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Competitionbody slamsaudit firms

THE COMPETITION Commissionwill this morning find that theBig Four accountancy firms havetoo much control over theindustry, and call for measures toencourage Britains largestcompanies to change auditorregularly to boost competition.

In its long-awaited provisionalreport, the commission isexpected to find no evidence ofcollusion, but will raise concernsthat PwC, KPMG, Deloitte andErnst & Young have an unfair gripon the books of big UKcompanies.

Many blue-chip firms have BigFour-only rules in place, and thecommission is set to propose aban on such measures, accordingto Sky News.

But it is expected to be lessforthright about imposingmandatory rotation, in a movelikely to upset mid-sizedaccountancy firms attempting tocrack the FTSE audit market.

The Competition Commissionwill also urge investors to becomemore vocal about a firms choiceof auditor.

All but a handful of the FTSE100 use one of the Big Four toaudit their accounts, and a firmwill keep their auditor for anaverage of 48 years, according to aHouse of Lords report in 2011.

At least four blue-chipcompanies are believed to haveput their audit contract out totender in 2012, but only two asset manager Schroders and oilexplorer BG Group decided to

switch. Both continue to use theBig Four.The Competition Commission

declined to comment last night.

Financier Nat Rothschild arrived at the Honourable Artillery Company for the Bumi extraordinary meeting with his mother Lady Rothschild

BUMI co-founder Nat Rothschild yes-terday suffered an embarrassingdefeat at the coal miners EGM, with19 out of 22 proposals for a boardoverhaul flattened by shareholders ina public City showdown after monthsof increasingly bitter exchanges.

Rothschild, who arrived at theextraordinary meeting with hismother Lady Serena Rothschild, pro-posed last month ousting 12 out ofthe 14 current Bumi directors andbringing in a team of his own.

Investors yesterday chose to backthe current Bumi board, with morethan 61 per cent of stakeholders sup-porting incumbent chief executiveNick von Schirnding and the deputychairman director Sir Julian Horn-Smith.

Rothschilds proposed appointmentas an executive director was rejectedby 63 per cent of investors, whichmarked the weightiest defeat of allthe resolutions.The outcome of the EGM, held at

the Honourable Artillery Companyon City Road yesterday morning, willsee two current Bumi board members former chief executive Nalin Rathodand independent non-executive direc-tor Jean-Marc Mirzhai step down.

In a narrow victory, one ofRothschilds proposed new team, for-mer British ambassador to Indonesia

Sir Richard Gozney, has been votedonto the Bumi board.In a statement following the results

of the meeting, the FTSE 250 coal

www.cityam.com FREE

miner welcomed Sir Richardsappointment and the decision ofshareholders to support the board onsubstantially all resolutions.The board will now speed up the

divorce of Bumi Resources from theLondon-listed Bumi PLC, as well as arestructuring of the board, which will

be pursued with a sense of urgency.The board will be re-structured andwill be significantly smaller whileretaining a majority of independent

directors, the f irm said last night.Speaking at the EGM, von

Schirnding said that the agreementsigned last week with the Bakries,which saw them put $50m (33m) ina ringfenced account for the buybackof Bumi Resources, was a tangiblestep forward for shareholders.

The powerful Indonesian investorslast night welcomed the outcome ofthe meeting.

Hedge fund veteran Rothschild, also

speaking last night, labelled theresult a pyrrhic victory for theBumi board, adding that a substan-tial majority of non-aligned share-holders voted for his proposals.

Calling again for the full release ofthe probe by law firm Macfarlanes,the financier added that he will con-

tinue to remain a shareholder ofBumi, and he will continue to fightfor the rights of the minority inde-pendent shareholders.

BY MARION DAKERS

FTSE 1006,291.54 -103.83 DOW13,880.62 -46.92 NASDAQ3,131.49 -32.92 /$1.52 -0.01 /1.16 +0.01 /$ 1.32 -0.01

BY CATHY ADAMS

LEONARDON RUGBYSee Page 13

Certified Distribution

from 31/12/12 to 27/01/13 is 127,008

ISSUE 1,825 FRIDAY 22 FEBRUARY 2013

ROTHSCHILD HIT

BY EPIC DEFEAT

Our new columnist on Page 43

81 YEAR-OLD TOY FIRM GRABS MARKET SHARELEGO BUILDS PROFIT

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[email protected]

Follow me on Twitter: @allisterheath

Osborne faces 10bn holein the UK public financesCHANCELLOR George Osborne isset to run a budget deficit 10bnor more larger than the 119.9bnpredicted by the budget watchdogduring the 2012-13 fiscal year,economists said yesterday.Januarys public borrowing fig-

ures, released yesterday by theOffice for National Statistics(ONS), looked positive on the sur-face, analysts said, with a larger-than-expected surplus of 11.4bn,5bn better than last year.

But analysts said this figure wasflattered by seasonal strength intax revenues and one-off transfersfrom the bank fund, known as the

Asset Purchase Facility (APF), t hatcarries out quantitative easing(QE) by buying gilts.

Excluding all the one-off trans-fers that muddy the waters, bor-rowing was 7.5bn higher in thefirst 10 months of the current fis-cal year than in the previous fiscal

year, said chief Berenberg Bankeconomist Robert Wood.

Since the 4G auction brought in1.2bn less than built into the

budget numbers, the budgetcould be 10bn worse than pre-dicted by the OBR in the AutumnStatement, Wood forecast, echo-ing other economists numbers.

Osborne is very unlikely to be

Brussels turns up pressure on LiborBanks and broker-dealers ensnared in theLibor-rigging scandal are facing freshpressure to settle with Europes topcompetition authority as it expands thescope of its probes. In a speech on Fridayin Paris, the EUs competitioncommissioner will stress hisdetermination to pursue the cases andensure competition enforcementcomplements actions of global authoritiesagainst misconduct and corruption.Joaqun Almunias speech is intended as awarning to financial institutions.

Former Virgin exec to head centreWill Whitehorn, a former senior VirginGroup executive, is to chair a governmentinnovation centre being created to deviseintegrated transport systems for export ina global market predicted to be worth900bn by 2025.

Reyl & Co opens London officeReyl & Co, the Swiss private bank, hasopened an office in London with a view tosetting up a corporate advisory business,highlighting how a clutch of smaller banksare pushing into traditional investmentbanking activities.

Mercedes and dealers finedMercedes-Benz and three commercialvehicle dealers have been fined 2.6m bya competition watchdog for rigging thesale of vans and trucks around Britain.TheOffice of Fair Trading imposed the fines.

Dyson puts its faith in 50m plantDyson is expanding its manufacturing inthe Far East by taking production of itsground-breaking electrical motors in-house. The private company is to open itsown production lines in Singapore.

Bankia to reveal largest lossNationalised Spanish lender Bankia isexpected to reveal a 19bn loss next week,the largest in the countrys corporatehistory. The bank has been struggling tosell assets since its bailout in 2012.

Merkel accused of unholy allianceAngela Merkel has been accused ofengaging in an unholy alliance withBritain after backing David Cameronsdemands for a cut to the European Unionbudget.

Heinz profit slipsH.J. Heinzs earnings slipped 5.3 per centas the ketchup maker recorded a largerloss from discontinued operations,though organic sales continued toimprove in emerging markets.

Nielsen aims to gauge online TVNielsen Holdings is taking a step towardsextending its TV-ratings business tomeasure online viewing, aiming to gaugehow much viewership has drifted awayfrom traditional TV to online outlets.

THE EUROPEAN Central Bank (ECB)made 555m (480m) in interestincome from its Greek bonds,accounts showed yesterday,indicating the whole Eurosystemmay have made several billion onthe emergency purchases.

That is expected to be divided upamong the Eurozones nationalcentral banks, added to their ownearnings and given to Athens.

The ECB made another 553m ininterest on other securities boughtunder the emergency programme,including those of Spain and Italy.

ECB profits on

its Greek bonds

2 NEWS

BY TIM WALLACE

BY BEN SOUTHWOOD

To contact the newsdesk email [email protected]

BRITAIN is stuck in a rut. No

wonder that investors andcredit rating agencies are losingpatience: the coalition doesnt

have the guts or decisiveness neededto jolt the UK out of its presentmediocrity, while the opposition is

busy dreaming up new taxes, thinks

that a slightly looser fiscal policywould transform our prospects andhas no real understanding of theextent of our fiscal crisis.

Britains tax receipts confirm thatthe economy continues to do poorly,albeit not disastrously. So far this fis-cal year, receipts from Vat are up 2.2per cent, less than the rate of infla-tion. Income and capital gains taxreceipts are down 0.2 per cent and cor-poration taxes are down 8.4 per cent:

while in both cases there have beentax cuts (a higher personal allowanceand lower corporation tax rates) these

EDITORSLETTER

ALLISTER HEATH

Britain: a case study in low-growth economic mediocrity

FRIDAY 22 FEBRUARY 2013

dont explain such shockingly badnumbers. Very limited pay rises, adrop in reported income from thehighest earners and weak profits areamong the answers. National insur-ance contributions are up a healthier3.4 per cent, though this not anything

worth shouting about.What all of this suggests is an econo-

my that is either stagnating or grow-ing a little, but by no more than a fewtenths of a per cent. At best, the situa-tion looks only marginally rosier than

the official GDP figures; at worst,there is no difference. Mediocrityundoubtedly rules OK.While revenues are poor, any

progress the government is makingin trimming overall expenditure on

wages, benefits and other currentspending is being more than can-

celled out by increased interest on thegrowing national debt. During April2012-January 2013, central govern-ment current expenditure hit525.7bn, 2.7 per cent higher than inthe same period of 2011-12.

Depending on which measure ofinflation one uses, real current spend-ing was therefore either up or downslightly. The real cuts are happeningin capex, the one area where statespending can be useful for long-termgrowth (though the private sector, ifit were allowed to, could take overmany projects). So far this year, cen-

the next five years, Barclays expectscash to provide negative inflation-adjusted returns of about -1.5 per centper year (with compounding effects,that means a very sharp drop in

value), safe haven governmentbonds -2 per cent in other words,even worse than cash and equities

annual growth of 3-4 per cent. Theauthors believe that the bull marketin government bonds which peakedlast year will end in a whimper,rather than in a 1994-style crash. I sus-pect the authors may be too opti-mistic, but their case is that ashortage of safe assets, combined

with a decision by the authorities tokeep the monetary floodgates open,

will do the trick. One thing is clear:savers are going to suffer.

tral government net investment wasminus 6.4bn with depreciationoverwhelming gross investment amassive 27.7bn lower than in thesame period of the previous year. So

we are still seeing the wrong kinds ofcuts, stagnant growth and weak taxreceipts. Unless something drastic

changes soon, it is not just credit rat-ing agencies that will be running outof patience with the government.

LOW RETURNSOne of this columns themes is that

we are now facing a world of low realreturns across financial assets, withhigh inflation gobbling up nominalgains, and that the bond markets,after years of astonishing returns, areset for a crash. There is lots of evi-dence to back up this thesis inBarclays latest annual equity-giltstudy. The conclusions are stark. Over

able to say the deficit is falling inhis 20 March budget unless he canfind some other ways of massagingthe figures, Wood warned.

But the Treasury tried to shiftfocus onto spending, which wasdown 2bn compared to the samemonth a year earlier, and receipts,

which were up, even excluding one-off moves, it said.

Economists also criticised theTreasury for t he level of unneces-sary complexity in the finances.

All of the messing around withnumbers makes it very difficult tosee the direction were going in,Items Andrew Goodwin said.

Goodwin said all the differentways official bodies state the deficitand borrowing numbers can con-fuse even economic experts.And the ONS decision yesterday

morning to allow only 9.1bn ofintra-government transfers into theofficial borrowing numbers overthe tax year confused matters fur-ther. Since 2.7bn of this wasalready taken up by previous trans-fers, even on the governments fig-ures, which include one-off QEtransfers, it will only be able toinclude 6.4bn out of an expected11.5bn in its borrowing numbers.

APR-JAN2011-12

92.3bn 99.9bn

- 28bn

- 3.8bn

- 2.3bn

65.8bn

APR-JAN2012-13

Underlying borrowing

Royal Mail pension plan

Asset Purchase Facility

Special Liquidity Scheme

Official borrowing

DEBATE: The Forum, Page 23

WHAT THE OTHER PAPERS SAY THIS MORNING

Find your next step at CITYAMCAREERS.com

QIs borrowing goingdown as George

Osborne said hethought it would in theAutumn Statement or isit rising?

ASo far, 10 months into the 2012-13 fiscal year, borrowing was

65.8bn 26.5bn lower thanduring the same period in 2011-12.But this includes some one-off

windfalls. Excluding the transfer ofthe Royal Mail pension plan, andthe Treasurys raid on quantitativeeasing (QE) income, borrowing was97.6bn, and therefore 5.3bn upon 2011-12. Further excluding the2.3bn money gained from

winding down the Special LiquidityScheme, it was 7.5bn higher.

QSo will Osborne officially miss the Officefor Budget Responsibilitys (OBR) target?

AThe OBR forecast borrowingwould be 119.9bn over the year.

Economists are now forecastingOsborne will overshoot the target by10bn-15bn. That is due to higher

borrowing and also because theOBR assumed 11.5bn gained fromraiding the Bank of Englands QEincome. Actually this can only bringin a maximum of 6.4bn, as thetarget is for public sector net

borrowing, which was yesterdaydefined to not include all the QEincome. The OBR also assumed a3.5bn gain from this weeks 4Gauction (it brought in 2.3bn).

QAand

BUDGET DEFICIT:WHAT IS GOING ON?

BANK of England policymaker DavidMiles yesterday called for at least anadditional 175bn of quantitative eas-ing (QE), arguing it is the best way tohelp boost the economy.

Miles believes there is a large outputgap in the UK currently which could

be reduced by printing more money,boosting demand and encouragingfirms to invest more, increasing out-put capacity in the longer term.

Sir Mervyn King and Paul Fisherjoined Miles in voting for another25bn QE this month, a change fromhis recent lone call for more easing.

Miles: Print175bn more

BY TIM WALLACE

Public sector borrowing broken down

ChancellorGeorgeOsbornewould suffer apolitical blowif the deficit

rises duringthis financialyear

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THE LONDON-based construction

duo behind the iconic Shard toweryesterday revealed their nextbuilding project constructingthe biggest tower on earth.

Mace and EC Harris, whohelped lead the construction ofthe imposing Renzo Piano-designed Shard, have beenappointed to project managethe construction of theKingdom Tower project inJeddah, Saudi Arabia.

The tower, set to cost $1.2bn(780m), will stand at 3,300feet high when built andwill be four times as high asthe Shard. It is due to startconstruction later this yearand will take just over fiveyears to complete.

Saudi Binladin Group isconstructing the building,with EC Harris and Mace in

charge of projectmanagement.

Jeddah EconomicCompany, the group behindthe tower, has appointed thecompanies. The tower is partof a bigger 13bndevelopment in Jeddah,overlooking the Red Sea.

Shard duo setto build tallesttower on earth

BY MICHAEL BOW

BILLIONAIRE investor David Einhornyesterday pleaded with fellow Appleshareholders to vote against theiPhone makers proposals to changeits corporate practice.

Einhorns Greenlight Capital hedgefund, which owns around $600m(394m) in Apple shares, laid out pro-posals that would see billions of dol-lars returned to shareholders.

Einhorn said that despite the com-panys history of product innovationits attitude to managing itscash has been decidedlynon-innovative.

Greenlight Capital

wants the company todistribute a new classof preferential Appleshares which hedubbed iPrefs thatwould be handed out toinvestors andreturn a regu-lar, fixeddividend.Apple has

said it isconsidering

Einhorn pleadswith investors

on Apple voteBY JAMES TITCOMB Einhorns proposals. However, a

board proposal at its upcoming annu-al meeting would see it preventedfrom issuing the kind of preferentialstock suggested by Einhorn.

Greenlight Capital is also taking thecompany to court, claiming the pro-posals would violate US corporatelaws. On Tuesday the judge presidingover the trial said Einhorn was likelyto win the case.

Einhorn said his suggestions wouldreturn value to investors, while leav-ing Apple with cash to make acquisi-tions, and preventing it fromjeopardising its business. Applesshares have fallen by a third sincetheir summer highs.

[The proposals] dont interferewith whatever business plan Applehas, we want them to keep innovat-ing and designing products we cantimagine living without, Einhorn

said, imploring shareholders tosend [Apple] a clear mes-

sage. Apple did notcomment.

GLOBAL banking giant Citigroupyesterday introduced a new paypolicy for top executives at the

firm to more closely align salariesand bonuses with the banksperformance.

The move, revealed in aregulatory filing yesterday, followsshareholder concerns over payouts

which led to the departure offormer boss Vikram Pandit aftershareholders rejected his pay deallast year. Executive pay used toinclude a controversial profit-sharing plan, which has now beenshelved.

Citigroup reveals pay shake-upas Corbat gets $11.5m for 2012

BY MICHAEL BOW When our shareholders spokelast year about Citiscompensation structure, welistened. We have stepped up ourefforts to solicit feedback from

investors to better understandtheir concerns, chairman MichaelONeill said. Citi said the newexecutive pay programme woulduse a scorecard-based structureto remove the discretionarynature of pay awards in the past.

In light of the toughermeasures, shareholders agreed toaward chief executive MichaelCorbat $11.5m (7.5m) for 2012,

which included a $4.18m cashbonus and $6.27m of shares.

FRIDAY 22 FEBRUARY 20133NEWScityam.com

Citigroup boss Michael Corbat has a salary of $1m topped up with bonuses and shares

The KingdomTower inJeddah

Einhorns GreenlightCapital owns $600min Apple shares

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DEFENCE and aerospace firm BAESystems yesterday launched an ambi-tious 1bn share buyback pro-gramme, as evidence of the robustperformance of the FTSE firm.

Chief executive Ian King said hecould see green shoots in the com-pany, which gave it the confidence tounveil the buyback, although fullimplementation still hinges on dis-cussions with Saudi Arabia over pric-ing of a key contract.

Despite its optimism, BAE yesterdayposted a six per cent fall in profit,,and sales over the year fell seven percent.

Full-year underlying earningsbefore interest, tax and amortisationfell to 1.9bn, hurt by unresolved dis-cussions over pricing of the Saudi

Arabian contract to supply the Gulfstate with Typhoon aircraft.

BAE warned that its key UK and USmarkets would be constrained this

year.It has come under pressure from

shrinking military budgets in the USand the UK, as governments try toreel in large budget deficits.

BAE plans 1bnshare buyback

as profit stallsBY CATHY ADAMS The UK government pledged in 2010

to slash its defence spending by eightper cent by 2014 while the US from

which BAE derives around 40 per centof its income already has plans inplace to cut $487bn (320bn) from itsdefence budget for the next decade.

BAE whose proposed merger withEuropean peer EADS collapsed inOctober as Germany refused to give itthe green light is absolutely not indiscussions to revive the tie-up, Kingsaid yesterday.

Meanwhile, BAE yesterday inked alongevity swap with L&G to safeguardit against the risk that its 31,000 pen-sioners live longer than current esti-mates.

Chief exec Ian King is bullish about prospects despite governments austerity plans

Looming cuts in America cast ashadow over defence spending

INVESTORS were certainly notgunning for BAE yesterday, as itsannouncement of a share

buyback and less-bad-than-expected annual numbers saw a

bump in its share price, even as thewider index fell.

However, the positive sentimentmight be short-lived. The elephant inthe room for BAE remains the

current uncertainty in the US overdefence spending, bearing in mindthat in 2012 the US provided 40 percent of BAEs income.

Americas battles over governmentspending have moved on from thefiscal cliff at the end of last year to anew looming deadline of 1 Marchthis year, when something calledsequestration is set to go into effect.

This is a round of indiscriminatecuts, including a $42.7bn (27.9bn)reduction in military spending.

BAE chose to ignore the impact ofa possible US sequestration in itsoutlook figures yesterday. That willmake it look optimistic if the cuts gothrough, as seems likely. Somemarket analysts are already startingto factor the sequester into thecalculations they make about the USeconomy. US Army chief of staff RayOdierno has warned this riskscreating a hollow army. It risksmaking BAEs predictions ringhollow as well.

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INSURER AIG yesterday revealed a$4bn (2.6bn) fourth quarter net loss

led by costs from Superstorm Sandy,but better than expected earningscheered investors.

The group, which last year repaidbailout money given by the USgovernment, booked a $1.3bn after-tax loss from the storm, the secondlargest US catastrophe ever to hit

AIG.However, operating profit came

in at 20 cents a share, better thanthe minus eight cents predicted,sending AIG shares up last night.

AIG puncturedby hurricane

BY MICHAEL BOW

US ASSET manager Carlyle Groupyesterday pinned a 28 per centdrop in fourth quarter earningson exiting investments, as it reliedmore on company dividends to

return cash to shareholders.Carlyle said economic netincome, a measure of profitabilitythat takes into account the mark-to-market valuation of its assets,came in at $182m (119.2m).

But the firm raised $14bn in2012, up from $6.6bn the previous

year and bringing its total assetsunder management to $170.2bn.

Earnings drop28pc at Carlyle

BY CITY A.M. REPORTER

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MAJOR European insurers yesterdayhiked their year-end dividend, reas-suring investors who feared the indus-try may cut returns in the face of lowbond yields.

Axa and Swiss Re both raised theirpayout as they announced bumperfull-year results for 2012, whileGermanys Allianz maintained itshealthy return to shareholders.

Insurance investors were spookedon Wednesday when Britains RSAsaid it would slash its dividend by athird in the face of weak investmentreturns, sending its share price down14 per cent. Traders then drove downshares in other UK insurers amid fearsthey may take similar action.

However, it appears that while theentire industry is battling low bondyields, major insurers on the conti-nent have not felt the same squeezeon returns.

Swiss Re said it would pay a specialdividend of four Swiss francs a share,costing the company about $2.8bn

BY JAMES WATERSON (1.8bn), as well as raising its annualpayout by 17 per cent to SFr3.50.The announcement came as Swiss Re

unveiled a 60 per cent rise in full-yearnet income to $4.2bn thanks to a sub-stantial rise in premium rates and rel-atively few natural disasters.

Meanwhile, Axa announced a smallfall in net income but still upped itsdividend by four per cent.Allianz said profits doubled to

5.2bn but faced criticism from ana-lysts who wanted the company toreturn more of its reserves to share-holders.

THE EUROPEAN Banking Authority (EBA), headed by Andrea Enria, yesterday launched aconsultation to define highly liquid assets. It should give banks certainty on what they musthold in their liquidity buffers, allowing them to build the required level of protection.

BANKS TO LEARN WHICH ASSETS COUNT AS LIQUID

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FRIDAY 22 FEBRUARY 20138 NEWS cityam.com

TROUBLED Franco-Belgian lenderDexia reported losses in 2012yesterday, and forecast more tocome through 2013.

The state-backed bank lost

2.9bn (2.5bn) in the year,compared with 11.6bn in 2011.It lost money on the sale of

Turkish, French andLuxembourger units, as well aspaying 743m in government feesfor guarantees on borrowing.

Dexia hopes to reduce its lossesto 950m in 2013 as fewer unitsare left to sell and as guaranteefees fall because the bank isshrinking its balance sheet.

Dexia reportsmore losses

BY TIM WALLACE

HEWLETT-PACKARD, the largest PCmaker in the world, saw its firstquarter sales drop six per centafter a sharp fall in consumernotebook sales, the company said

last night.Revenue from personalnotebooks was down 16 per centon the year and ten per cent onthe quarter, dragging totalrevenues down to $28.4bn(18.6bn) but beating estimates.

Profit, stripped out for costs,also fell 11 per cent, down to 82cents a share, underscoring thedifficulty facing traditional PCmakers in the smartphone era.

HP scupperedby notebooks

BY MICHAEL BOW

THE YORKSHIRE Building Societysaw profits, savings deposits andlending volumes all increase in2012 as customers switched awayfrom banks, the mutual reported

yesterday.And the building societylaunched a 160m investmentprogramme to set up new

branchesand extend its mobileand online offerings.

Pre-tax profits came in at157.1m, up 21 per cent on the

year, while total membership hit3.5m, up six per cent on the year.It also expanded its mortgagemarket share to 3.2 per cent.

Record growthfor Yorkshire

BY TIM WALLACE

LLOYDS of London insurerLancashire Holdings yesterdaylaunched a new capitalmanagement division as itunveiled a slight rise in year-endincome.

Net operating profit hit $220.3m(144m), up $1.3m on last year,despite the company booking a$44.5m loss on claims associatedwith superstorm Sandy.

Chief executive Richard Brindlesaid the decision to set upLancashire Capital Managementwould help the business grow bypartnering with third partycapital providers but he would

ensure that these projects dontdistract us from the mothership.

Lancashire

profit risesBY JAMES WATERSON

MONEY manager Ashmore Groupyesterday said half-year profits fellseven per cent in 2012 after aslump in fees bit into revenues.

Performance fees fell from 23mto 15.3m in the six monthsending December, leading to a tenper cent fall in net revenue. Butthe emerging market specialistsaid Ebitda margin a keymeasure of cost control remained at 70 per cent, the bestmargin in the sector.

Finance director Graeme Delltold City A.M. it would try andtarget domestic clients inemerging market countries over

the next decade in a bid to growthe firm.

Ashmore slides

on revenue fallBY MICHAEL BOW

Top insurers

allay fears ofdividend cut

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EASYJET clinched a narrow victory atits AGM yesterday, with founder SirStelios Haji-Iaonnou and otherinvestors lodging a significant protestvote against director pay and outgo-ing chairman Sir Mike Rake.The budget airlines remuneration

report garnered just 55.29 percent support, after SirStelios voted his familys 37per cent stake against theplans and others followedsuit.

Sir Mike was re-electedwith 55.6 per cent sup-port, thwarting SirStelioss plan tooust him beforehis planneddeparture inthe summer.

But EasyJetfailed to passa special reso-lution allow-ing the board

EasyJet edges

win in face ofStelios protest

BY MARION DAKERS to authorise general meetings morethan once a year a measure that sev-eral institutional investors haveopposed at other firms.A spokesperson for Sir Stelios said he

will keep up his campaign for share-holder value, and it will be public notin private once Sir Mike leaves andthe firm joins the FTSE 100, whichcould happen in Marchs reshuffle.The chairman defended his record at

EasyJet, saying ahead of the meetingthat he and Sir Stelios had agreed totemper the firms high-growth strate-gy as far back as 2009.

This has created the basis for a spec-tacular return for the companys

shareholders as Carolyn[McCall, chief executive]and her managementteam have done an out-standing job in execut-

ing the companysstrategy, he said.

FRIDAY 22 FEBRUARY 201310 NEWS

cityam.com

LADBROKES chief executiveRichard Glynn said yesterday he is

betting on the troublesomerevamp of its digital operationfinally paying off this year.

The bookies 50m onlinefacelift had been repeatedlydelayed, and saw the sacking ofdigital operations head Richard

Ames in July last year.The revamp finally started to go

live at the end of last year, andGlynn said he expected muchhigher online sales in 2013,especially towards the second halfof the year. The company hasrecently announced the 30m(26m) purchase of Irish betting

website Betdaq in a bid to ramp up

digital revenues.Yesterday, Ladbrokes revealed

Ladbrokes betting on digital

growth as revenues hit 1bnBY JAMES TITCOMB that annual profits had risenabove 1bn, up 7.4 per cent from2011. Pre-tax profit rose by 49 percent to 201m.

Many sports bookies enjoyed abumper 2012 due to upsets such asChelseas Champions League

victory as well as surprisingdefeats for the countrys topfootball teams.

We expect... to drive growth indigital revenues and earnings,particularly during the secondhalf of the year, Glynn said.

Online bookie Sportingbetsshareholders yesterday approvedits 485m sale to Ladbrokes rival

William Hill. The takeover, whichhad needed 75 per cent approval,

was waved through byshareholders controlling 87.2 per

cent of the company. The deal willnow go through on 19 March.

Sir Stelios willcontinue his publicfight for value

INSIDETRACK

DAVID HELLIER

Not so long ago I asked aninvestment banker in Londonhow long he and his colleagueshad deliberated before

deciding to float a Salford-basedmaterials technology company calledLuxfer in New York.

About 30 seconds, he said, quickly

and pointedly. But then this wasOctober last year and the new issuesmarket in London was effectivelyclosed to all bar a few rare exceptions.Today one hopes the decision-mak-

ing process might have taken just alittle bit longer.The prospects for Londons new

issues market are looking healthierby the day, thanks to the recent suc-cesses of the insurance group DirectLine and more recently the house-

builder Crest Nicholson.Most importantly the shares of both

companies are trading above theissue price, with Direct Line shares23p above the level they listed at lastDecember and Crest Nicholson sharesat 39p above their 259p issue price.

Obviously no company wants toprice its shares too low when it comesto the market simply for the sake of

helping attract buyers to futureissues.

But much of the negativity hangingover London over the IPO marketstems from a series of issues that havebeen disastrous simply in share priceperformance.

Speak to jaundiced fund managers

and they will assail you with thenames of Ocado, Promethean World,Betfair and Perform, each of themresponsible for their decision not togo near new issues for the past fewyears.

As Schroders Andy Brough told meyesterday: Theres been someprogress but we really need three tofour successes to make us truly confi-dent. As long as everybodys leavingthe party with a balloon, then the IPO

market will have a chance of comingback.

Bankers say those working on IPOsare working hard to ensure investorsfind no surprises, something theyshould have obviously done in themore recent past; that they knowexactly whos selling shares, who is

being locked in and theres a certainconfidence about trading going for-ward. The banks with wide geograph-ical networks are also making surethat an issue doesnt depend toomuch on the London investmentpool, which is complemented byinvestors globally but especially inthe US.According to one investment

banker there is still a way to go: Itfeels like were dipping our toes in

the water. But these are not unfamil-iar names that are coming to marketand it is too early to say whetherthings have fully changed.

LEAKS AND PROBESRobert Swannell, the chairman ofretailer M&S, was sufficiently stung

by the recent leak of its Christmastrading update that he ordered aninvestigation into who was behindthe release of price-sensitive informa-tion that was broadcast by my col-league Mark Kleinman on Sky News.

No leaks yet, however, as to whetherthe inquiry is complete and M&S isnot heeding my recent advice to bemore open. There was a strict no com-ment from the group [email protected]

Londons new issues market is thawing, but slowly

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ASDA is to expand its fast-growingclothing brand George into Europe,Britains second largest supermarketrevealed yesterday, as it reported a slow-down in fourth quarter sales.The Walmart-owned group said it will

launch the brands UK website in24 countries by September after Georgeenjoyed a record year.

It also plans to open more storesabroad after launching its first fran-chise in Abu Dhabi last year.The news came as Asda posted a

0.1 per cent rise in like-for-likesales in the 14 weeks to 5 January,down from one per cent last year.

Full year like-for-like salesincreased one per cent.

Finance chief RichardMayfield defendedthe slowdown,

Asda to expandGeorge abroad

as UK sales slowBY KASMIRA JEFFORD saying Asda deliberately decided to keep

prices down to help squeezed shoppersand grow volumes.

It has invested 100m in loweringprices on basic products such as milk inthe last six months.

Commenting on the horsemeat fiasco,chief executive Andy Clarke said he wasshocked after traces of horse DNA

were found in an Asda bolognese sauceand vowed to leave no stone unturnedin addressing issues in its supply chain.

Clarke said the scandal had a smallimpact on sales and that demandfor vegetarian ready-meals hadincreased. He added that it was tooearly to tell how much the tests

will cost. Tesco has said the horse

DNA tests could cost it at least 1m.

PREMIER Foods, the owner of MrKipling and Hovis, swung to a full-

year profit yesterday after aturbulent 12 months.

Pre-tax profits at the food firm,

whose new chief executive GavinDarby has been working to turn itsbusiness around, jumped to 4.4mfrom a 259.1m loss a year earlier.Excluding disposals, underlyingtrading profit came in towards thetop end of forecasts at 123.4m.

However, sales from itscontinuing operations were down12.2 per cent to 1.75bn.

Shares in the firm closed up 5.6per cent at 94.75p.

Premier Foodsposts a profit

BY AMY-JO CROWLEY


Kingfisher hopes efficiencysavings will recover ground

KINGFISHER is looking to furtherefficiency savings to offset a

worse than expected sales fall andallow it to meet full-year profitforecasts.

The group, which owns B&Q inthe UK as well as Castorama andBrico Depot in France, has beenhit along with other Europeanretailers by a weak demand forbig ticket items like kitchens,

which are particularly vulnerableto fragile consumer confidence.

Yet the company said yesterdayit is offsetting weak demand witha drive to improve profitability by

buying more goods directly from

BY A CITY A.M. REPORTER cheaper manufacturing centressuch as China.

Kingfisher said fourth quarterlike-for-like sales fell 3.4 percent, worse than the 2.8 per centfall seen in the third quarter.

But it expects underlying pre-

tax profit for the year to2 February to be in line with theconsensus forecast of 715m.

B&Qs like-for-like sales fell6.4 per cent, reflecting the weakconsumer backdrop particularly in Ireland, wherestores were placed into a form of

bankruptcy protection.In France like-for-like sales fell

0.4 per cent at Castorama and4.6 per cent at Brico Depot.

Asda chief executive Andy Clarke isinvestigating the horsemeat scandal

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LEGO yesterday proved that old-fashioned toys can beat computer

games, as the Danish toymakerposted a surge in annual sales andpicked up global market share.

The firms net profit for 2012 rose35 per cent to 5.6bn krone(650.6m), on revenues 25 per centhigher at 23.4bn krone.

The Lego Friends range, whichwas launched at the start of 2012and aimed at girls, has performedconsiderably above expectations,the company said. Most regionsproduced double-digit growth in the

year, and direct web sales now makeup 10 per cent of overall turnover.

Lego said its share of the globaltoy industry has risen from 7.1 percent in 2011 to 8.6 per cent in 2012,and it expects to maintainmomentum in spite of the growingpopularity of more high-techgadgets.

The very positive results are first

and foremost related to thecontinued successful innovation ofthe product portfolio, the boardsaid in Legos annual report.

New launches account for 60 percent of Legos sales, and the firm has160 designers in Denmark workingon product development.

The firm said it does not expect tomatch its stellar performance in2013 due to the uncertain economy,though it sees considerablemedium-term sales growth.

Lego builds itsmarket shareas sales soar

BY MARION DAKERS

SPORTS DIRECT has shrugged-off anysigns of gloom on the high streetafter posting a 23 per cent rise inthird quarter profit yesterday.The sports retailer, controlled by

Newcastle United owner Mike Ashley,said group sales for the 13 weeks to27 January rose 21 per cent to589.5m, driven by strong growth inits sports stores, where sales rose21 per cent to 495.8m.This excludes revenues from the 20

JJB stores it bought last year after itsrival collapsed into administration.The group, which owns Lilywhites

as well as the Dunlop and Slazenger

brands, has benefited from thedemise of its competitors, a growingonline presence and a highly moti-

vated staff due to a lucrative bonusscheme.

Gross profits increased 22.7 percent to 244.8m and chief executiveDave Forsey said it was certain ofreaching its full-year earnings targetof 270m.

As we highlighted back inDecember, the groups strong per-formance continued during the

Sports Directsprofits continue

winning streakBY KASMIRA JEFFORD third quarter, primarily driven by our

sports retail division, includingonline following the successful inte-gration of our new operating plat-form, Forsey said in a statement.

Shares have soared 43 per cent sincelast year and closed 5.7 per cent high-er yesterday at 440p.

In September the firm said it want-ed to reintroduce a super-stretch

bonus scheme to award Ashley 10mshares if performance targets weremet after shareholders revoltedagainst a similar proposal inSeptember.The group will put the revised

bonus plan to shareholders at its nextannual general meeting this year.

Sports Direct, controlled by Mike Ashley, saw profit rise 23 per cent for the third quarter

Sports Direct International PLC

21Feb15Feb 18Feb 19Feb 20Feb

445

420

415

425

430

435

440

450 p 440.0021 Feb

FRIDAY 22 FEBRUARY 201313NEWS

cityam.com

The company continues to benefit from recent acquisitions, strongmomentum with the internet and capacity coming out of the market. The stock,however, is expensive ... but with newsflow on sales expected to remainpositive, we believe the shares will continue to perform.

ANALYST VIEWS

Sports Direct has announced excellent sales growth in its interimmanagement for the period to 27 January, driven by retail and growing onlinepenetration. We think that there is more to come and that this is not yetreflected in the valuation.

Sports Direct has reported group sales up 21.1 per cent (excluding JJB

stores). This is an acceleration on the underlying run-rate in the first half of 20.6per cent. Importantly, this strong sales growth has been achieved withan improving gross margin profile.

DID SPORTS DIRECTSRESULTS MEET YOUREXPECTATIONS?Interviews by Kasmira Jefford

FREDDIE GEORGE CANTOR FITZGERALD

PHILIP DORGAN PANMURE GORDON

SANJAY VIDYARTHI ESPIRITO SANTO

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DAVID Cameron yesterday said it wastime to put people before profits ashe backed proposals by regulatorOfgem to force suppliers to offercustomers their lowest variablerate deal for electricity and gas

by default.From next winter suppliers

will only be allowed to offerfour core tariffs per fuel type.One of the tariffsmust be a standard-

variable rate, suppli-ers can then choosethe other threefrom a range of

options such asfixed rate orgreen.

Bills will alsobe made clearerto ensure cus-

Cameron backsplan to simplify

energy tariffsBY JAMES WATERSON tomers are aware if they are missing

out on a better deal.Our aim is that consumers will get

the best possible energy tariff notricks, no loopholes and we will use

the powers we gained in the EnergyBill earlier this month to makesure this happens, the PrimeMinister said.

However, former GB electricityregulator Stephen Littlechildwarned the proposals would exac-

erbate fuel poverty. Therules on tariff simplifica-tion would encouragecoordinated effects bysuppliers and lead tonarrower price differ-

entials and again lesscompetitive pres-sure, he said.

IN BRIEF

PayPal card reader for retailers

n Online payments company PayPal isset to expand its presence on the highstreet with the launch of a Chip & Pincard reader it says will make face-to-face payments easier. PayPal, whichstarted off in the 1990s processing eBaypayments, will release a portable cardreader directed at small businesses andindependent sellers. The company saysit will put an end to small retailers whodo not accept cards turning awaycustomers without cash.

Informas annual revenues fall

n Lloyds List publisher Informayesterday reported a three per centdecline in annual revenues in 2012 as itsbusiness publishing unit struggled toattract sales. However, its academicpublishing unit, mainly comprised ofRoutledge, saw a rise in sales. The salesfall meant pre-tax profits dropped by aquarter to 67m. However, the grouphiked its dividend as chief executivePeter Rigby said he was confident of anuptick in fortunes later in the year.

14 NEWS cityam.com

Cameron said the plansmake energy costsmore fair for everyone

A HAIRDRESSER, a grocer and aknitwear manufacturer wereamong the nine individuals andfirms named and shamed as so-called deliberate tax defaulters

yesterday in the first list of its kindpublished by HM Revenue &Customs (HMRC).

HMRC said the nine deliberatedefaulters for whom it revealednames, addresses and the total

HMRC names and shames taxdodgers in fresh clampdown

BY KATIE HOPE amount of tax owed had eachavoided paying at least 25,000 intax. Added together, the totalamount of tax not paid amountedto under 1m.

Treasury minister Stephen Gaukesaid that the list sent a clear signalthat cheating on tax is wrong.

Stephen Camm, tax partner atPwC, said the list, due to be updatedevery three months, was effective asone part of a wider strategy toclamp down on tax evasion.

STRONGER than ever demand forBluetooth headsets drove shares inmicrochip maker CSR to two-yearhighs yesterday.

The Cambridge-based technologyfirm saw annual revenues break the

billion dollar mark, hitting $1.03bn(675m), a 21 per cent increase onthe previous year.

The company, which sees a bigopportunity in the rise of internet

Chipmaker CSR boosted by risein Bluetooth headset demand

BY JAMES TITCOMB connected everyday objects such ascars and household appliances, sawmuch of its growth driven byBluetooth headsets in China,following a clampdown on driversusing mobile phones. CSRs low-power chips are used in headsets as

well as in audio equipment.

Higher sales meant annualprofits rose from $34m to $51m,which, along with a 15 per cent risein the companys dividend, sentshares up more than 12 per cent.

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Add some g-force to your internetting,without paying a hefty premium.

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YOUR OFFICIAL HOSPITALITY PARTNER

EXECUTIVE pay in financial servicesis barely creeping up this year andwill come in well below inflation,according to new forecasts fromMercer.Average salaries will rise by just 2.2

per cent, they survey indicates, welldown on the 2.9 per cent rise last yearand firmly below consumer priceinflation currently running at 2.7per cent and expected to rise to abovethree per cent.

Public pressure and new regula-tions have combined with weak mar-ket conditions to weigh down on pay,and the squeeze is not likely to lift

any time soon.Those factorsmean pay isrising morequickly in riskmanagementand legal serv-ices, with an

Finance execs

pay squeezedby regulations

BY TIM WALLACE average of 2.5 per cent anticipated.But at the top of firms and in banks

the squeeze is tougher, with 49 percent of CEOs and 38 per cent of theirimmediate juniors in banks expectingpay freezes, says Mercer.

Financial services organisationscontinue to face economic and regula-tory uncertainty, said Mercers VickiElliott.

Regulators are watching their com-pensation policies and decisions withgreat interest.The study comes after high profile

bankers including RBS StephenHester and Barclays Antony Jenkinswaived their bonuses for fear ofattracting public anger.And European politicians are expect-

ed to cap bankers bonuses at thesame level as their salaries, formalis-ing EU disapproval of high bonuses.

Meanwhile, new figures fromIncome Data Services (IDS) show aver-age salaries across the economy up 2.5per cent on the year to the last threemonths the fastest rise in pay sincesummer 2012, but still belowconsumer price inflation.

Barclays AntonyJenkins waived hisbonus for last year


IN BRIEFChesapeake Energy beats forecasts

n Profits at Chesapeake Energy fellyesterday, although it beat Wall Streetestimates yesterday, helped by lower-than-expected expenses and moreprofitable production. Profits droppedto $257m (169m) in 2012, down from$429m in the same period in theprevious year.

PlayStation 4 event disappoints

n Sonys event promoting its upcomingPlayStation 4 console was met withdisappointment yesterday, after thecompany was short on detail over thelaunch. On Tuesday night, the companyhad failed to reveal the consoles designor price. Sony shares fell 1.77 per cent.

EU goes to court over ebook VAT

n The European Commission is takingFrance and Luxembourg to court forapplying lower taxes on ebooks, whichthe EU says breaks current rules. Thecommission says a VAT break on printbooks does not apply to ebooks, butFrance and Luxembourg apply rates ofseven and three per cent respectively.

Mercedes fined for fixing prices

n Mercedes-Benz and three of itscommercial vehicle dealers have beenfined 2.6m by the Office of FairTrading (OFT) for price fixing. The OFTsaid there had been three instances ofmarket sharing and price coordinationon vans and trucks in 2008 to 2010.

CZECH miner New WorldResources swung into the red inthe final three months of last year,in its biggest quarterly loss sincelisting in 2008.

Coal producer New WorldResources fell to a loss of 48.6m(42.1m) over the three months,compared to a profit of 8.8m overthe fourth quarter of 2011.

The ongoing macroeconomicuncertainties in Europe as well asthe slowdown in Asia have affected

business sentiment, and this hashad a knock-on impact on steelmarkets, and... coking coal,chairman Gareth Penny said.

Losses spikeat New World

BY CATHY ADAMS

CANADIAN train-maker Bombardiersaid yesterday that its results arenot reflective of our potentialafter it reported a 93 per cent dropin fourth-quarter earnings to just

$14m (9.2m).Full-year profits at the firm fell to$692m from $865m, hurt by arestructuring charge in itstransportation division, whilerevenues dipped to $16.8bn from$18.3bn.

Bombardier said it expectsrevenue in its transportation andaerospace divisions to be higher thisyear. The firms Canadian-listedshares fell over eight per cent.

Bombardierearnings dive

BY AMY-JO CROWLEY

PLASTICS group Filtronayesterday reported a 26 percent rise in full-year profit,helped by acquisitions.

Filtrona also said it

acquired UlincoComponents AB, a Sweden-based distributor of plasticprotection and finishingproducts.

It also announced ajoint venture with tobaccocompany BBM BommidalaGroup in the United ArabEmirates.

Adjusted pre-tax profitrose to 95.8m in 2012,

from 76.2m a yearearlier.

Revenue increased by23 per cent to 663.4m.

Our results were

supported by successfulnew product development,range expansion andgeographic roll-out, andwere underpinned byfurther investment,organisational changesand a more focusedcommercial structure,said Colin Day, chiefexecutive of the FTSE 250-listed firm.

Expansion pays off atFiltrona as profit soars

BY HARRY BANKS

For more jobs information go to

CITYAMCAREERS.com

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US MANUFACTURERS boosted

output at the fastest rate sinceMarch 2011, according to data outyesterday.

Markits manufacturingpurchasing managers index (PMI)for output jumped from 56.8 in

January to 58.1 this month, a 23-month high. Since it is furtherabove 50, it suggests a yet fasterpace of activity growth in thefactory sector.

But the overall PMI, which takesorder books, employment, backlogsand inventories into account, as

well as output, inched down from55.8 to 55.2, signalling slower butstill substantial expansion inindustry overall.

And consumer prices stayedcompletely f lat between Decemberand January, according to separatedata from the Bureau of LaborStatistics (BLS). This allowed the

annual inflation rate to fall from1.7 per cent in December to 1.6 percent last months, the BLS said.

But labour market numbers didnot give such a positive impressionof the US economy. Newunemployment insurance claims

jumped 20,000 to 362,000 in theweek ending 16 February, theDepartment of Labor revealed,

while total insured unemploymentedged up 11,000 to reach 3,148,000in the previous week.

US sees fastestfactory outputhike since 2011

BY BEN SOUTHWOOD

EUROZONE business activity sunk fur-ther and at a faster pace in February,as the bloc proved unable to escapefrom its lengthy crisis.

Markits purchasing managersindex (PMI) for the currency zoneslipped back to 47.3 in the secondmonth of 2013, having risen to 48.6during January. Since this is further

below 50, which indicates no changein business activity, it suggests outputfalling at an even faster rate.

A steepening rate of decline inFebruary is a disappointment, andsuggests that the Eurozone is oncourse to contract for a fourth consec-

utive quarter in the first threemonths of the year, said Markit chiefeconomist Chris Williamson.

Beneath the headline figures therewas a sharp divergence between theblocs largest two economies,Germany and France.

French private sector output was infreefall in February, according to itsPMI of 42.3 a 47-month low downfrom 42.7 last month.

By contrast Germany enjoyed con-tinued expansion though at a slow-

French troublescould extend

Eurozone crisisBY BEN SOUTHWOOD er rate. It posted a PMI of 52.7, some 10

points higher than France, and indi-cating expansion, albeit at a slowerrate compared to Januarys 54.4.

Digging into the data shows increas-ing schisms within the Eurozone,

Williamson added.National divergences between

France and Germany have widened sofar this year to the worst seen since thesurvey began in 1998.And businesses in France and

Germany expect this stark divergenceto go on. German services firmsrecorded a 20-month high in opti-mism for the coming year, whileFrench business confidence was at athree-month low.

France and Germany diverge as Eurozone slump continues

1999 2004 2008 2013

20

30

40

50

60

70 Total economic activity, 50 = no change on previous month

GermanyFranceRest of Eurozone

Source:Markit

BRITISH factory orders improvedmore than expected this month,according to data released

yesterday.The total order book balance in

the Confederation of BritishIndustrys (CBI) survey rose thismonth to minus 14 from minus 20in January, beating expectations ofa reading of minus 15 and wellabove the long-term average ofminus 17. The CBIs index forexport orders also rose sharply,from minus 29 to minus 20.

The rebound in manufacturingorders and expectations for output

Boost for UK manufacturers asFebruary sees pick up in orders

BY BEN SOUTHWOOD growth provide some further signsof improvement in the outlook forthe UK economy, said Anna Leach,the CBIs head of economicanalysis. However, Leach warned

export orders were likely to remainweak until conditions in theEurozone economy improved.

But consumer spending powercame under a further squeeze in

January, separate data showed thismorning. Consumers had 1.4 percent less to spend on non-essentialitems in real terms in the firstmonth of 2013, approximately 13less per month, Lloyds said. This

was due to rapid inflationoutpacing slow wage growth.


Lingering global economic woes have made life difficult for Britains factories

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SHOCKED French industry ministerArnaud Montebourg has put pen topaper and sent a splutteringresponse to US tyre firm Titans bossMaurice Taylor in defence ofFrances favourable way of life.

In Taylors letter, which TheCapitalist reported on yesterday, hedeclined an offer to buy a Frenchtyre factory, criticising French work-ers for taking long lunches and onlyworking three hours a day.

There were certainly nobisous on Montebourgsresponse: Can I alsoremind you that Titan...is20 times smaller thanMichelin, our French tech-

nological leader of interna-tional standing, and 35times less profitable?Montebourg says,apparently immuneto Taylors warning

that in five years, Michelin wontbe able to produce tyres in Franceand that China will be making allthe running.

Rather ominously, Montebourgalso weighs in on American politics:You will also find that our currentpolicy bears a similar relationship tothat inspired by your President.

Finally the French minister closeswith a hint at greater protectionism:Rest assured you can count on meto keep a close eye on the services

provided by the French govern-ment, and with an increased zealon your imported tyres. Nice tosee the traditional Gallic art ofletter-writing hasnt been lost

after all, even as Frances reputa-tion among the global business

community hits new lows.

French industryminister ArnaudMontebourg

FRIDAY 22 FEBRUARY 201320 NEWS

cityam.com

Findyournextstep at

C

ITYAMCAREE

RS.c

om

Withers

The law firm has announcedthe appointment ofMatthew Feargrieve as apartner. Feargrieve will beresponsible for establishinga pan-European investmentfunds practice. He joins fromAppleby, where he was a

partner and team leader for funds andinvestment services. He has also heldsenior positions at Mourant du Feu &Jeune and Maples & Calder.

BlueBay Asset Management

Staffan Kampe will join the asset

management firm as sales director forthe Nordics region. He joins fromLyxor Asset Management, where hewas a head of institutional sales. Priorto that, he spent 11 years at SEB in arange of roles including productdevelopment.

JP Morgan Private Bank

The bank has announced the appointmentof Andrea Levantini as a private banker inits Italy team. Levantini joins from BancaIMI, where he was the head ofinternational equity capital markets inLondon. Prior to that, he was a managingdirector in the corporate finance team atDeutsche Bank in Rome and London.

Barclays

The bank has appointed Vikram Malhotraas global head of its global South Asiacommunity business. He joined Barclaysin 2010 as head of its South Asia wealthand investment management division.

AMG

The asset management firm hasannounced the appointment of two newdirectors to its European distributionteam. Patrick Sege was most recentlyhead of sales and business developmentfor continental Europe at Liongate. AxelWeiss was previously a director of salesand relationships at Fidelity.

WHOS SWITCHING JOBS Edited by Annabel PalmerCITY MOVES

To appear in CITYMOVES please email your career updates and pictures to [email protected]

cityam.com/the-capitalist

THECAPITALISTEDITED BY CALLY SQUIRES

Got A Story? [email protected]

Zut alors: French

minister rattled

The Capitalistlearns that brokerJohn Rees is going to showcase his

rather unusual talent to colleagues nextmonth at The Troxy. Rees, who works forNordic investment bank Carnegie, enjoysa spot of cage-fighting in his spare time.Rees says his bosses are extremelysupportive of his extra-curricular

activities: No office normally allowspeople to come to work with blackeyes. The Capitalisthears that some ofhis colleagues will even be jetting infrom Sweden on 2 March, just to watchthe 32 year-old step into the cage. Giventhat hes only trained for ten weeks, TheCapitalistwishes Rees the best of luck.

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FRIDAY 22 FEBRUARY 201321

cityam.com

In association with

LONDON REPORT

BRITAINS blue chip sharesposted their biggest one-dayloss since July yesterday onconcerns the Federal Reserve

could end its stimulus programmesooner than expected, removing adriver of the recent equity rally onboth sides of the pond.

The FTSE 100 closed down 103.83points, or 1.6 per cent, at 6,291.54,dropping below the 6,300 level forthe first time in 10 days. Stocks thatbenefit the most in rising markets,or cyclicals, fell furthest.The indexs decline was the biggest

since last July, at the height of theEurozone crisis and just a few daysbefore European Central Bank chiefMario Draghi promised to do what-ever it takes to save the euro,prompting a global rally in equities.

Commodity stocks and banks com-bined to take over 50 points off theFTSE 100 index, and volatilityjumped 13 per cent. Investorsbecame cautious after minutes ofthe Federal Reserves January policymeeting showed a number of policy-makers think the US central bankmight have to slow or stop its assetpurchase programme before seeingthe pickup in hiring the programmeis designed to deliver.

The biggest impact [on todaysfalls] has been the Fed minutes, andsupposedly a more hawkish tone bythe Fed, James Butterfill, globalequity strategist at Coutts, said. Still,he expected the Fed to continue withasset purchases, or quantitative eas-ing, in the near term. Its also offthe back of how much markets haverun up year to date. Weve alreadysurpassed our base-case fair value onthe FTSE within the first month and

a half, so its not surprising wed seea pullback.The market had closed at a five-year

high on Wednesday, marking an 8.4

per cent gain so far this year, againsta 5.8 per cent rise for the whole oflast year.Also weighing on sentiment yester-

day were worse-than-expectedEurozone purchasing managers sur-veys, which dealt a blow to hopes thecurrency bloc might emerge fromrecession soon.

Mining stocks were the biggestdrag on the FTSE 100 as concernsabout an end to US monetary stimu-lus hit a sector already hampered byweaker metals prices and markettalk of a hedge fund liquidating bigpositions in commodities.

BHP Billitonwas among the worstoff, tumbling four per cent. Itextended falls from the previous ses-sion when it reported its worst profitdrop in more than a decade, withCiti downgrading its rating on thestock to neutral.All but seven blue chip stocks fell in

the broad-based sell-off.BAEwas the biggest riser, gaining

4.1 per cent.

Cyclical stocksdrop after Fedwarns over QE

CITYYOUR ONE-STOP SHOP

BROKER VIEWS ANDMARKET REPORTS

FTSE

21 Feb15 Feb 18 Feb 19 Feb20 Feb

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6,325

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21 Feb

DASHBOARD

Growth fearspush Wall Stdown again

US stocks fell for a secondstraight day yesterday and theS&P 500 posted its worst two-day loss since November after

reports cast doubt over the health ofthe US and Eurozone economies.

But a late-day rally helped stockserase some of their losses with most ofthe pullback concentrated in the technology- heavy Nasdaq. The move sug

gested investors were still willing tobuy on dips even after the sharp lossesin the last session.

In Europe, business activity indexesdealt a blow to hopes that theEurozone might emerge from recession soon, showing the downturnacross the regions businesses unexpectedly grew worse this month.

The PMI numbers out of Europewere really a blow to the market, saidJack De Gan, chief investment officerat Harbor Advisory in PortsmouthNew Hampshire. The market wasexpecting signs that recovery is stillthere, but the numbers just highlighted that the Eurozone problem is stillpersistent.

US initial claims for unemploymentbenefits rose more than expected lasweek while the Federal Reserve Bankof Philadelphia said its index of business conditions in the US mid-Atlanticregion fell in February to the lowest ineight months.

Gains in Wal-Mart Stores shareshelped cushion the Dow. The sharesgained 1.5 per cent to $70.26 after theworlds largest retailer reported earnings that beat expectations, thoughearly February sales were sluggish.The Dow Jones industrial average fel

46.92 points, or 0.34 per cent, to13,880.62 at the close. The Standard &Poors 500 Index lost 9.53 points, or0.63 per cent, to 1,502.42. The NasdaqComposite Index dropped 32.92points, or 1.04 per cent, to close at3,131.49. The two-day decline markedthe US stock markets first sustainedpullback this year.

BESTof the BROKERS NEW YORKREPORT

CARILLIONLiberum Capital has reiterated its Sell rating on construction business Carillionahead of next weeks interim results, with a target price of 322p. The analysts expectto a see reduced order book for future work in the face of a tough UK constructionmarket, as well as a disappointing outlook in the Middle East. Overall Liberum judgesthe companys stock to be relatively expensive on estimates with downside risk.

Carillion PLC

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330 316.2021 Feb

THOMAS COOK GROUPJeffries has initiated coverage on Thomas Cook with a Buy rating and a 155p pricetarget. It praises new chief executive Harriet Green for identifying 160m of costsavings, with more on the way and says it is looking forward to a more focusedThomas Cook driving profitable growth from its 23m strong customer base. It says2012 should mark the low point for profitability at the business.

Thomas Cook Group PLC


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98 92.7521 Feb

MICRO FOCUSMerchant Securities has downgraded Newbury-based technology firm Micro Focusto Sell with a target price of 600p following a 47 per cent rise in its share pricegains over the last year. While free cash flow generation remains strong,suggesting ongoing cash returns in the future, these now appear largely priced in,the note says, suggesting it will be hard to maintain recent cash returns.

Micro Focus International PLC


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

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Focus swings back onto the PIIGS

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TWO VISIONS of ourtechnological future are

battling it out this week.Google has released apromotional video celebrating

the potential of its astonishing, voice-activated heads-up display GoogleGlass, complete with acrobats on

video chat in mid-air. Meanwhile, thenew series of Charlie Brookers TVshow Black Mirror continues with a

bleak satire, White Bear, that shows aworld where constant use ofvideophones serves to distance andbrutalise, rather than bring us closertogether.

Anyone who has tried to navigatean automated call tree in the blindhope of reaching a human being

knows how improved technology can

THE coalitions pursuit ofcompetition in healthcare mayhave grabbed the headlines, butit was the Ministry of Justicethat had made the most

headway. In 2011, its CompetitionStrategy set out a guiding principlethat competition will apply to allservices not bound to the public sector

by statute. After two decades of limitedcompetition, the message was clear:the vast majority of prisons, probationand rehabilitation services would be

delivered by a range of providers public, private and charitable competing to deliver a better, cheaperservice.

Sadly, it was not to be. Two years on,the Ministry of Justice has completed aU-turn far greater than the coalitionsretreat on extending competition in theNHS. At the end of 2012, ministersannounced plans to overturn twodecades of privately-run prisons infavour of a new approach. The role ofcompanies will be limited to small con-tracts for rehabilitation and ancillaryservices, while the public sector willsubjected to an efficiency benchmark

cityam.com/forum

The first prison to be

transferred from thepublic sector now costs8m less a year to run

THEFORUM

Twitter: @cityamforum on the web: cityam.com/forum or by email: [email protected]? Disagree? Got a sharp comment?

The Forum wants you to join the debate. Top responses will be reprinted in The Forum.

22FRIDAY 22 FEBRUARY 2013

WILL TANNER

Coalition U-turn on private prisonswill undo 20 years of real progress

instead. HMP Wolds, a privately-runprison, was handed back to the publicsector, and the competition processesfor three others were suspended.

But the evidence points towards theneed for more competition, not less.New Reform analysis of Ministry of

Justice figures shows that companiesare better at running prisons than thepublic sector. Private prisons are moreeffective at preventing prisoners fromcommitting crimes after they leave,and they perform better than compara-

ble public sector institutions on mostofficial performance measures. This isabout cost as well as quality: the firstprison to be transferred from the publicsector to the private sector, HMPBirmingham, is being run 8m a yearcheaper under its new management.

The innovations range from smarttweaks to cultural transformation.Companies have pioneered new tech-nologies, like electronic cell locking toimprove security, or self-service kiosksto give inmates a greater sense ofresponsibility in preparation for theirrelease. Private sector ways of workinghave transformed an outdated employ-ment culture and traditionally hostilestaff-prisoner relations. In privately-runprisons, officers do not carry batons orhave power of arrest, and managers can

use flexible staffing arrangements toimprove rehabilitation and meet pris-ons needs.At Doncaster Prison, the private com-

pany Serco has used its business experi-ence to drive partnerships with localcharities and employers to prevent pris-oners committing crimes when theyleave the prison gates. Over 92 per centof prisoners are released to suitableaccommodation, while 23 per cent double the national target arereleased into employment or training.In 2011, Sercos prison director atDoncaster John Biggin was named TheGuardians Public Servant of the Year.

Better numbers are matched by aca-demic evaluation: a major longitudinalstudy by Cambridge academics recentlyfound that privately managed prisonshad more positive staff-prisoner rela-tionships, better internal prison cul-tures, and more satisfied workers.The threat of competition has also

made the public sector raise its game.

In 2003, the National Audit Officefound that competition has beenimportant within the prison system forimproving both management and con-ditions for prisoners. More recently,evidence of the positive impact of com-petition has come from an unlikelysource: public sector prison managers.In 2011, a major survey of senior prison

leaders found overwhelming recogni-tion of the value of competition. Onerespondent said: I dont think theimprovements weve seen in the PrisonService in delivery and outputs wouldhave happened without the threat ofprivatisation, and without the reality ofprivatisation, because we wouldnt havedone it ourselves. There wouldve beenno incentive.The government has argued that

there has been no U-turn. Yet ministersown announcements make clear that

competition will be limited to a smallnumber of specific services. The prison

workforce, which accounts for over 70per cent of costs, will remain in thepublic sector, despite there being nostatutory requirement for it to do so. Itis bewildering that the government has

backtracked on such a successful policythat commands cross-party support.

There was no public uproar demandinga retreat from two decades of successfulpolicy. Far from reaping the rewards ofreform, ministers are throwing in thetowel after the fight has been won.

Will Tanner is a senior researcher at theindependent thinktank Reform.

be a curse as well as a blessing. Buteven if Google Glass doesnt set fire to

your imagination, you dont have tosearch far to be reminded that welive in an age of man-made wonders.Download the new Kickstarter app,or look at projects like the 3Doodler,a 3D printer in a pen that lets youdraw real objects.

Ironically, a short story from 1895

captures these mixed blessingsbetter, finding a path between thewide-eyed optimism of corporate PRand the savage denunciation ofBrooker. The Remarkable Case ofDavidsons Eyes was written by sci-fimaster HG Wells on the back ofpopular belief in a paranormalexperience called remote viewing. Yetit serves today as a parable of thechallenge and the miracle of living

with one foot in the real and virtualworlds. It records how Davidson, aLondoner, is suddenly struck with a

vision as if standing on an island inthe south seas. It is at firstcompelling and paradisical. But hisinability to navigate the London in

which he lives, while his eyes see only

sand and palm trees, turns the

experience into a nightmare.Davidson is eventually cured, only toregret the window to a wider worldhe has lost.

We all suffer when barriers preventus from seeing the human face ofthose who need our help. As a result,the technologies produced by privateenterprise reflect our need for betterconnections. We love our gadgets

because they are designed and usedto bridge the gaps from person toperson. Mobile phones helped someof the doomed passengers of 9/11 saygoodbye to their loved ones.

Television brings the suffering ofstrangers on the other side of the

world into our living rooms,demanding our attention. Our

gadgets can be misused, but they are

built to tear down barriers, not toerect them.

Technology, in combination withtrade, serves to link the worldspeople in a network devoted toserving one anothers needs. Neitheroffers a cure for lifes tragedies orhuman folly and vice. Life is not aGoogle promo. But our recentnational scandals of abuse andneglect have revealed the wildernessof inhumanity possible withininstitutions devoted to public service.

We need to be clear-eyed about thedarkness we bring with us to thefuture, however we build it. But weshould cheer the larger, richer worldtechnology can show us as well.

Marc Sidwell is managing editor at

City A.M.

THE LONGVIEW

MARC SIDWELL

Google Glass wont save humanity but could show us a larger richer world

In association with

BREST ISFor the best in sailing, seafood and local history, fly to Brest from just 129 retu

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23FRIDAY 22 FEBRUARY 2013

Runaway inflation[Re: Sorry savers: More easing is stillneeded to support UK recovery, yesterday]Employment is at its highest level since 1971.Meanwhile, real wages are being drivendown by runaway inflation induced by theBank of Englands weak pound policy. Inpast recessions, it was the UK consumer thatwas the driving force behind recovery. Butthis time, the Banks failure to meet itsmandate is suffocating real spending power.The Monetary Policy Committee is confused.In 2008, it was rightly fearful of deflation.But since 2009, its fears have provenmisguided, and it has made the situationworse by further rounds of quantitativeeasing. Now the Bank is looking to get backto its target in the long run. It would havebeen interesting to see the UKs

economic performance if the Bank ofEngland had not let inflation spike as highas 5.2 per cent in September 2011.

John Trader

[Re: Taxing the poor less wont make themback hikes for the rest, yesterday]Matthew Sinclairs article leaves a bigquestion unanswered. If taking people outof tax doesnt turn them into supporters oropponents of higher taxation for others,what does? He implies there is a mixture ofreasons. Political will is clearly hugelyimportant.. Margaret Thatcher could cut taxbecause she showed the benefits of lowertaxation to all voters, not just to smallsections of the public.

Malcolm Cliff

BRITAINS roads are beingchoked by a swarm ofunnecessary, expensive, anddamaging restrictions.Between 2000 and 2008, the

number of traffic lights rose by over30 per cent, boosted by an extra 1,800imposed on Londons streets underformer mayor Ken Livingstone. Thereare now over 30,000 signal-controlled

junctions and 25,000 pelicancrossings across the country.

The nature of these controls hasalso changed. Between 2007 and2008, the number of signals givingpriority to buses more than doubledto 8,500. Junctions with a full pedes-trian crossing -- when all vehicles areheld at a complete standstill havealso become increasingly popular.There has been little appreciation,

however, of the economic costs asso-ciated with such controls. This isunsurprising given the absence ofcommercial incentives facing trans-port planners. With approximately33m vehicles in the UK, unnecessarydelays at junctions translate intomajor economic losses.To give some idea of the scale, it has

been estimated that just two minutesadded to all vehicle trips costs 12bnannually. There is also the burden ontaxpayers for installing and main-taining infrastructure and equip-ment. And traffic jams resultingfrom controls increase fuel use andpollution levels, while driver behav-iour near traffic lights (speeding upto beat the green) heightens danger.

The latest safety audit fromWestminster City Council showedthat no less than 44 per cent of per-sonal injury accidents occurred attraffic lights.A handful of local authorities have

begun to recognise these negativeeffects. In 2009, lights were switchedoff at the Cabstand double junctionin Portishead, near Bristol. Despite an

After interest on QE gilts boosted UKs 11.4bnJanuary surplus, do the figures lack credibility?

YESThe public sector finances demonstrate the problems caused by the

statistical fudges of the past couple of years like the transfer ofcoupon interest that the Bank of England has earned from buyinggilts under its programme of quantitative easing. Its difficult todecipher the underlying trends. It appears that the state of thepublic finances is worse than the government had hoped for, andthere is virtually no chance that borrowing will be lower this year ona like-for-like basis. Further, the Office for National Statistics has puta ceiling of 9.1bn on the amount of cash that can be transferredfrom the Bank of England to the government this year, meaningthat the reduction in borrowing caused by the transfers will be 5bnless than the Office for Budgetary Responsibility (OBR) hasforecast. Therefore, the government is on course to miss the OBRsborrowing forecast by a distance of almost 11bn.Nida Ali is an economic adviser to the Ernst & Young ITEM Club.

Nida Ali

NORobert Wood

The latest public sector finances figures show a surplus of 11.4bn

in January, and include the first transfer of accumulated intereston the Bank of Englands gilt holdings of 3.8bn. Excluding this,the underlying surplus was 7.6bn 1.2bn better than inJanuary 2012. But the transfer of coupon payments is notfundamentally that big a deal its just a transfer of cash fromone part of the public sector (Bank of England) to another (theTreasury). Its more important politically, since the chancellor hasused the transfers to disguise the governments borrowingtrajectory. He cannot hide the fact that deficit reduction has goneinto reverse. Borrowing is now likely to overshoot thechancellors forecasts. So expect a repeat of George OsbornesAutumn Statement performance at next months Budget growth down and deficits up.Robert Wood is an economist at Berenberg Bank.

How clever traffic

management canboost UK growth

increase in traffic, queues disap-peared, journey times fell by over 50per cent, and there was no decline in

road safety.A more recent and wider-ranging

study suggests that the benefits ofremoving controls go further. In the

biggest scheme seen in the UK so far,Poynton in Cheshire has removedtraffic lights and highway clutter atFountain Place, a major crossroadscarrying 26,000 vehicles a daythrough the heart of the village. Nowthere is an attractive, openstreetscape in which free-flowingtraffic interacts sociably with pedes-trians. Not only have delays droppedmarkedly, but since the scheme wasunveiled six months ago, tradingactivity in local shops has doubled.

This alternative approach to trafficmanagement has brought substan-tial regeneration benefits as a resultof reducing the delays and negativeenvironmental effects associated

with traffic controls.The accumulating evidence from

such studies strengthens the case foran about-turn on traffic policy. A firststep would be to end the funding ofnew traffic control schemes, whichthreaten to increase further the costsimposed on road users, taxpayers andlocal residents. Policymakers shouldlook closely at Poynton a blueprintfor delivering substantial economicand quality of life benefits stemmingfrom a different approach to traffic.Martin Cassini is a TV programme

maker and traffic campaigner, and awriter for the Institute for Economic Affairs.

MARTIN CASSINI

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Non-refundable, non-changeable. Subject to conditions and availability.

From London City Airport. Book at cityjet.com

Government borrowing is still up by 1.6 percent on last year, despite the healthy surplusin January because of weak growth.@WilliamsonChris

George Osbornes smoke and mirrorsdisappears in a puff of smoke. How will heclaim that borrowing is falling now?@West_GP

Osborne included 4G receipts and giltinterest payments to make it appear thedeficit will fall this year.@Fusty_Luggs

Its a year since the EU solved the Greekcrisis with its final, definite, massive bailout.Hows that working out for them?@DanHannanMEP

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24FRIDAY 22 FEBRUARY 2013 cityam.com

PROPERTY

WITH ECONOMIC outputfalling in the final quarterof 2012, hopes were high

that the residential marketwould recover at the start of 2013. Sofar, things are looking positive.

After what was a tough year in2012 with the extreme weather, theOlympic and Paralympic Games anda stagnating economy, I am cau-tiously optimistic about theprospects for the prime Londonmarket in 2013, says Nick Barnes,head of research at ChestertonHumberts. A number of key indica-tors are looking very positive andthe success of Circus West has pro-

vided further proof of the high levelof demand for prime residentialproperty in London.Analysts report that last month was

the best January for the past two yearsand according to a survey compiled

by property analysts Hometrack, 79per cent of

cityam 2013-02-22

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