the 90-day daily average. WithJuly nearly half-way through, activity onthe benchmark index is at under 30 percent of the levels posted for June, accord-ing to Thomson Reuters data.

Volumes have been dreadful, and theOlympics are not going to help, said IanWilliams, a strategist at Peel Hunt.

You cant see much reason for investors

to change their positions at the moment.Funds house Ashmore Groupwas the

biggest FTSE casualty, down 6.7 per cent involume more than four times its 90-dayaverage after it reported the flight of abouta fifth of the money it manages in equitiesduring its fourth quarter, hit by Eurozoneworries and a flagging global economy.

Among miners, the biggest faller wasRioTinto, down 3.5 per cent and taking justover five points off the index. Rival BHPBilliton fell 3.3 per cent, and minersclaimed five of the top 10 spots on the FTSEfallers list.

Credit Suisse also lowered its earningsper share (EPS) estimates for the sector.

With China growth and commoditydemand structurally slowing the earningsoutlook is muted, with on-going cost pres-sures and minimal top line growth; weforecast earnings down 20-30 per cent year-on-year in 2012 and small growth in 2013,it said. Earnings are likely to remain astrong focus for investors as the secondquarter reporting season slowly kicks off.

Shares in Intercontinental HotelGroup dropped 2.3 per cent after US-listed rival Marriott reported a higherquarterly profit but said it was seeingweakness in some international markets.

The general downbeat tone is unlikelyto end any time soon. EU financeministers might have opted to wait untilSeptember before embarking on realwork on a banking union, but if progressis not made soon, the July to Augustperiod of 2012 could perhaps be asvolatile as

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