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TENS of thousands of firms are setto go bust when interest rates rise,taking hundreds of thousands ofjobs down with them, businesstroubleshooting group theInstitute for Turnaround (IfT) haswarned.

There are almost 150,000 zombiefirms in the UK businesses thatare fundamentally broken, and onlystill alive because ultra-low interestrates are holding down their debtrepayments.

But while some firmsmay be able torestructure theirdebts and busi-ness processes tothrive in the longrun, up to 50,000are deemedbeyond hopeby the IfT, asthey can barelypay interest ontheir debts, let

alone repay the capital.Firms of all sizes from two

or three-person operations tobig businesses employing hun-dreds of staff are zombies,meaning hundreds of thou-sands of jobs are going to belost when rates rise at somepoint in the coming years.

Between 25 and 30 per centof these firms are beyondhope, and will fail when inter-est rates rise, IfT chief execu-

tive Christine Elliott toldCity A.M.

A lot of over-supply builtup in indus-tries like

shipping and retail, and low interest rateshave just postponed the inevitable the reces-sion still has to work its way through thesesectors.

However, Elliott did provide a glimmer hopeto struggling companies. If they restructurenow, perhaps 10 per cent of these zombiefirms could turn out to be stars, she said.

She also warned that by stopping weakfirms from failing, low rates also stop goodfirms expanding to help the recovery.

THERE ARE 146,000 ZOMBIE FIRMSSECTOR ONLY PAYING INTEREST ON DEBTS

CONSTRUCTION

RETAIL

BUSINESS SERVICES

MANUFACTURING

TOTAL

16%

2%

3%

8%

8% or 146,000 firms

See Page XX

www.cityam.com FREE

BY MICHAEL BOW

Hoare Govett owner Jefferies sold in $3.6bn share deal

BOTTOM LINE: Page 11

INVESTMENT bank Jefferies,owner of UK corporatebroker Hoare Govett,yesterday said it will mergewith one of its largestshareholders, US holding

group Leucadia NationalCorporation, in a deal valuedat $3.6bn (2.9bn).

The bank, which has itsEuropean headquarters inthe City, has agreed toapprove an all share deal

giving shareholders 0.81Leucadia shares per Jefferiesshare, in a move designed toshore it up against futureindustry headwinds.

As part of the tie-up,Jefferies chief executive RichHandler will take the reinsas chief executive at

Leucadia, with its currentpresident Joseph Steinberg

becoming chairman of thecombined group when thedeal closes early next year.

Leucadia, dubbed a miniBerkshire Hathaway for thediverse range of subsidiariesunder its umbrella, adds

Jefferies to a portfolio thatincludes US beef processorNational Beef, lumber firmIdaho Timber and aportfolio of luxury

wineries onAmericas westcoast.

The firm alreadyowned 28.6 per centof Jefferies before

yesterdaysannouncement,and has aclose

working relationship withthe management at the firm.

Ive thought about thisfor my entire career,Handler said yesterday.Over the course of five

years weve thought about it,but the stars havent real lyaligned until today.

Jefferies Group, whichbought historic City brokinginstitution Hoare Govettfrom Royal Bank of Scotland

in February, has itsEuropean subsidiary,Jefferies International ,headquartered inLondon.

A source at Jefferies London office yesterday

said it would be business asusual for the firms

European operations.Jefferies will maintain itsown credit rating separatefrom Leucadia and will alsocontinue to file separateregulatory filings.

The deal, which wasadvised on by some of WallStreets biggest banksincluding UBS andRothschild for Leucadia and

JP Morgan and Citigroup forJefferies, will leave Jefferiesshareholders owning 35.3per cent of Leucadias stockafter the deal closes.

Shares in Jefferies, listedon the New York StockExchange, shot up 14 percent yesterday as marketscheered the news.

BUSINESS WITH PERSONALITYISSUE 1,759 TUESDAY 13 NOVEMBER 2012

Certified Distribution01/10/12 til 28/10/12 is 129,297FTSE 100 M5,767.27 -2.41 DOW M12,815.16 -0.23 NASDAQM2,904.26 -0.61 /$ 1.59 unc / 1.25 unc /$ 1.27 unc

Rich Handler said thedeal had been in theworks for five years

SOURCE: R3

MOREHEADSROLL ATTHE BBCAS AUDIT OFFICE QUERIES

ENTWISTLES PAYOFFSee Page 3 & The Forum, Page 22

EXCLUSIVEBY TIM WALLACE

50,000 ZOMBIEFIRMS TO FAIL

IF RATES RISE

The Bank ofEnglandslow interestrates are

keepingzombiesalive

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[email protected]

Follow me on Twitter: @allisterheath

THE GOVERNMENT last night faceddown a Labour bid to further delaythe planned 3p rise in fuel duty,disappointing motorists but fendingoff a backbench rebellion.

The motion, which would havepushed the rise back from January toat least April, was defeated by 282votes to 234, resulting in a healthymargin of 48, and came following agroundswell of public support for adelay in the rise.

Labour had called for yet anotherdelay in the rise, saying it would bewrong and harm growth chances.

But it was quashed by Torybackbenchers decision to voteagainst the motion against earliersuggestions they might ally withLabour instead hoping thechancellor will push back the rise innext months Autumn Statement.

The Treasury defended thegovernments position by saying ithad already kept fuel price rises 10pper litre below the plans set out bythe previous government in the fuelduty escalator.

This was abolished in 2011 byGeorge Osborne, who set out plansfor an alternate system, which wouldhave led to a 3.02p rise in fuel dutyin January this year, but Osbornepostponed the rise in last yearsAutumn Statement, as well ascancelling a further 1.92p hike thathad been planned for August.

Tories stop bid

to delay fuelduty rise againBY BEN SOUTHWOOD

STARBUCKS, Amazon and Googlewere yesterday criticised by MPs fol-lowing accusations that the multina-tional firms are moving profitsabroad to minimise their UK corpo-ration tax bill.

MPs were critical of deals thatappear to show firms divertingapparently British transactionsthrough overseas divisions in low-taxcountries. Members of the PublicAccounts Committee accused thefirms respectively of being frustrat-ing, deceptive and immoral.There is no suggestion that the firmsinvolved are breaking the law withtheir arrangements.Troy Alstead, Starbucks finance

chief, admitted that the firm has notpaid any UK corporation tax since2008. But he said this was because oflong-term profitability challengesthat meant the UK business hadalways struggled to produce a sur-plus despite other executivestelling analysts it makes money.

I assure you we are not makingmoney. Its very unfortunate, headded. This led Labour MP AustinMitchell to declare: Youre eitherrunning the business very badly ortheres some fiddle going on.Alstead revealed that Starbucks has

a tax arrangement with the Dutchauthorities that covers the 4.7 per

Nissan hits back at tax criticsNissan yesterday became the latestcompany to face scrutiny over its taxaffairs after it was revealed that Britainsbiggest carmaker avoided millions incorporation tax every year by sellingvehicles through a Swiss company thatmanages its European operation. Thecompany hit back at the criticism, sayingit was a massive contributor to theBritish economy and its investment inSunderland had generated financialbenefit to the exchequer worth far morethan its savings in corporation tax.

Germany investigates UBS clientsState prosecutors are searching theproperties of various UBS clients acrossGermany as officials intensify their effortsto crack down on alleged tax evasionahead of a key vote on a tax deal withSwitzerland.

Bloomberg lets others into networkBloomberg is launching an iTunes-styleportal for applications to allow clients andoutside developers to incorporate theirown software into the groups financialdata terminals and sell it to Bloombergsroughly 315,000 subscribers.

MegaFon market debut to go aheadThe stock-market debut of the telecomscompany MegaFon is set to go aheaddespite concerns raised about the editingof the Wikipedia entry of the billionaireoligarch behind the deal.

Moonpig delivers gloomy tidingsPhotoBox has been forced into the red in itsfirst year after buying Moonpig. PhotoBoxwas forced to write down the value ofMoonpig, after the government closed downa VAT loophole in the 2011 Budget.

Enterprise Zone could create jobsThousands of jobs could be created at theformer Pfizer site in Kent, as new ownerDiscovery Park said it would take advantageof the sites Enterprise Zone status and taxreliefs to attract global brands to the site.

Govt defends small Post Offices planThe Government has defended theintroduction of a new type of small PostOffice branch after MPs argued that themove could lead to a reduction in services forconsumers.

Kodak reaches deal with bondholdersEastman Kodak reached a deal withbondholders for $793m (500m) in loansthat could help take the onetimephotography icon out of bankruptcyproceedings, the company said.

Trading glitch hits NYSENYSE Euronext will not resume trading inmore than 200 securities affected by atrading glitch reported shortly after theopening bell, and it will not hold normalclosing auctions in these issues.

Starbucks finance chief Troy Alstead said the firm paid no UK corporation tax from 2008

2 NEWS

BY JAMES WATERSON

To contact the newsdesk email [email protected]

SOMETHING extraordinary ishappening to the globaleconomy, with hugeimplications for geopolitics and

international flows of trade andcapital. The United States hasengineered an energy renaissance:while it currently imports 20 per

cent of its total energy consumption,much of it from the Middle East,America will become roughly self-sufficient in net terms by 2035, as aresult of rocketing output of oil,shale gas and bioenergy, andimproved efficiency by consumers.As if this were not astonishing by

itself, falling US oil imports meanthat North America is set to becomea net oil exporter by around 2030, injust 18 years time. The United Statesis even projected to become thelargest global oil producer withinthe next few years, exceeding Saudi

EDITORSLETTER

ALLISTER HEATH

Americas energy renaissance will transform China as well

TUESDAY 13 NOVEMBER 2012

Arabia for a period that is expectedto last until the mid-2020s. It wasntwhat you were taught at school, tobe sure. Few stories are more impor-tant than this, especially in the con-text of the UKs own confused,erratic and short-sighted energy poli-cy.

Somewhat less surprisingly, butequally importantly, the shift in eco-nomic activity from West to Eastmeans that non-OECD countries willaccount for 65 per cent of all energy

consumption by 2035, up from 55per cent in 2010. China will be thelargest global energy user, with itsdemand rising 60 per cent by 2035,followed by India (where demand isset to explode by over 100 per cent)and the Middle East. OECD energydemand in 2035 is expected to end

up just three per cent higher than in2010.All of these predictions and figures

come from the World EnergyOutlook 2012, the bible in such mat-ters, released yesterday. It is testa-ment to the paucity of our debatesurrounding energy in the UK thatvery little of this is common knowl-edge. Increasingly, it will be Chinaand Asian nations, not America,which will depend on MiddleEastern resources; it is they who willbegin to have an incentive to ensurestability in that region. This suggests

by an editor-in-chief in charge ofsupervising all content, news as wellas other forms of programming. Theformer needs to be a formidablebusiness executive; the latter a dis-tinguished, experienced and inde-pendent-minded journalist.

ABU QATADA REPRIEVED AGAINIt is a disgrace that radical cleric AbuQatada has been granted bail. Thissaga has been ongoing for years andnever seems to end, with lawyers theonly winners. Our democraticallyelected government is not in controlof criminal justice. We need a newbill of rights to protect human rightswhile allowing sensible law enforce-ment. It is shocking that the coali-tion has done nothing about this.

a more assertive China international-ly over the next decade, and a possi-ble US retrenchment. This shift iscrucially important. It is time theCity and the UK political establish-ment woke up to it.

BBC IN CRISIS

An outsider must be hired to run theBBC. All of the candidates beinglined up are long-standing execu-tives who have spent years climbingthe greasy, bureaucratic pole; but toappoint internally in the current cir-cumstances would be wrong.Outsiders with fresh ideas who arenot bogged down by the troubledorganisations ways of doing thingsare often the best solution in timesof corporate crisis. The role of direc-tor general should be split, replacedby a CEO tasked with running thecorporation as a business, as well as

cent royalty on profits paid by UKstores to its main European business.He also said that all of his firms coffeeis bought by a team of 30 workers inSwitzerland, where they benefit froma favourable tax regime. The traderscharge a 20 per cent mark-up beforeselling it to UK stores.Andrew Cecil, public policy director

at Amazon, defended his companysdecision to send all its European trans-actions through one Luxembourg busi-ness, which meant the firm paid noUK corporation tax last year.

But he could not answer questionson the value of UK sales or who owned

the Luxembourg business.Google vice president Matt Brittin

told MPs his firm pay the tax wererequired to pay in every country weoperate in, including the UK. Heexplained almost all UK purchasers ofits products dealt directly with its salesforce in Ireland which has a low cor-poration tax rate while all the tech-nology which creates the economicvalue comes out of California.

Brittin said that sending worldwideprofits through a Bermuda subsidiaryhelps the firm manage costs efficient-ly in order to satisfy our shareholders.

THE FORUM: Page 23

The new jobs website for London professionalsCITYAMCAREERS.com

WHAT THE OTHER PAPERS SAY THIS MORNING

PARENTS will be able to share outmaternity leave, Deputy PrimeMinister Nick Clegg confirmedyesterday.

As part of a general package ofreforms designed to make hoursmore flexible, mothers will be ableto share out their maternity leave after the first two weeks with apartner.

But Nick Pearce at the Institute ofPublic Policy Research slammed theplans, and suggested they would beunlikely to help spread the burdenof childcare more evenly acrossboth parents. Although this leavemay end up being called flexibleparental leave, it will in fact benothing of the sort, Pearce said, itwill be transferred maternity leave.

Fathers will have no entitlementto leave unless the mother hasaccrued maternity leave rights withan employer herself.

But businesses gave a cautiouswelcome to the broader thrust ofthe flexible work proposals, judgednot just a question of equality, butalso of economic necessity, by theInstitute of Directors.

However, employers could be leftwith absent staff at short notice ifthe plans are not put in placeproperly, the IoD added, while theBritish Chambers of Commerce saidit could damage employer-staffrelations.

Parents will be

able to sharemothers leaveBY BEN SOUTHWOOD AND

MARION DAKERS

Top executives quizzedby MPs on tax avoidance

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THE FINANCIAL Services Authority

and energy watchdog Ofgem areinvestigating claims that thewholesale natural gas market hasbeen manipulated.

Energy secretary Ed Davey saidhe is extremely concerned aboutthese allegations and has beenworking closely with t heregulators since the gas contracttrades were flagged to hisdepartment last week.

A whistleblower from pricereporting service ICIS Heren hasraised concerns about quotessubmitted in Europes biggest gasmarket on 28 September thatwere below the ordinar y markettrend, which might have forcedthe price lower and given scopefor a trader or traders to profitfrom the drop.

Ofgem confirmed yesterday ithad been handed information on

such trades, and will considercarefully any evidence of marketabuse that is brought to ourattention as well as scope foraction under all our otherpowers.

Several of the big six UKenergy suppliers issuedstatements last night denying anyinvolvement in the trades.

Davey plans to make astatement on the subject to theHouse of Commons today.

FSA and Ofgemprobe naturalgas markets

BY MARION DAKERS

THE BBC faced anger over the size ofdeparted director-general GeorgeEntwistles payoff yesterday, as cul-ture secretary Maria Miller raised thepossibility of the National AuditOffice (NAO) investigating the450,000 package.

The NAO is empowered to conducta value-for-money review, Miller toldthe House of Commons yesterday. Inthis day and age people expect allpublic institutions to be open to thewidest possible scrutiny, she added.It is of course for Mr Entwistle him-self to decide whether it is appropri-

ate to keep those payments.The NAO said it would question the

BBC Trust over the payoff, but did notconfirm it would be conducting a for-mal review. An NAO spokespersondenied that Miller had encouragedthe independent office to look intothe matter, saying it had only beennotified that she would raise theissue shortly before Miller addressedMPs.

In an earlier statement regardingEntwistles leaving package, Miller

BBCs Entwistlepayoff blasted

as more departBY JAMES TITCOMB said: This is a large amount of money,

and tough to justify considering thecircumstances of Mr Entwistles depar-ture and his contractual arrange-ments. The Trust will need to justifythis. Her comments echoed the viewsof David Cameron, a Downing Streetspokesperson said.The BBC was yesterday criticised by

its own internal probe into theNewsnight episode on child abusethat sparked Entwistles departure onSaturday.The inquiry found that basic jour-

nalistic checks were not completedbefore the screening of the controver-sial documentary, and found evidence

of unacceptable editorial failings.Acting director-general Tim Davie

vowed yesterday to get a grip on thecorporation.

Helen Boaden, the BBCs director ofnews, and her deputy StephenMitchell temporarily left while aninternal review is conducted into whycurrent affairs programme Newsnightdid not screen an investigation intochild abuse allegations surroundingformer BBC presenter Jimmy Savile.

THE judge in the trial of allegedUBS rogue trader Kweku Adobolitold the jury yesterday not to let

their views about the bankingindustry influence their

judgment, as the long runningtrial enters its final stage.

Adoboli, 32, has been blamed fora loss of $2.3bn (1.4bn) at theSwiss bank in September 2011. Hedenies two counts of fraud byabuse of position and four of falseaccounting.

You dont need me to tell youthat this case has been noordinary trial, Justice Brian Keith

Adoboli trial enters final stageas judge warns against biases

BY CITY A.M. REPORTER told the jury as he began hissumming-up, the final leg of thelong-running trial before theyretire to consider their verdict.

Dont let what some of you may

think about banks and the peoplewho work for them influence youunduly, Keith told the jury.

Theres been a lot of talk inrecent years about the bonusculture, failing banks having to be

bailed out, he said, adding thatthere were always two sides toevery argument. You should notapproach the case on the basisthat banks have only themselves to

blame, he added. The judge willcontinue his summing-up today.THE FORUM Page 22-23

TUESDAY 13 NOVEMBER 20123NEWScityam.com

Former UBS trader Kweku Adoboli has been on trial at Southwark Crown Court

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THE US will lead a sweeping transfor-mation in oil and gas productionand will overtake Saudi Arabia andRussia as the worlds top oil producerbefore 2020, the InternationalEnergy Agency (IEA) said yester-day.

Its World Energy Outlook saidthat the US, which currentlyimports around 20 per cent of itstotal energy needs, would buy inless and less to eventuallybecome a net exporter ofnatural gas by 2020, andbecome almost self-suffi-cient in energy terms by2035.The resurgence of oil

production in the USin the last few years isprojected to contin-ue, the report said, asthe rise in light oilproduction in the UShas been nothingshort of spectacu-lar.The energy agency

forecasts the States oil

US to becomebiggest globalproducer of oil

BY CATHY ADAMS production to grow to 11m barrels ofoil a day before 2010 before falling toaround 9m barrels a day by 2035 asignificant upward revision fromlast year, it said.

Energy developments in the US areprofound and their effect will be felt

well beyond North America andthe energy sector, the IEA said inthe annual long-term report, giv-ing one of the most optimistic

forecasts for US energy productiongrowth to date.

Meanwhile, the agencypredicted that globalenergy demand willincrease as regionaldynamics change, andwill grow by morethan a third by 2035.China, India and theMiddle East willaccount for 60 percent of the growth,and there will be apronounced shifttowards gas andrenewables, it said.

Lawyers pay slows as servicesfirms join banks in City slumpLAWYERS and accountants have

seen pay slip behind that of the restof the workforce through thefinancial crisis, according to dataout yesterday from RandstadFinancial and Professional.

Pay in law rose by 8.1 per centwhile accountancy earningsincreased 7.5 per cent well belowthe 11.4 per cent UK average andillustrating that bankers are notthe only City workers who haveseen their pay readjusted relative to

BY TIM WALLACE other sectors.Associate legal professionals such

as paralegals and executive

assistants are among the hardesthit, with pay falling 8.6 per cent inthe last six years. And the lowestskilled accountants too have beenhit newly qualified charteredaccountants have seen incomesstagnate, rising just 1.3 per centsince 2006.

At an entry level, pay hasremained relatively static as firmsreduced their graduate intakes,said Randstads Tara Ricks.

President Barack Obamawas re-elected last week

TUESDAY 13 NOVEMBER 20124 NEWS cityam.com

King Abdullahs Saudi Arabia looks set to lose its crown as the top oil producer by 2020

THE US IS SET TO BECOME THE LARGEST OIL PRODUCER

CHINA

RUSSIA

EUROPE

20153.4m barrels

20202.9m barrels

20352.1m barrels

SAUDI ARABIA

201510.9m barrels

202010.6m barrels

203512.3m barrels

20154.3m barrels

20204.3m barrels

20352.7m barrels

USA

201510m barrels

202011.1m barrels

20359.2m barrels

2015

2020

2035

10.5m barrels

10.1m barrels

9.2m barrels

* barrels per day produced by each region

PAY IN LAW AND ACCOUNTINGHAS DRAGGED BEHIND OTHER

INDUSTRIES SINCE 2006Average UK up 11.4%

Lawyers and solicitors up 8.1%

Accountants up 7.5%

Tax experts up 9%

Paralegals and assistants down 8.6%

S O U

R C E : I N T E R N A T I O N A L E N E R G Y A G E N C Y

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SIR JOHN Vickers yesterday acknowl-edged his widely welcomed bankingreforms were too heavy handed, hurt-ing banks unnecessarily in someareas, including on capital levels.And he praised the governments

tweaks to his proposals, despite initialfears from the Labour opposition thatthe coalition has watered down thereforms excessively.

Sir John led the IndependentCommission on Banking (ICB) whichlast year proposed a shake up of bank-ing regulation, including the require-ment for large banks to be partially

split, with a ring-fence drawn aroundretail banking arms to separate themfrom investment activities.

We concluded on balance that wewere not persuaded of the need for a[minimum size] thresh-old, he told theP a r l i a m e n t a r y Commission onBanking Stan-dards yesterday.

In consulta-tion a cost ben-

Vickers saysBank reforms

were too toughBY TIM WALLACE efit analysis was done and found good

reasons for a minimum level, with thegovernment thinking of exemptingfirms with up to 25bn of mandateddeposits. I suspect the governmentposition is right, though my instinctsays the limit is on the high side.The ICB had also initially proposed

that banks must hold extra capital incase they collapse, to reduce the bur-den on the taxpayer.

But following lobbying from banksincluding HSBC, the governmentremoved this requirement for banks

which have strongresolution process-es in place anoth-

er step Sir Johnagreed with.

But he didobject to his

planned leveragecap being weakened

from 25 times to 33times, as he fears that

could leave banks over-stretched in future.

Sir John Vickers agreed totone down his reforms

BANCO Popular shares rose yester-day after Spains sixth biggest banksecured a 2.5bn (2bn) capitalincrease, averting the need to seekstate aid.At a special meeting in Madrid on

Saturday, large shareholders backedthe plan, seen as a key test ofSpanish banks ability to tap mar-kets.

Shares rose around five per centyesterday to trade around 1.20.

Spains Banco Popular sees itsshares rise after capital increase

BY DAVID HELLIER One banker said the early tradingset a nice tone for people in themarket to see.The lead banks on the issue are

Deutsche, Bank of America MerrillLynch, JP Morgan, Santander andUBS.There was some consternation

late last week when it emerged thatBanco Popular had appointed STJAdvisors to the deal.

STJ brought in a competitiverights issue auction process whichthe banks objected to.

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Cameron heaps praise on Cityscontribution to the UK economyDAVID Cameron cheered thecentral role the City plays in the

UK economy, in a wide-rangingspeech to the Lord Mayors banquetlast night.

The Prime Minister highlightedthe huge contribution the Citymakes through taxes, trade andemployment though he lamentedutterly terrible mistakes madeand promised to crack down onlaw-breaking, boost transparencyand clear up the regulatory mess.

He warned those who think theanswer is just to trash the banks

BY BEN SOUTHWOODwould end up trashing Britain,pointing out that the sectorcontributed one-eighth of theexchequers tax revenues, even

during the recession.I say recognise the enormousstrength and potential of ourfinancial sector; regulate itproperly and get behind it, headded.

Cameron also defended his rolein securing defence contracts forUK firms, made the case for freetrade and against economicnationalism, and for greenenterprise. Winning abroadactually begins at home, he told

the Guildhall.And while explicitly disavowing

the 1970s industrial strategy known as picking winners the

PM suggested the government waswilling to intervene to boost UKbusiness, in line withrecommendations in the HeseltineReview.

The new Lord Mayor of the Cityof London, Roger Gifford, alsohailed the role of the Square Mile especially its most troubled sector,banking as crucial to thesecurity, safety, and happiness ofthe whole society of which we arepart, in his speech at the event.


Prime Minister David Cameron highlighted the Citys huge tax contribution

Bank of England governor Mervyn King and new Lord Mayor Roger Gifford attended

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ITALIAN prosecutors are seekingtrial for seven current and formeremployees at rating agenciesStandard & Poors and Fitch overdowngrades of Italy, paving the way

for the first European court caseover sovereign rating cuts.Prosecutors in the southern

town of Trani, launching a casewhich bigger Italian courts haverefused to back, probed fiveanalysts from S&P and two fromFitch for alleged marketmanipulation and abuse ofprivileged information.

S&P rejected all the claims madeby the prosecutors.

Italy accusesS&P and Fitch

BY CITY A.M. REPORTER

EUROZONE leaders will grantGreeces government the extra coupleof years it requested to reach itsdeficit targets, a key document pro-posed last night.Yet ongoing disagreements over the

next tranche of Greek bailout cashcaused crunch meetings to spill intothe rest of this week.

Greeces parliament voted throughan austerity budget for 2013 last week,yet finance ministers from its euroarea peers remain worried aboutreducing debt to sustainable levels.

Disagreements over the best way toachieve Greek debt sustainability havecaused cracks to emerge from withinthe troika of bailout providers theEuropean Union, European CentralBank (ECB) and InternationalMonetary Fund (IMF).

Eurogroup boss Jean-Claude Junckersounded upbeat yesterday, but admit-ted early on that the meeting would

not produce any definitive deci-sions, with leaders requiring further

Greeks may getextra time tohit deficit goals

BY JULIAN HARRIS talks throughout the week.And German finance minister

Wolfgang Schaeuble sounded less pos-itive. Id like to see if Greece has ful-filled all its obligations and then hearthe troika report because it dependson the Greek government havingfound a solution with the troika, and Ihavent read anything on that.A draft copy of a memorandum of

understanding revealed a crucial con-cession that may be granted to Greece.The two-year extension of the adjust-ment period will mitigate the impacton the economy, while securing a sus-tainable fiscal position, it read.

The ECB has agreed to broaden theframework for allowing Greek banksto tap emergency loans from Greecesnational central bank, German dailyDie Welt reported yesterday, citingcentral bank sources.The net increase in available liquidi-

ty funding for Greek banks wouldallow them to buy more Greek sover-eign bonds, helping Athens bridge a

funding gap, the paper said in a pre-release of an article to run today.

Merkel showers Portugalwith praise for austerityANGELA Merkel yesterday sang herpraises for Portugals resilience intackling the debt crisis thatrequired a78bn (62bn) bailout.

Speaking during a six-hour visitto Lisbon, the German Chancellorhailed the countrys commitmentto austerity and pledged solidarity.

Despite the praise, Merkel wasgreeted by hundreds of protestorswho blamed cuts for worseningeconomic hardship, or saw the loanconditions as a violation ofPortugals national sovereignty.

Though hundreds took to thestreet in protest against the

lending conditions, the protestsbore little resemblance to theviolence that met Merkel when shevisited Athens a month ago.

The programme is beingfulfilled by Portugal in an excellent

way, said Merkel at a pressconference with Portuguese headPedro Passos Coelho.

I sense a great sense ofdetermination here in Portugal toovercome this difficult phase.

But Portugals apparentconsensus on austerity has brokenup. Yesterday business newspaperDiario Economico said Merkel wasexperimenting with Portugal likean economic Frankenstein.

IN BRIEFLamprell picks new CFOn Rig maker Lamprell yesterdayappointed Frank Nelson as interim chieffinancial officer with immediate effect.Nelson, who joins from housebuilderGalliford Try, has over 25 years ofexperience in construction and energy.Last month, Lamprell axed three execsafter its fourth profit warning since thespring, with chief exec Nigel McCue,CFO Jon Cooper and chief operatingofficer Chris Hand leaving.

Safeland uncovers more fraudn Property developer Safeland

yesterday said it has unearthed more

fraudulent transactions at the firm afterfirst discovering cases of fraud lastmonth. The group told investors it hasbeen a victim of another 265,000 offrauds in the year to 31 March.

Victoria struggles to break evenn Carpet firm Victoria said yesterday ithoped to break even at best in the yearto April as the war-torn retailer attemptsto regroup following a six-month powerstruggle between the directors. Thegroup said it has launched a detailedreview of the business and that trading inAustralia and the UK remained weakand significantly behind budget.

Eurogroup chief Jean-Claude Juncker said talks would continue this week


BY BEN SOUTHWOOD

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LLOYDS of London insurer Catlin yes-terday revealed that its New Yorkoffice remains closed followingHurricane Sandy and it does notknow how much it will have to payout to those affected by the storm.The firm said it would be some time

before the true cost of the damage isassessed due to the sheer size of thestorm and the many different typesof claims it has created.

Existing catastrophe models areunlikely to predict the quantum ofinsured damage with a high degree ofcertainty, the firm explained.Although the hurricane took the

lives of around 200 people across theCaribbean and the United States, thecost to the insurance industry doesnot appear to have hit the Lloyds mar-ket on the same scale as last yearsJapanese tsunami and New Zealandearthquake.

Catlin yesterday announced an 11per cent rise in gross premiums writ-ten to $4.1bn (2.6bn) for the firstnine months of this year. Due to achange in accounting procedures, theincrease on a like-for-like basis waseight per cent.

Sandy casts a

shadow overCatlin growthBY JAMES WATERSON On this basis gross premiums writ-

ten in the US grew 12 per cent thanksto rate increases and new business,particularly in the energy, casualtyand reinsurance classes.

Business written in the UK passed$2bn in the first nine months, upfrom $1.86bn for the same period in2011.

Mark Williamson, an analyst at PeelHunt, said the uncertainty surround-ing the bill for North American stormdamage had caused him to lower thestocks rating from buy to hold.

The prospects of earnings upgradesnow appear much diminished follow-ing superstorm Sandy, and Catlin isunlikely to return capital beyond itsordinary dividend, he explained.

Reverend Carmel Jones had previously been honoured for his work

Catlin Group Ltd

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LOGISTICS firm Stobart Group willtoday launch a 25m bond issuetargeting retail investors.

The business, famed for itsEddie Stobart lorries, hasappointed Canaccord Genuity tomarket the bonds, which have asix year maturity and pay 5.5 percent. Chief financial officer forStobart Group Ben Whawell

yesterday said the issue could helpfund infrastructure projects to

boost its logistic capabilities.Whawell added he hoped

recognition of the Stobarts brandname would help boost take up.

Stobart in gearfor bond issue

BY MICHAEL BOW

REVEREND Carmel Jones wasyesterday banned from working infinance after he spent yearsdirecting funds from a credit unioninto The Church Organisation,

rather than to the members whowere supposed to get the loans,losing the union hundreds ofthousands of pounds.

Jones was a director of thePentecostal Credit Union based inBalham, where he approved loanstotalling 1.2m to The ChurchOrganisation, largely for repairsand property purchases.

The union is only allowed tomake loans to its members, not

Reverend banned from financefor making illegal church loans

BY TIM WALLACE outside groups, and it lost 670,000when the Church Organisationfailed to repay the loans.

This is a disgraceful case of acredit union putting the interestsof another organisation beforethose of its members, said the

Financial Services Authoritys (FSA)Tracey McDermott. Credit unionsare vital institutions for thecommunities they serve, and themembers of The Pentecostal CreditUnion deserved better.

All of the directors have sincechanged, and the union hasintroduced new audit proceduresto monitor compliance. The union

was not fined as the FSA feared thiswould hurt its members.

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WALKER Crips boosted pre-taxprofits to 7.7m between April andSeptember on the back of the 10msale of its asset managementbusiness earlier this year, it saidyesterday.

The business, which offersbroking and wealth managementservices, saw revenues fall 17 percent down to 8.8m for the sixmonths ending 30 September butboosted profits from the proceeds ofthe sale.

Chairman David Gelber said the

firm was well positioned tobenefit from better market activity.

Walker Cripsreaps sell-offBY CITY A.M. REPORTER

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THE UKS ailing housing sector has

begun to show signs of life,according to two widely-regardedreports released yesterday and thismorning.

Interest in residential propertiesfrom potential buyers grew at itsfastest rate for nearly three years inOctober, the Royal Institution ofChartered Surveyors (RICS) revealedthis morning.

The number of agreed sales alsojumped at the quickest pace sinceDecember 2009, RICSs latesthousing market survey said.

The report contained furthergood news, with the supply ofhomes coming onto the marketrising at its highest rate since April2011, while prices were fairly stable.A net balance of seven per cent ofsurveyors reported lower prices,RICS said.

Meanwhile the Council for

Mortgage Lenders (CML) yesterdayreported a 13 per cent hike in homepurchase loans in the third quarterof the year.

Yet the lending market remainschoppy, the CML data showed, withloans falling sharply in Septemberafter a strong July and August. Firsttime buyer loans also fell, CML said.

Surveys revealhousing sectoractivity boost

BY JULIAN HARRIS

HOUSEBUILDERS Taylor Wimpeyand Bovis Homes yesterday said theyhad continued to make steadyprogress since the first half of theyear as their focus on margins paidoff.

In a third quarter update, TaylorWimpey said housing market condi-tions remained stable and whilemortgage lending was still con-strained, it had seen incrementalimprovement since the first half asa result of government schemes.

We welcome the governmentsrecent announcements recognisingthe housebuilding industrys impor-

tance to the UK economy and hope tosee further improvements in mort-gage lending over the comingmonths as the Funding for Lendingscheme gains more traction, it said.The FTSE 250 firm said it has taken

467 net reservations under thescheme and its equivalent inScotland MI New Home.

Homebuilderswelcome rise

of green shootsBY KASMIRA JEFFORD It said its order book of future com-pletions stood at 1.1bn, up 100mfrom the same time last year.

Meanwhile Bovis said it remainedon track to deliver a strong increasein revenue in 2012 and expects tomeet its full-year guidance for thenumber of homes sold.The group said sales prices in the

year to 9 November rose to 190,000,compared with 180,100 last year,while prices in the housing marketremained broadly stable butstronger in the south of England.

Taylor Wimpey PLC


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A GROUP of rebel shareholdersfailed to oust one of Redrowssenior non-executive directors

yesterday over his handling offounder and chairman Steve

Morgans failed attempt to take thehousebuilder private.

Alan Jackson saw a 24 per centvote against his re-election at thefirms annual meeting in Wales,after investors voiced concernsover his alleged failure to protectthe interests of smaller investors.

Morgan, who owns 40 per cent of

Rebel shareholders fail to oustRedrow non-executive director

BY KASMIRA JEFFORD the firm, withdrew his bid ahead ofthe Takeover Panel deadline lastmonth amid the protests led byfund manager Fidelity, which owns10 per cent stake.

One retail shareholder, SimonCussons of the soap dynasty, spoke

out yesterday against attempts toscupper the bid, proposing a voteof no confidence in the TakeoverPanel.

The meeting came as Redrowsaid trading in the first 19 weeks ofthe year was challenging butstable, with house sales up 22 percent from the same time last year.


Almost a quarter of Redrow investors voted against non-executive director Alan Jackson

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THERE were glimmers ofoptimism from thehousebuilders yesterday. BovisHomes reported its average

selling price up from 180,100 in2011 to 190,000 and its operatingmargin expected to be 13 per cent,up from 10 per cent in 2011. Redrowand Taylor Wimpey also bothbacked the picture of a sector facingtough but not immediatelydeteriorating conditions. Redrowsaw prices up 18 per cent, and 22 percent including London. TaylorWimpey saw margins up both yearon year and compared to the firsthalf of 2012.

Both Redrow and Taylor Wimpeymade a point of curtsying to thegovernments assorted initiatives tosubsidise their embattled

businesses. NewBuy and FirstBuyseem to be having an impact,although funding for lendingscontribution will play out over thecoming months. Reforms to easeplanning laws have also helped.

The short-term benefits of statefavours aside, these improvingnumbers seem to have been mainlydriven by the firms improving theirsales mix, focusing on areas of high

growth in the southeast and usingplots bought at low prices post-crisis.

Some are suggesting that mix ofgovernment favours and cannybusiness decisions could seehousebuilders outperform the FTSEAll-Share in the fourth quarter. Butthe real question is how sustainablethe trend is into 2013 and beyond,with the economy likely to contractagain this quarter and few signs ofsoaring growth on the horizon.

Mortgages remain a tickingtimebomb for the sector.Repossessions are at their lowestlevel for five years and access tolending is improving, thanks torecord low interest rates and all thatgovernment assistance. But it is atemporary reprieve. When interest

rates correct upwards, repossessionswill rise and lending will shrinkagain. Housebuilders might be in fora good quarter, but it is hard to seethem as a good long-term bet.

FRIENDS UNITEDWhat is the opposite of a hostiletakeover? Perhaps the $2.76bn(1.74bn) merger of Jefferies andLeucadia, announced yesterday inthe chummiest of terms. Theoutgoing chief executive of LeucadiaIan Cumming called the head ofJefferies simply Rich. RichardHandler, who will run the combinedgroup, wasnt to be outdone, callingLeucadias president, soon to bechairman of the board, Joe.

It is easy to see why Jefferies

should be relaxed about the deal. Itnot only gets to keep its man at thehead of the group, but can alsocontinue to operate in its currentform, its autonomy marked by aseparate credit rating and SECreporting company, while alsoenjoying the necessary funding forthe bank to continue to grow.

There must be a sting in the tailsomewhere, and it may lie in thatabiding autonomy, which leavesopen the option of Jefferies beingspun out again sooner rather thanlater. Current shareholders of theinvestment bank will end up withtheir man at the top but only justover a third of Leucadias shares. Ifthings turn unfriendly, Leucadiasold owners will still be powerful.

BOTTOMLINE

MARC SIDWELL

Bright signs can also be an indication of danger ahead

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BRITAIN will have wider access tohigh-speed 4G mobile services fromlate spring next year, the communi-cations regulator confirmed yester-day, as it published final terms for anauction of airwaves to be held inJanuary.

The auction of 4G-approved spec-trum, some of which was previouslyused for analogue TV signals, willraise at least 1.3bn for the publicpurse, Ofcom announced yesterday,as it set reserve prices for the lots ofspectrum to be sold. Estimates putthe true amount the auction willbring in at up to 4bn, although thisstill pales in comparison to the22.5bn raised in 2000s 3G bidding.The likes of O2 and Vodafone are

looking to launch 4G networks assoon as possible, after Orange and T-Mobile parent EE stole a march onrivals by gaining approval to havesome of its current mobile spectrumreassigned earlier this year.The 4G data networks, which will

Ofcom sets outthe rules for 4Gairwaves sale

BY JAMES TITCOMBonly work on certain handsets, offerspeeds between five and seven timesfaster than current 3G networks,Ofcom says.The countrys four operators O2,

Vodafone, EE and Three will inDecember lodge applications to beapproved as suitable candidates tooperate the 4G spectrum before it issold off in chunks in January. Ofcomhas introduced measures to makesure all four providers grab a slice ofthe new airwaves.Although EE already runs a 4G net-

work on its existing spectrum, it willstill be bidding in the auction so thatit can bolster its current service.The date that networks will be able

to operate 4G services some time inMay or June was recently broughtforward by six months after govern-ment-brokered peace talks betweenthe companies.

The entire industry is now focusedon the auction itself, with a sharedgoal of delivering new and improvedmobile services for consumers,Ofcom head Ed Richards said.

Aveva looks to new software todrive growth as sales improveSOFTWARE firm Aveva saidyesterday it expects healthy growth

in the coming years, driven by itsrecently-launched design softwareEverything3D (E3D).

Feedback from existing andprospective customers on thisground-breaking technology hasbeen universally positive, Avevasaid, as it posted a 15 per cent risein revenue in the six months toOctober.

The firm, whose software is usedto design oil and gas facilities,

BY JAMES TITCOMB nuclear power plants, and ships,posted profits up eight per centyear-on-year to 25.8m, on turnoverof 97.6m in the period.

We are convinced of the stronggrowth opportunity E3D offers,Aveva said. The company hasoutperformed the rest of the ITsector this year, even as budgetshave been hit in Europe. Thecompany saw revenues rise 21 percent in Asia, much of which wasdown to Chinese growth.

These results highlight thebreadth, quality and scale of ourglobal business today, with

multiple growth drivers acrossgeographies and industries, saidchief executive Richard Longdon.

We see Aveva as a core sector

holding due to its strongsustainable growth outlook, saidJulian Yates, an analyst at Investec,reiterating a buy rating andsaying that the results displayedpositive momentum despite delaysto its projects in Brazil. Avevashares have risen to an all-timehigh in recent weeks.

The company also hiked itsdividend by 13 per cent to 4.5p pershare.

Ofcom head Ed Richards said the o perators now have a shared goal of 4G access


TIMELINE FOR UK ROLLOUT OF 4G SERVICES

21 August 2012Ofcom gives EE permission to reassign itscurrent spectrum for 4G use

30 OctoberEE switches on UKs first 4G network,months ahead of rivals

12 NovemberOfcom announces final proposals forauction of 4G spectrum

11 DecemberProspective bidders apply to be candi-dates to buy spectrum and place deposits.These are likely to be the UKs four mobilenetworks, although others could enter.Applicants are then reviewed by Ofcom to

decide if they are fit and proper

January 2013Auction begins, although Ofcom haswarned this could take weeks tocomplete. The bids are placed over secureinternet connections using specially-developed software

February/MarchBidders are informed what slices of theairwaves they have won and how muchthey will cost. Operators then pay licencefees for spectrum and can plan for rollingout their 4G networks

May/JuneMobile operators are expected to roll out4G networks after testing earlier thanoriginally planned but months after EE

launched its service

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VODAFONE will finally get its divi-dend payout from VerizonWireless, af ter its US par tner saidlast night that its board has agreedto dole out a bigger-than-expected$8.5bn (5.4bn).The announcement follows

months of investor speculation asto whether Verizon Wireless,which is controlled by VerizonCommunications, would choose topay a dividend t his year.

In the past the dividend has beena bone of contention for Vodafoneshareholders, anxious to get areturn on their ownership in the

top US wireless service.The standoff had become an

increasing source of tension, withVodafone shareholders calling forfurther payouts at Julys annualmeeting and chairman GerardKleisterlee admitting that the rela-tionship sometimes meant diffi-cult discussions between the firms.Verizon Wireless, which is 55 per

Vodafone getsdividend from

Verizon ventureBY HARRY BANKS

cent owned by Verizon and 45 percent owned by Vodafone, said thedistributions would be paid in oneor more tranches, with eachtranche paid in proportion to theowner' partnership interests.The payout compared with a

$10bn dividend announced by thecompany in July 2011. The divi-dends are due to be paid on orbefore 31 December, VerizonWireless said.

Verizon had suspended the divi-dend from 2005 until 2011 while itfocused on paying down debt atVerizon Wireless.

Last month, Verizon Wirelessposted strong third quarter results,

with ear nings up 17 per cent, rais-ing hopes that a bumper dividendwas around the corner.

Verizon Communications chiefLowell McAdam had been taciturnabout the prospect of a payout,however.

FTSE 100-listed Vodafone sharesclosed 0.6 per cent lower at 166.6pyesterday.

Research in Motion to unveillatest BlackBerry in JanuaryBLACKBERRY maker Research in

Motion (RIM) will unveil the nextgeneration of its smartphones inJanuary, the troubled Canadiancompany announced yesterday.

The BlackBerry 10 (BB10)software, which has beenrepeatedly delayed by technicalproblems, will be a radical overhaulof the operating system used on itsphones.

RIM is pinning its hopes on thesuccess of the software to revive

BY JAMES TITCOMB sales, which have slipped in recentyears due to competition fromApples iPhone and phones running

Googles Android operating system.Microsoft has also made a renewedpush into smartphones with therelease of its Windows Phone 8Software, in tandem with Nokia.

RIM is looking to find a uniqueposition in the market by continuingto offer phones with QWERTYkeyboards, and with new featuressuch as app multitasking.

Our team has been workingtirelessly to bring our customers

innovative features, chief executiveThorstein Heins said.

Although the company did not

reveal release dates or pricing ofBB10 handsets, it said a showcaseevent will be held on 30 January.

Shares in RIM, which lost a fifth oftheir value when the companydelayed the release of BB10 earlierthis year, opened up 4.5 per centyesterday. The software hadoriginally been scheduled for releasein time for the Christmas shoppingseason, but was delayed afterteething problems.


INDEPENDENT film studioEntertainment One has ploughedmore money into movieproduction and promotion aheadof the release of its latest lucrativeTwilight movie and its acquisitionof Alliance Films.

The investments pushed theCanadian companys profits downto just 1m in the first half of thefinancial year, it said yesterday.This was down from 9.8m in thesame period last year, even asEntertainment Ones revenuesrose eight per cent to 220.5m.

Id expect some pretty chunkynumbers in the next half, chief

executive Darren Throop told CityA.M.. He called the last six months

Entertainment One investment

hits profit in breakthrough yearBY JAMES TITCOMB

a breakthrough period, in whichthe firm agreed a C$225m (142m)deal for movie distributor AllianceFilms and rolled out licensing andmerchandising deals for the wildlypopular Peppa Pig childrenscartoon in the US.

The final chapter in the Twilightmovie saga, Breaking Dawn PartTwo, is expected to be a hugesuccess when it screens later thismonth, but Throop said an end tothe series would not harm thestudio. We are not going to seeany downward revenue pressure,he said, pointing to the AllianceFilms acquisition as a driver of

growth.Entertainment One expects the

deal to be approved by Canadian

competition authorities shortly,and to be completed in early 2013.

TECH CITY BECOMES LONDONS GROWTH HUB

BUSINESSES in East Londons Silicon Roundabout area are set to be the key drivers ofgrowth in London over the coming years, according to research released yesterday bythe Centre for Economics and Business Research. The research claims that technologyand media companies in the East End are growing twice as fast as those in the City.

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HEATHROW Airport yesterday reporteda rare fall in traffic for October asHurricane Sandy wrought havoc withits schedule.

But there was a ray of sunshine forBritains biggest airport, as a surveysuggested that MPs would prefer to seeexpansion at Heathrow than a newhub in the Thames Estuary.

Forty-six per cent of politicians sur-veyed by Ipsos Mori either strongly sup-ported or tended to support anexpansion of Heathrow, including athird runway. Thirty-four per centopposed such a move.

Conservative and Labour MPs wereequally supportive of a biggerHeathrow, though the LiberalDemocrats surveyed were less enthusi-astic.

But the Thames Estuary option,backed by London Mayor BorisJohnson, garnered just 16 per cent sup-port across all parties. Nearly six in 10MPs either strongly opposed or tendedto oppose a major new airport to the

Heathrow gainssupport of MPsas traffic slides

BY MARION DAKERS east of London.The coalition has asked Sir Howard

Davies to assess the options for improv-ing Britains air capacity, with an inter-im report due next year.

In October, Heathrow passenger traf-fic fell 0.1 per cent on a year ago to 6m,which the airport said was due to storm-related disruption and the late falling ofUK schools half-term break.

Stripping out these events, Heathrowthinks its traffic for the month wouldhave been up 1.7 per cent year on year.The number of planes taking off and

landing at the west London hub fell 3.2per cent to 39,638.

Stansted continued to suffer falls inpassenger numbers. Traffic at the air-port, which BAA is selling after a com-petition ruling, fell 3.1 per cent to 1.59mpassengers in October, while 3.5 percent fewer aircraft passed through.

For the airports formerly groupedunder the BAA name, includingGlasgow, Aberdeen and Southampton,total traffic was flat on a year ago at8.75m passengers. Gains in the Scottishairports offset the slide in London.

14 NEWS cityam.com

IN BRIEFCostain wins Welsh contractn Costain has won a four-yeartechnology contract with the Welshgovernment worth around 15m, it saidyesterday. The contract, which is for themaintenance of road networkcommunications and tunnel systemsacross Wales, will begin early next year.

Gem Diamonds hit by low outputn Gem Diamonds was hit by fallingproduction at its Lesotho operations overthe third quarter, it said yesterday, withthe amount of ore mined down 13 percent year on year. Carats recovered fromthe mine was down nine per cent year onyear as severe winter snow conditionshindered production.

Eurotunnel settles fire claimn Channel tunnel operator GroupeEurotunnel yesterday said its insurers willpay out 253m (203m) following its2008 fire claim. Eurotunnel spent around48m on repairs after the 16-hour fire inSeptember 2008, with full serviceresuming in February 2009.

Hibu extends debt restructuren Yellow Pages publisher Hibu yesterdayextended the time it needs to win approvalfrom creditors for a restructuring of thefirms colossal debts. The firm originallygave creditors until 9 November toapprove the amended repaying structurebut extended that deadline until 23November. Shares fell 15 per cent.

Non-European flightsget a green tax breakTHE EUROPEAN Union has suspended

its controversial carbon emissions taxfor non-EU flights, after fierceprotests from authorities around theworld.

Airlines operating routes withinthe EU will still have to pay, but thebloc has issued a year-longexemption for flights linking EUairports to the rest of the world.

The Emissions Trading Schemewas introduced on 1 January tointense opposition. Beijinginstructed its airlines to refuse topay the tax on carbon emissions,while India and the United Stateshave also hit back, calling instead fortalks about a global levy.

BY MARION DAKERS The European commissioner forclimate action Connie Hedegaardsaid yesterday the bloc was stopping

the clock on the charge in light ofvery good news last week, when theInternational Civil AviationOrganisation agreed to progress withtalks.

The EU has always said it will alterits rules if the ICAO can agree on asimilar green tax. Hedegaard saidyesterdays freeze will help create apositive atmosphere around theglobal negotiations leading up to anICAO meeting next autumn.

But some European airlines, suchas Ryanair, used the moratorium as achance to lobby the EU to insteadexclude all air travel from the anti-competitive green tax.

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15NEWS

COBHAM, the London-listed maker ofsophisticated military equipment,yesterday issued a profit warning fornext year due to declining revenuesfrom the US defence market.The firm, which got 40 per cent of

its revenues from sales of defenceand surveillance equipment in theUS this year, said group revenueswould decline by low-to-mid digitsin 2013.The FTSE 250 company posted rev-

enues of 892m in its last set ofresults, leading to a 10 per cent fall inprofits to 90m in the first half of theyear. It blamed a cyclical downturn inthe $500bn (314bn) US defence andsecurity market for the predicteddrop.

Chief executive Bob Murphy said:Cobham is more focused in takingactions today in recognition of thelikely longer term trend. US spendingis likely to decline for an extendedperiod.

Although we see decline coming

US defence cutsprompt Cobhamprofit warning

BY MICHAEL BOW we know that this is a market whichis strategically important.The US defence budget will be cut by

$24bn next year and almost doublethat in 2014, unless newly re-electedPresident Barack Obama andCongress can come to an agreementover the countrys looming fiscal cliff.Cobham said it would invest in organ-ic growth in the future to improve itsprospects going into 2014 and 2015.

In areas like South America and theMiddle East we do have opportunitiesthere where we can leverage from ourcurrent technologies, Murphy added.

Dubai-based airline Emirates has defied the gloom weighing down the aviation industry bymore than doubling its profits to 1.7bn dirhams (291m) for the six months to the end ofSeptember. The state-owned firm carried 18.7m passengers in the period, up 15.4 per centfrom a year ago. Revenue rose 17 per cent on the same period last year. Emirates hopes itslocation a third of the worlds population is within a four-hour flight radius will continueto attract passenger traffic away from other global hubs such as London a nd New York.

PROFITS AT EMIRATES SOAR

Olympus puts accounting fraudbehind it by swinging into black

TROUBLED Japanese electronics firmOlympus swung to its first profit since2010 yesterday as it put a 1.1bnaccounting scandal behind it.

The company, which makes opticalmedical equipment as well as digitalcameras, reported an 18bn (143m)pre-tax profit in the six months toOctober, compared to a 6.6bnloss in the same period last year.

However, it warned of furthertroubles in its camera business,

which has suffered as thepopularity of smartphones

BY HARRY BANKS has risen.The company is still reeling from

an accounting scandal. InSeptember it admitted tocovering up losseslinked to riskyinvestments in the five

years leading up to 2011.Olympus boss Hiroyuki

Sasa said themedical businesswas the key driverof growth.

Olympus presidentHiroyuki Sasa

Cobham PLC


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CITY workers swapped their sheetsfor the street last week to help raise250,000 for homeless charityCentrepoint.

The Capitalist chatted to GordonTaylor, managing director of mar-kets at RBS, and Jon Millward, part-ner at Drivers Jonas Deloitte, beforethey bedded down for the night.When asked what provisions he

had brought along, Taylor said:Not as many warm clothes as mycolleagues, some of whom looklike theyre going on a polar expe-dition. But luckily I have some ear

plugs to drown out their snoring,and a hip flask for emergencies.Aside from our Square Mile stars,

celebrity sleepers such as DowntonAbbey cast members SophieMcShera and Allen Leech, DJ SaraCox and television presenterRichard Madeley were also rough-ing it on the streets of Broadgate.

The Capitalist hears there was plen-ty of entertainment laid on for ourcharity sleepers, celebrity or other-

wise, including a special perform-ance by the cast of Shrek The

Musical.With bedtime storieslike that, somehow it

sounds morelike urban

g l a m p i n gt h a n

sleepingrough.

KIGU, a company that makes animal onesiesfavoured by everyone from the cast of Madein Chelsea to Lily Allen, has been voted

Britains brightest small business bybusiness network Smarta. Kigu founderTom Cohn was awarded a novelty chequefor the very real 10,000 cash prize at the

awards, run with O2. BBC Dragon andjudge Theo Paphitis said: I

hear their dragon costumesare one of their best sellers.

A reminder that starting from October 2012, all employers must enrol eligible workersinto a qualifying workplace pension scheme. The date you have to do this by dependson the size of your company, but to give yourself time to prepare, visit The PensionsRegulator at www.tpr.gov.uk/actnow where youll find out all you need to know.

Workplace pensions. Were all in.

16 cityam.com

THE Brewery in the City was thevenue for the Futures and Options

Associations (FOA) 10th annual PowerTrading Dinner. The dinner is anopportunity for firms, brokers andexchanges in the industry, includingAlex McDonald and David Clark(pictured left to right above), the chiefexecutive and chairman respectively ofthe London Energy BrokersAssociation, to indulge in some powernetworking. The new chair of FOAsCommittee, Stephen Harris, is picturedabove giving the keynote speech.


cityam.com/the-capitalistTHECAPITALIST EDITED BY CALLY SQUIRESGot A Story? Email

[email protected]

Gordon Taylor,director at RBS(left) and JonMillward, partnerDrivers JonasDeloitte (right)

Judges Kypros Kyprianou, chiefexecutive of Rymans (left) andTheo Paphitis, BBC Dragon andretail entrepreneur (right)

The FOAs StephenHarris holds court

London Energy Brokers AssociationsAlex McDonald and David Clark

Left to right: Ben Dowd, business director of the O2; Shaa Wasmund, founder of Smarta;Tom Cohn, founder of Kigu; Stephan Eyeson of the B right Ideas Trust and Jane Howard

Kigu is crowned smartest smallbusiness at Smarta 100 Awards

City sleepoverin Broadgate

HarrietArmstrong

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IN BRIEFIndias economic woes worsenn Indias economic gloom deepenedyesterday with a surprise contraction inindustrial production, a fall in exportsand higher retail inflation. Industrialproduction shrank an annual 0.4 percent in September, according to theCentral Statistics Office (CSO). Exportsfell an annual 1.6 per cent to $23.2bn(14.6bn) in October, while theconsumer price index rose an annual9.75 per cent in October, a little fasterthan 9.73 per cent rise a month ago.

OECD bullish on UK prospectsn Growth is due to pick up in the newyear in the UK, according to OECDpredictions released yesterday. TheParis-based groups leading indicator

ticked up to 100.2 for the UK inSeptember from 100.1 in August,where 100 represents the long-termaverage. The indicators continue toforecast weak growth across theEurozone and in Japan, althoughprospects in the US remain better.

Sudden fall in charitable givingn Donations to charity fell by 20 percent in real terms during 2011-12,according to a report released thismorning by the National Council forVoluntary Organisations (NCVO). TheBritish public gave 1.7bn less tocharity than the previous year, it said.Id ask people to commit to regulardonations through direct debit, andgive using Gift Aid, so charities canplan properly, said the groups chiefexecutive Stuart Etherington.

INFLEXIBLE labour markets meanthat many countries suffer from acombination of high unemploymentand considerable skills shortages,the recruitment firm Hays has said.

Governments could help solve theparadox by reforming restrictionson immigration, Hays said whilelaunching its latest global skillsindex yesterday.

Governments should focus onthe skills their economies lack andtake appropriate measures toattract the relevant people throughtargeted immigration, Hays said.

This would in many casesrequire an overhaul of existingwork visa arrangements.

The report also says employersshould do more to enhance thetraining they offer.

Open bordersto help solveskills shortage

BY CITY A.M. REPORTER

RETAILERS yesterday sent a list ofdemands to George Osborne aheadof the chancellors AutumnStatement next month, calling formeasures to save the struggling sec-tor.

Osborne should freeze businessrates, scrap the delayed plans toincrease fuel duty, and ensure thatthe minimum wage does not rise ata rate that does not exceed long-term movements in average earn-ings, the British Retail Consortium(BRC) said.

Rates have risen by over 10 percent in the last two years, and are setto rise by 2.6 per cent in April nextyear if they are based on Septembers

Retail Price Index (RPI), BRC directorgeneral Stephen Robertson said.

This would add over 175m toretailers bills at a time of relentless-ly tough trading conditions.Yet Osborne is unlikely to hint at

many fiscal giveaways in hisAutumn Statement, due on 5December, as he struggles toreduce the governmentsannual deficit to the extentthat he promised on enteringoffice in May 2010.Yet the deficit could appear

35bn lower than previouslyexpected, after Osborneannounced plans at

the end of last week to claim surpluscash from the Bank of Englandsquantitative easing scheme.The move is likely to cost the

Treasury more in the medium run,but could provide some immediate-

ly relief and allow scope for fis-cal stimulus.

The BRC also suggests aban-doning the 3p a litre hike infuel duty, planned for

January, to support hard-pressed consumers and busi-

nesses.The chancellor should

not pile more painonto strugglinghouseholds orretailers byadding extra

costs, Robertson added.The retail sector, which employs a

large proportion of young people,could be stimulated by beingoffered a one year holiday fromNational Insurance Contributions(NIC) for all employers taking on ayoung person.

The BRC added that the coalitionsCarbon Reduction Commitment(CRC) Energy Efficiency Scheme istoo costly to administer and needssimplifying for all participants.The final argument in the BRCs six

point plan called for the govern-ment to roll out high speed broad-band in order to encourage onlineshopping. The costs could be coveredby cash from the forthcoming 4Gauction, the BRC suggests.

Shops tell Osborne to lift sectorby going easy on new tax hikes

BY JULIAN HARRIS

Japan edges towards recessionJAPANS economy shrank in theSeptember quarter for the firsttime since last year, data releasedyesterday showed, adding to signsthat slowing global growth andtensions with China are nudging

the worlds third-largest economyinto recession.The 0.9 per cent fall in GDP was

in line with expectations, althougha fall in capital expenditure was farsteeper than forecast.

Domestic firms including Sonyand Panasonic have slashed

BY CITY A.M. REPORTER spending plans to cope withmassive losses as they struggle withcompetitive markets and a strongyen.

GDP was down 3.5 per centcompared to the third quarter oflast year, the data showed.

External demand was the main

drag, as exports fell by five per cent,but shrinking domestic demandalso weighed on activity, CapitalEconomics said in a note.

Capitals economists forecast a 0.2per cent drop in Japans GDP for thefinal quarter of the year.

Many analysts expect the Bank of

Japan to leave policy unchanged at areview next week, but some see itboosting stimulus again at a 19-20December meeting, shortly afterthe US Federal Reserve is due tomeet.

A row with China oversovereignty of some islands in the

East China Sea have sparked violentprotests in China and the boycott ofJapanese goods, which added to theslide in exports, particularly forautomakers such as Nissan.

Masamichi Adachi of JP MorganSecurities said business investmentwould fall again in quarter four. Japanese manufacturing has been hit by consumers in China boycotting its products

A WESTMINSTER think tankwill today call on Brussels tohelp development in poorercountries by scrapping non-tariff barriers to trade.

The Institute for EconomicAffairs, which argues in favourof free trade, will also urge

governments in developingcountries to boost growth byslashing measures that stifleinternational trade.

EU urged to drop barriers totrade with poorer countries

BY JULIAN HARRIS There is an urgentrequirement for the EU toremove protectionist import

barriers erected against poorcountries, the new report says.

Extortionate trade tariffs alsothwart development in less

wealthy parts of the world.India has a tariff barrier of

99 per cent on roasted coffeeand Mexico 71 per cent, it says.

Barriers trap firms in poorcountries into less profitableareas of business, the IEA argues.

BRITISH businesses will gain aboost from increasing exportopportunities in emergingeconomies, the latest HSBC tradeforecast said yesterday.

Exports to eastern Europe, theMiddle East and north Africa areexpected to rise over the nextthree years, while demand fromChinas middle classes will alsoprove to be a boon for the UKseconomic growth.

UK exports to the Middle East

and north Africa... are set to riseby 10 per cent a year during

Emerging economies setto boost UK firms exports

BY JULIAN HARRIS 2013-15 and by seven per cent ayear during 2016-20, it says.

And trade to traditionallywealthier countries should alsorecover from 2016 onwards, thereport expects.

The forecast predicts that theUS will overtake Germany tobecome the most importantmarket for UK exports by 2030,HSBC said.

Ireland, France and Chinacomplete the UKs top fivedestinations for exports, andwill still produce the most

demand for British companiesgoods in 2030, the report says.


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19/31

IN BRIEFWincanton swings back to profitn Supply chain company Wincantonreturned to profit in the six months toSeptember, posting pre-tax profits of

13m, up from a loss of 13.6m overthe same period in 2011. Over the pastsix months, it has won severalcontracts in the retail sector, notablywith B&Q and with Morrisons tooperate a convenience distributioncentre. Meanwhile, revenue over thehalf year dropped slightly to 551.2m,down from 625.4m a year ago.

Interserve confirms guidancen Support services and constructionfirm Interserve yesterday said tradingremained in line with expectations,and it reiterated its guidance for 2012.Since 1 July, it has won more than500m worth of new work fromclients such as the NHS, Viridor,Scottish Power Networks and theMinistry of Justice. Interserve has alsonetted 124.5m in cash from the sale

of private finance initiativeinvestments over the period.

Kentz eyes strong growth in 2013n FTSE 250-listed engineering andconstruction group Kentz saidyesterday it expected to deliver 2012earnings in line with expectations andhit double-digit growth next year. Itsprospect pipeline increased to $13.1bn(8.2bn) in the period since 1 July.Kentz, which has operations in 29countries, had a backlog of $2.53bnat the end of September, up from$2.54bn at the end of July.

ALUMINIUM producer Rusal made anet loss of $118m (74.3m) over thethree months to September, againsta profit of $432m a year earlier, as iteyed a rebound in consumption ofthe metal in the fourth quarter.

Revenue came in at $2.56bn duringthe quarter, down from $3.16bn overthe same period in 2011, the firmsaid yesterday.Aluminium production for Rusal

was flat at 1.042m tonnes for thethird quarter, compared to 1.041mtonnes a year ago.Tepid demand for the metal used

in drink cans, aircraft and electron-ics equipment has pushed pricesdown 19 per cent during the firstnine months of 2012 to an average of$2,025 a tonne.

Global aluminium consumptionduring the nine months toSeptember hit 35.5m tonnes, a fiveper cent increase on the previousyear, although Rusal said globaldemand moderated in the quarter.

Rusal drops to

a loss on weakmetal outlook

BY CATHY ADAMSA rebound in Chinese growth, a

resilient US automotive sector andworldwide monetary stimulusshould drive consumption of the basemetal, Rusal said.

Chief executive Oleg Deripaska saidyesterday that while the short-termoutlook for the aluminium sectorremained uncertain, the stepstaken to address oversupply along-side growing demand from the USand emerging markets enablesRusal to remain confident in its cur-rent strategy and the outlook for thewider sector.

Explorers San Leon and Aurelianagree 150m all-share mergerOIL AND gas explorer San LeonEnergy is to acquire fellow Aim-listed explorer Aurelian in anall-share merger worth around150m.

Under the terms of the tie-up which represents a compellingstrategic and cultural fitaccording to the boards of bothcompanies shareholders willreceive 1.3 new San Leon shares foreach Aurelian share.

Existing Aurelian shareholderswill hold approximately 34 per

cent of the enlarged company, andSan Leon shareholders will hold 66

BY CATHY ADAMSper cent.

Both firms hold significantacreage positions in Poland, andthe enlarged group will become thelargest foreign acreage holder inthe Eastern European country, bothfirms said yesterday.

The enlarged group will also haveassets in Morocco and Albania.

Oisin Fanning, executivechairman at San Leon, is lined upto take the same role in the mergedgroup. San Leons Paul Sullivan willbe appointed managing directorand John Buggenhagen will becomeexploration director.

Upon completion of the merger,five directors including chief

executive Rowan Bainbridge willstep down from Aurelian.

Oisin Fanning said yesterday:The combination of cash resourcesand the Polish asset base alonecreates an obvious and excitingopportunity to realise substantialgrowth.

Both management teams havebuilt up a tremendous amount ofexperience and we can now employthat to pursue a best-of-portfolionear term value creation strategy.

Shares in San Leon closed 12.83per cent down at 8.36p and sharesin Aurelian closed 6.82 per cent

down at 10.25p, as investors reactednegatively to news of the merger.

Cape dives on profit warning asits chief financial officer departsSHARES in energy support serviceprovider Cape plunged yesterday as

it issued a profit warning,prompting the departure of its chieffinancial officer.

Finance director RichardBingham stepped down withimmediate effect. It is understoodhe was close to the former chiefexecutive, and the latest profitwarning was a catalyst to hisdeparture.

Cape, which also issued a profitwarning in May, has beenstruggling with slow progress at aproject in Algeria, and worsening

BY CATHY ADAMS margins at its Australian business.The company was also hit by a

1.5m bad debt provision in theMiddle East, relating to a potential

bad debt with a Saudi Arabiancustomer.The groups operating margin

was impacted by a substantialdeterioration in the performanceof the onshore Australian division,causing some uncertainty over thefull-year performance for thisbusiness, Cape added.

The company, which is reviewingits Australian business, added thatit had identified a number of issuesrelated to the valuation of certainbalance sheet items in the division.

The review will be completed by theend of the year.

Shares closed down 29.01 per centyesterday at 186p as investors

reacted badly to the warning.

RUSAL


4.40

4.45

4.50

4.55 HKD

4.4712 Nov

Cape PLC


220

240

260

280

180

200

p 186.0012 Nov

EXPLORER Heritage Oil yesterdayconfirmed it would exit itsKurdistan asset, by selling itsremaining 49 per cent interest in a

gas field to Genel Energy to repaya $294m (185m) loan.

FTSE 250-listed Heritage will sellits stake in the Miran gas field in adeal that will see it exitingKurdistan completely and focusingon a new project in Nigeria.

In August, the oil and gasexplorer agreed to sell a 26 percent stake in the block to TonyHaywards Genel, with Genel

Heritage Oil exits Kurdistan asit sells interest to Genel Energy

BY CATHY ADAMS lending Heritage $294m.Should the deal be approved by

Heritage shareholders, Genel willown 100 per cent of the Miranfield.

The divestment of ourremaining 49 per cent interest inMiran will allow Heritage tomonetise the asset at an attractive

valuation and the total proceedswill have funded a significant partof the completed acquisition ofOML 30 in Nigeria, Heritage Oilchief executive Tony Buckinghamsaid yesterday.

Heritage shares closed down1.69 per cent at 197.6p.


Former BP chief executive Tony Hayward created Genel Energy in 2011

Westhouse Securities is the nominatedadviser to San Leon Energy, having takenon the role when Westhouse boughtArbuthnots investment banking arm earlierthis year. Richard Johnson and AntonioBossi, both directors of corporate finance atWesthouse, are leading the banks team.Bossi joined Arbuthnot in 2003, and hasover 16 years of M&A and capital marketsexperience. He has advised FKI, BICCGeneral Cable, Clarity Commerce, GE, TycoInternational on a number of cross-borderand public UK transactions and on theirEuropean expansion plans. Antonios cur-rent quoted clients include SQS SoftwareQuality Systems, Northbridge Industrial

Services, EIIB, Andes Energia, Sound Oil

and Quadrise Fuels.Johnson joined Greig Middleton & Co in1996, which became Arbuthnot beforeturning into Westhouse.He has 16 years of corporate finance expe-rience and has transacted across a widerange of sectors including oil and gas, tech-nology, logistics and financial services.His current clients include Pan EuropeanTerminals, Gresham House, Daniel Stewart,Goodwin and Cardiff Property.Fox-Davies Capital was financial adviser onthe deal and joint broker to San Leon, withSusan Walker and Daniel Fox-Davies lead-ing the team over there.Greenhill & Co, Oriel Securities, RFC

Ambrian also had roles on the deal.

ADVISERS WESTHOUSE SECURITIES

ANTONIO BOSSIWESTHOUSE SECURITIES

RICHARDJOHNSONWESTHOUSE SECURITIES

The issues now appear more than just simply deterioration in trading,and raise questions on the internal controls in the business first highlighted withissues experienced on a project in the UK followed by the larger costoverrun in Algeria.

ANALYST VIEWS

We have placed our recommendation under review as we revisit bothour 2012 and 2013 earnings forecasts. Overall, significant uncertainty remains forthis years earnings. We expect the profit warning and earnings uncer-tainty to lead to a de-rating whilst legacy issues are fully resolved.

The statement from Cape does not make for very happy reading.

Overall, the statement will do nothing to instill confidence amongst investors,who would have been hoping to see evidence of progress on the resolu-tion of various operational issues.

WHAT ARE YOURTHOUGHTS ABOUT CAPESTRADING STATEMENT?Interviews by Cathy Adams

ANDY HANSON NORTHLAND CAPITAL PARTNERS

SANJEEV BAHL NUMIS SECURITIES

CRAIG HOWIE SHORE CAPITAL

7/30/2019 Cityam 2012-11-13

20/31


US stocks flatahead of policydebate on tax

US stocks ended little changedafter a lightly traded sessionyesterday as investors hedgedbets before a policy debate

aimed at heading off US tax hikes andspending cuts early next year.

Firmer economic data from Chinaand delays to an installment of Greekaid also were trading day topics.

News that Chinese exports rose

sharply in October, signalling the econ-omy was strengthening, argued forbuying riskier assets. The safe-havenUS Treasury market was closed yester-day in observance of Veterans Day.

But stock market gains were limited,made tentative by concerns about theEurozone and possible higher US taxesand spending cuts that could kick inearly next year.

On Wall Street, the benchmark S&P500 index remains up 10 per cent for2012.

In Chicago, grain futures tumbledamid a wave of technical selling, withsoybeans sinking to a 4-1/2-month lowthat nearly erased gains from thissummers devastating drought.

Prices had already been under pres-sure after the US Department ofAgriculture on Friday raised its esti-mate for US soybean production morethan expected and increased its fore-cast for global inventories.The Dow Jones industrial average

ended down 0.23 point, or 0.00 percent, at 12,815.16. The Standard &Poors 500 Index was up 0.15 point, or0.01 per cent, at 1,380.00. The NasdaqComposite Index was down 0.62 point,or 0.02 per cent, at 2,904.25.

Overseas, a weekend report showingChinas export growth climbed to afive-month high added to recent datasuggesting the countrys sevenstraight quarters of slowing economicgrowth have ended.

BRITAINS FTSE 100 finished flat butoutperformed European stocksyesterday, led by a financials sectorthat bucked the broader European

trend as investors sought refuge fromEurozone debt distress.

Financials, the broad sector whichincludes banks, insurers and asset man-agers, added 9 points to the FTSE 100 andensured the blue-chip bourse finished inpositive territory.The solid gains, which resulted in Lloyds

Banking Group adding 3.5 per cent andBarclays two per cent, also helped theSTOXX Europe 600 Banking index to closeup 0.1, as they were able to offset a 0.5 percent fall in Eurozone banks index.The Greek parliament passed an austeri-

ty budget for 2013 late on Sunday, but theEU said it was not ready to authorise a newloan tranche yesterday, maintaining a posi-tion first staked out last week.

However, Athens was set to get two moreyears to achieve a primary budget surplus.

The FTSE 100 closed down just 2.41points, or 0.04 per cent, at 5,767.22, open-ing the week steady after losing 1.7 per

cent last week and outpeforming a 0.2drop in the top European stocks.

Banks aside, there was little evidencethat the appetite was there amonginvestors to propel riskier stocks thosewhich tend to rise more when economiccondition improve and fall more in timesof economic distress higher.

Miners shed 0.7 per cent as the uncertain-ty in th

cityam 2012-11-13

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