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Pernod Ricard hit by China crackdown

Pernod Ricard warned that growth in full-year operating profit would be lower than expected, as weak sales in China continued to weigh on the group’s overall performance. The world’s second-largest spirits maker by sales said that growth in operating profit on an organic basis would now be between 1 per cent and 3 per cent for the full business year, which ends in June. That is down from previous guidance of 3-5 per cent. The lower forecast comes as Pernod Ricard, which produces Jameson whisky and Absolut vodka, said that the Chinese government’s crackdown on conspicuous spending by officials was weighing heavily on business activity. Spirits and cognac manufacturers, including Rémy Cointreau, Pernod’s French rival, have been hit hard by the crackdown. Luxury groups have also reported significantly weaker sales because of China’s policy shift. The group’s first-half sales were €4.6bn, matching sales during the same period a year earlier on an organic basis. The figure was just shy of consensus forecasts. But Pernod Ricard also said that sales in China during the period fell 18 per cent. The Chinese market, which had seen vigorous growth in recent years thanks to abundant gift-giving by government officials and company executives, accounts for about 12 per cent of group sales and 15 per cent of operating profit. On a conference call on Thursday, Pierre Pringuet, Pernod Ricard’s chief executive, said: "We thought the difficulties in China would be over by Chinese new year, but today we say that it will take the full fiscal year to enjoy a better situation there." The Paris-based company announced a cost savings programme that it said would deliver €150m a year in savings within three years. It said that some of those savings would be reinvested, but provided few details. Operating profit for the first half of its business year was €1.4bn, up 2 per cent on an organic basis from the same period a year earlier – but 7 per cent lower on a reported basis because of the negative impact of exchange rates during the period. The shares closed 2 per cent higher at €84.87 in Thursday trading, suggesting that the market had largely anticipated the lower profit forecast for the full year. Citigroup said in a note: "The results overall are a bit better than we anticipated . . . we doubt the results will change investors’ view on the stock."

Asian Market Update: China CPI contained y/y but rises to 11-month high m/m, elevated by higher food prices

***Economic Data*** - (CN) CHINA JAN CONSUMER PRICE INDEX (CPI) M/M: 1.0% (11-month high) V 0.3% PRIOR; Y/Y: 2.5% (matches 8-month low) V 2.4%E - (CN) CHINA JAN PRODUCER PRICE INDEX (PPI) Y/Y: -1.6% V -1.6%E (23rd month of decline) - (NZ) NEW ZEALAND JAN NON-RESIDENT BOND HOLDINGS: 65.1% V 65.1% PRIOR - (NZ) NEW ZEALAND JAN FOOD PRICES M/M: +1.2% V -0.1% PRIOR (first rise in 4 months and 7-month high) - (NZ) NEW ZEALAND REINZ JAN HOUSE PRICE INDEX: 3,756 V 3,847 PRIOR; M/M: -2.4% (2nd consecutive decline) V -1.0% PRIOR; HOUSE SALES Y/Y: -4.3% V -1.1% PRIOR - (PE) PERU CENTRAL BANK LEAVES REFERENCE RATE UNCHANGED AT 4.00%, AS EXPECTED

***Highlights/Observations/Insights*** - China y/y CPI tops estimates, remaining at 2.5% in Jan and matching an 8-month low. Incidentally, m/m rate predictably accelerated in the month leading to Lunar New Year holiday, rising by an 11-month high rate of 1.0%. Food inflation once again outpaced non-food inflation, rising 2.4% m/m and 3.7% y/y vs 0.3% and 1.9% non-food. Separately, shadow banking worries simmered a little hotter after China press reported as many as 6 trust firms may have up to a CNY5B exposure to the troubled Shanxi Liansheng Energy. Analysts have previously expressed some concern that the turmoil related to ICBC's China Credit Trust products was the "canary in the coal mine", as coal prices fall and investment dries us. - Gold has regained a firmer footing, extending to 3-month highs above $1,305 overnight. Note the SPDR Gold trust fund is rising again as well, with a near 2-month high in holdings. Australia's largest gold miner - Newcrest Mining - posted mixed H1 results. Newcrest reported H1 net profit of A$207M, down from A$320M y/y, but saw H1 production up over 25% y/y and also forecasted FY output at the top end of prior guidance range. - RBA Asst Gov Kent drove AUD slightly lower, noting there is potential for a correction in AUD, but also indicated inflation will be higher than in the Nov forecast (as confirmed by the latest RBA quarterly policy statement) and provided no indication how far that correction would run. He also acknowledged weakness in the labor market, but said investors should not be overly pessimistic from one month of data.

***Fixed Income/Commodities/Currencies*** - (US) Weekly Fed Balance Sheet Total Assets Week ending Feb 12th: $4.12T v $4.11T prior; Reserve Bank Credit: $4.08T v $4.07T prior; M1: +$109.2B (**multi-year high) v +$8.6B prior; M2: +$14.9B v +$25.5B prior - (CN) Daily Shibor fixings: O/N: 3.2780% v 3.6690% prior (4th consecutive decline, lowest since Jan 16th); 1-week: 4.4360% v 5.0210% prior (5th consecutive decline, lowest since Jan 14th) - JGB: (JP) Japan's MoF sells ¥T in 0.2% (0.2% prior) 5-yr notes; Avg yield: 0.185% v 0.206% prior; Bid to cover: 4.07x v 3.73x prior - (JP) BOJ offers to buy ¥2.0T in T-bills outright - (JP) Japan investors sold net ¥617.2B in foreign bonds last week (4th consecutive week of net sales) vs sold net ¥1.82T in prior week; Foreign Investors sold net ¥76.4B in Japan stocks v sold net ¥751.9B in prior week - (AU) Australia MoF (AOFM) sells A$800M in 5.5% 2018 Bonds; avg yield: 3.2157%; bid-to-cover: 4.56x - GLD: SPDR Gold Trust ETF daily holdings rise 7.5 tonnes to 806.4 tonnes (highest since Dec 20th)

***Speakers/Political/In the Papers*** - (CN) Follow-up: China Development Bank (CDB) said to provide CNY2B credit to Shanxi Liansheng Energy for restructuring - financial press - (CN) China State Council researcher Chen Daofu: China can endure 1-2 local govt defaults - Chinese press - (JP) Japan Econ Min Amari: US, Japan agreement on contentious trade issues is the key for Tran-Pacific Partnership (TPP) - (AU) Australia Central Bank (RBA) Asst Gov Kent: Sees potential for a correction in AUD after it has been on the high side of fundamentals for the past few years; Lower AUD would balance growth and return it to trend - (KR) Bank of Korea (BOK) Gov Kim: Policy needs long-term view in tackling short-term issues; Will take several years to normalize from financial crisis - (KR) South Korea Fin Min Hyun: Sees recovery in South Korea economy; To focus policy on job creation and domestic demand - (TH) Thailand riot police has started to clear protest sites in Bangkok without resistance - financial press - World Bank looks to increase lending by $100B (+50% increase) over the next 10 years through International Bank for Reconstruction and Development (IBRD) - financial press - NPD: Jan total US video game sales $664M, -21% y/y

***Equities*** Market Snapshot (as of 04:30 GMT): - Nikkei225 -1.7%, S&P/ASX +0.7%, Kospi +0.7%, Shanghai Composite +0.5%, Hang Seng +0.4%, Mar S&P500 -0.3% at 1,819, Apr gold +0.5% at $1,306, Mar crude oil -0.1% at $100.23/brl

US markets: - LCAV: To be acquired by PhotoMedex for $5.37/share in cash, or $106M; to be accretive to PhotoMedex's cash EPS in 2014; +26.1% afterhours - JCOM: Reports Q4 $0.80 v $0.77e, R$138M v $139Me; Increases dividend; +19.6% afterhours - CLF: Reports Q4 $1.22 adj v $0.77e, R$1.52B v $1.45Be; +7.3% afterhours - IM: Reports Q4 $0.88 adj v $0.80e, R$11.8B v $11.6Be; +3.1% afterhours - BRCD: Reports Q1 $0.24 v $0.20e, R$565M v $550Me; Guides Q2 $0.17-0.19 v $0.19e, R$520-540M v $540Me - slides; +1.8% afterhours - KRFT: Reports Q4 $0.43(adj) v $0.61e, R$4.60B v $4.65Be; +1.1% afterhours - OXY: Announces Sale of Hugoton Field Assets for $1.4B As Part of Company's Strategic Review; +0.4% afterhours - TSLA: Confirms press report of an incident of fire in Toronto; 4-month old vehicle was unplugged in a garage; -1.3% afterhours - EFX: Reports Q4 $0.91 v $0.91e, R$578.5M v $581Me; increases dividend 14% from $0.22 to $0.25; -5.4% afterhours - A: Reports Q1 $0.67 v $0.66e, R$1.68B v $1.69Be; Exec: clinical business crimped by slow release of research budgets in US and China - conf call; -5.8% afterhours - TRLA: Reports Q4 $0.03 adj v $0.10e, R$49.7M v $49.2Me; -14.7% afterhours - GNC: Reports Q4 $0.63 v $0.65e, R$613.7M v $634Me; -16.0% afterhours - WTW: Reports Q4 $0.54 v $0.60e, R$366M v $360Me; -20.2% afterhours

Notable movers by sector: - Consumer Discretionary: Luk Fook Holdings 590.HK +1.3% (sales results during Lunar New Years); Kirin Holdings 2503.JP -8.6% (FY13 results); Meiji Holdings 2269.JP +3.8% (9M results) - Financials: DBS Group Holdings DBS.SG -0.6% (Q4 results); Oversea-Chinese Banking Corp OCBC.SG +0.1% (Q4 results); Everbright Securities 601788.CN -0.6% (Jan results) - Materials: Newcrest Mining NCM.AU -1.3% (H1 results); Toyo Tire & Rubber 5105.JP +8.0% (FY13 results) - Industrials: Sumitomo Rubber Industries 5110.JP -1.8% (FY13 results) - Technology: Lenovo Group 992.HK -0.5%, China Wireless 2369.HK -1.3% (IDT releases Q4 China smartphone shipment) - Utilities: Tepco 9501.JP -2.4% (detected record level of radioactive cesium near Pacific) - Telecom: SmarTone Telecommunications 315.HK +0.4% (H1 results)

GPS pioneer warns on network’s security

The Global Positioning System helps power everything from in-car satnavs and smart bombs to bank security and flight control, but its founder has warned that it is more vulnerable to sabotage or disruption than ever before – and politicians and security chiefs are ignoring the risk. Impairment of the system by hostile foreign governments, cyber criminals – or even regular citizens – has become "a matter of national security", according to Colonel Bradford Parkinson, who is hailed as the architect of modern navigation. "If we don’t watch out and we aren’t prepared," then countries could be denied everything from ‘navigation’ to ‘precision weapon delivery’, Mr Parkinson warned. "We have to make it more robust ... our cellphone towers are timed with GPS. If they lose that time, they lose sync and pretty soon they don’t operate. Our power grid is synchronised with GPS [and] our banking system." Western governments are "in their infancy in recognising the problem", Mr Parkinson told the Financial Times in an interview on the fringes of a conference for government officials, academics and defence contractors at the UK’s National Physical Laboratory. He said: "[In the US] I don’t know anyone that is really in charge of it. The Department of Homeland Security should be [but] ... they don’t have any people that understand it very well. They’ve got one person without any budget to speak of." Mr Parkinson, now a professor at Stanford University, created GPS in the 1970s on behalf of the US military – who still control the system of satellites today. Use of the system for civilian purposes has exploded with the development of mobile technologies. Though the US military has in place protection that could give its navigation systems a high-degree of robustness, most civilian GPS systems have none, Mr Parkinson said. He also warned that the EU’s new €5bn Galileo satellite system, created as an alternative to the US-controlled GPS, was equally at risk. Richard Peckham, who helped develop the Galileo system, said that although its public service was encrypted, making it more difficult to hack and more secure for users such as the emergency services and public utilities, it was still vulnerable to jamming and interference. The US, which initially opposed the European satellite constellation, has come around to supporting it, in part because Washington has realised it needs a GPS back-up system that is neither Russian nor Chinese. A report compiled for the UK government and released this week warned that "the conditions are present for a catastrophic ‘Black Swan’ event" that would knock out one or more critical GPS systems. The report identified thousands of instances of GPS jamming occurring annually. Disruption of satellite navigation systems has so far remained a relatively low-level problem for governments. Small-range jamming devices can be acquired easily via the internet. However, more powerful jamming equipment is becoming increasingly easy to acquire. Over the past few years South Korea has witnessed huge jamming attacks against its GPS systems, launched by North Korea. The areas affected stretch 100km into South Korean territory, and include major airports and shipping lanes. More than 1,000 ships and 250 planes had their travel disrupted by North Korean jamming attacks in 2012. Seoul has responded by ordering the construction of a land-based antenna array over more than 40 sites to provide a back-up system. The UK has already begun to build a similar system, primarily to help shipping in the event of GPS disruption. The stretch of water between Britain and France is one of the busiest shipping lanes in the world, but navigation throughout it could be disrupted by a single portable jamming device. "When a ship loses GPS, it isn’t like a car satnav," said Professor David Last, a consultant to the UK’s General Lighthouse Authority. "Multiple systems fail simultaneously." Prof Last cited a report into navigation vulnerabilities from the Royal Academy of Engineering that found "there was barely a single area of commerce or industry in the UK that wasn’t dependent on GPS in some way."

Closing Market Summary: Stocks End on Highs Despite Shaky Start

The stock market rallied steadily throughout the trading day despite starting the session on a lower note. Small caps led the way with the Russell 2000 climbing 1.3% while the S&P 500 advanced 0.6%.

The benchmark index was down as much as 0.6% at the start of the session after overnight weakness in the futures market set the stage for a lower open. The losses in futures coincided with a wave of yen strength that once again stoked fears about potential forced unwinds of the yen-based carry trade. Adding to the early weakness was a disappointing retail sales report for January.

Even though stocks opened lower, the S&P 500 found support at its 50-day moving average in the 1810 area. The index also drew strength from the retreat in the yen as the dollar/yen pair climbed off its low just under the 101.75 level.

Strikingly, the rally in equities continued even as the dollar/yen pair spent the afternoon in a narrow range while Treasuries never surrendered their morning gains. In fact, the 10-yr note extended its morning advance, sending its yield lower by six basis points to 2.73%.

It should be noted that the advance in equities took place amid below average volume, which could have exacerbated movements in some prices. Only 627 million shares changed hands at the NYSE floor versus a 200-day average of 717 million.

All ten sectors posted gains with materials (+1.0%) and utilities (+1.2%) ending in the lead. The rate-sensitive utilities sector benefited from the retreat in yields while materials drew strength from steelmakers and miners. The Market Vectors Steel ETF (SLX 47.05, +0.44) gained 0.9% while Market Vectors Gold Miners ETF (GDX 25.87, +1.10) jumped 4.4%. On a related note, gold futures rose 0.4% to $1300.40/ozt, ending above the $1300.00 mark for the first time since early November.

Elsewhere, the largest S&P 500 sector, technology (+0.9%) shook off the disappointing guidance provided by Cisco Systems (CSCO 22.27, -0.58), and rallied on the back of chipmakers. NVIDIA (NVDA 17.36, +0.53) gained 3.2% in reaction to its above-consensus results while the broader PHLX Semiconductor Index settled higher by 1.2%.

Other heavily-weighted groups were mixed with respect to the broader market. Health care (+0.8%) outperformed while consumer discretionary (+0.4%), energy (+0.4%), financials (+0.4%), and industrials (+0.2%) lagged.

Looking back at the economic data: * Retail sales fell 0.4% in January after declining a downwardly revised 0.1% (from +0.2%) in December. The consensus expected no growth in January. The report was discouraging and many are going to point to extreme winter weather conditions as the primary cause for the larger-than-expected decline. That scenario holds some truth as sectors that are normally affected by weather conditions such as motor vehicle sales (-2.1%) and restaurants (-0.6%) saw significant pullbacks. However, spending in general was weaker across the board. That could signal that the spending out of savings that occurred in December was a one-time event related to the holidays and not the start of a new trend. 

* The weekly initial claims level increased to 339,000 from an unrevised 331,000 while the consensus expected an increase to 335,000. The claims data have shown some choppiness, likely the result of volatility from the extreme winter weather conditions. In general, claims have not deviated from its 330,000 - 340,000 trend. These levels normally support payroll growth in the neighborhood of 185,000 - 200,000 jobs per months. 

* Business inventories increased 0.5% in December after increasing 0.4% in November while the consensus expected an increase of 0.4%.Total inventories consist of manufacturers, merchant wholesalers, and retails. Both manufacturers (0.5%) and wholesaler (0.3%) inventories were announced prior to the total inventory release. The only unknown was retailer inventories, which increased 0.6% in December after increasing 0.8% in November. 

Tomorrow, January export prices ex-agriculture and import prices ex-oil will be released at 8:30 ET while Industrial Production and Capacity Utilization for January will be announced at 9:15 ET. The day's data will be topped off by a 9:55 ET release of the preliminary Michigan Consumer Sentiment survey for February.

Nasdaq Composite +1.5% YTD  S&P 500 -1.0% YTD  Russell 2000 -1.3% YTD  Dow Jones Industrial Average -3.3% YTD

ENI could offload 15% interest in Mozambique as part of EUR 9bn asset sale plan

ENI [BIT:ENI] is considering selling a stake of up to 15% in its gas-rich licence block off the coast of Mozambique as part of its EUR 9bn asset disposal plan, the Italian oil company’s CEO Paolo Scaroni said following a presentation of the company’s strategic plan.

This figure is up from the 10% of the Area 4 license block that ENI said in September 2013 it might sell and comes as the oil major announced a new "wet" gas discovery. Last year ENI sold a 20% stake to China’s CNPC for USD 4.2bn. Scaroni said, "We could potentially decrease our stake by around 15% and still remain operator of the project with 35%."

ENI intends to divest assets worth EUR 9bn between 2014 and 2017 of which around 33% will come from the disposal of its remaining stake in Snam [BIT:SRG] and Galp [ELI:GALP], said Scaroni.

While proceeds of EUR 2.3bn from the new plan have already been raised through the sale in January of the Arctic Russia project, the rest will come through the disposal of exploration and production assets but not via corporate disposals. Those will be limited to Galp and Snam.

An exit of ENI’s 42.93% investment in Saipem is not on the cards at the moment, he indicated. Saipem[BIT:SPM], ENI and Scaroni are under ongoing corruption investigation by Italian and Algerian authorities relating to the oil contractor’s business in the North African country.

ENI has aa 16% interest in Galp and a 8.54% stake in Snam following a stake sale last year. The sale of the remaining stakes in the two companies is linked to exchangeable bonds issued in 2012 and 2013 and can be realized when those instruments reach maturity, Scaroni added.

Scaroni noted that the buyback programme launched by the company at the beginning of the year and the Italian government’s plan to reduce its stake in ENI are two separate things. "It would be impossible for us to buy back, let’s say, 10% of our shares in three months; the board wouldn’t authorize it nor would I propose it", he noted.

ENI wants to maintain maximum flexibility in the management of the buyback programme with the intention to continue with it only if all the necessary conditions are met. Those conditions include specific thresholds in terms of oil price and US dollar exchange rate.

The Italian government announced the intention to sell part of its 30.1% stake in ENI in October, when it presented a wide privatization plan aimed at raising billions of euros and lowering Italy’s public debt.

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Publicis May Distribute Funds to Sharholders, Levy Tells Figaro 2014-02-13 18:43:54.3 GMT

By Vidya Root Feb. 13 (Bloomberg) -- CEO Maurice Levy told French daily Le Figaro in an interview that the Publicis-Omnicom merger will result in $2 billion in cash available. * The new company will slow its pace of acquisitions because it has a good range of complimentary assets: Levy * The merged company will seek to distribute 35% of its profit to shareholders and will probably put in place a share- buyback program, Levy said: Figaro * Publicis will not become American, Levy said: Figaro * The Badinter family has no intention of selling its stake: Levy.

Link to Company News:{PUB FP <Equity> CN <GO>} Link to Company News:{OMC US <Equity> CN <GO>}

For Related News and Information: First Word scrolling panel: {FIRST<GO>} First Word newswire: {NH BFW<GO>}

To contact the editor responsible for this story: Vidya Root at +33-1-5365-5018 or vroot@bloomberg.net

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CRL 02/13 16:51 BELGACOM IS IN TALKS WITH VIVENDI ABOUT SALE OF TELINDUS FRANCE BN 02/13 16:46 *BELGACOM IN TALKS WITH VIVENDI FOR SALE OF TELINDUS FRANCE

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Belgacom in Talks With Vivendi for Sale of Telindus France 2014-02-13 16:49:30.266 GMT

By John Martens Feb. 13 (Bloomberg) -- Belgacom plans to divest Telindus’s French business with 2013 rev. of EU241m. * Pending final agreement, transaction will be subject to approval by French competition authorities * NOTE: Vivendi’s SFR, Telindus France already have partnership for cloud-based unified communication solutions

Link to Company News:{BELG BB <Equity> CN <GO>} Link to Company News:{VIV FP <Equity> CN <GO>}

For Related News and Information: First Word scrolling panel: {FIRST<GO>} First Word newswire: {NH BFW<GO>}

To contact the editor responsible for this story: John Martens at +32-2-285-4303 or jmartens1@bloomberg.net

Special Situations: AVON (AVP US)

If someone wanted to bid again, now would be opportunistic: BUY. (also BUY NUS US) AVP US: US$15.06; NUS US: US$75.02

February 13, 2013 We would be cautious buyers of Avon. In the short-term, we believe that two factors could push the share price higher: (i) resolution of FCP investigations that could improve the margins by as much as 100bs (ii) better than expected turnaround of the business, in terms of both cost reduction and sales growth. On a risk-adjusted basis, we would set a short-term target price of $16.9 for AVP. As an aside, we prefer Nu Skin (NUS US) , a direct competitor of Avon operating a similar business model but with a better execution, track record and growth profile. However, AVP faces long-term challenges to its business model and significant actions are necessary to create a sustainable model. Poor execution problems (in implementation of IT infrastructure, product offerings, management of reps etc.) continue to affect AVP's operational performance while heavy competition in key markets is chipping away AVP's market share. We note that AVP's direct competitors such as NATU3 BZ (main competitor in the Brazilian market) and NUS US seem to have better execution model and have managed to grow revenue and margins despite a difficult direct selling environment. Particularly, NUS US has been growing its margins and sales aggressively and consensus expects the company to maintain this growth going forward. Despite these issues, AVP continues to command high brand awareness vis-à-vis its peers and leading market share in direct selling globally. A renewed buyout offer for AVP from either Coty or another player is possible and would be opportunistic, particularly after the stock's plunge from 24 to 14 in the last few months. However, the poorly performing direct selling business model will continue to be a deterrent. FULL REPORT ATTACHED