>>> What to look at today - 8th of January 2018

Asian equities edged higher ahead of the start of the region’s earnings season this week, with investors betting that the outlook for economic growth and profits is strong enough to support record-high stock prices. The Korean won declined.
Shares from Sydney to Bangkok climbed with markets in Tokyo closed Monday for a holiday. Samsung Electronics Co. and a slew of Japanese retailers and manufacturers are among companies giving profit updates this week. South Korea’s currency reversed gains as authorities said they would take action to stem one-sided moves in the won. Oil gained.

Nikkei +0.89% Hang Seng -0.06% CSI +0.21% Shanghai +0.24% Shenzen -0.04%

Eur$ 1.2012 CNH 6.4875 CNY 6.4863 JPY 113.23 GBP 1.3547 CHF 0.9761 RUB 56.9975 WTI$ 61.56 +0.20%

S&P +0.08% EuroStoxx +0.33% Dax +0.55% FTSE +0.20% SMI +0.41%

Macro :
- Two Koreas to Talk, Merkel Seeks Coalition: Week Ahead Jan. 8-13
- Carmakers Risk EU4.5 Bln EU Emissions Fines From 2021: Study
- UK PM May to Reshuffle Cabinet on Monday, According to Reports
- Accounting Rules Lay Bare More Debt in DAX Cos., WiWo Says
- ECB’s Weidmann Supports Setting Clear QE-End: Macro Squawk Wrap

Keep an eye on :
- AC FP : Thomas Cook, Accor Among Top Leisure Picks at Morgan Stanley
- AIR FP : Airbus Offers China A380 Industrial Partnership, FT Says
- AMZN US : Amazon Owns Holidays Again, Glasses With Alexa Coming: TMT Wrap
- AAPL US : Apple Holders Want Co. to Address Smartphone Addiction: WSJ
- CLLN LN : U.K.’s Carillion to Present New Business Plan to Lenders: Sky
- BLT LN : BHP Preferred Over Rio at Macquarie Amid Spot Price Recovery
- BMW GY : Carmakers Risk EU4.5 Bln EU Emissions Fines From 2021: Study
- CELG US : Celgene to Buy Impact Biomedicines for $1.1B Upfront
- CBK GY :Cerberus Opposes Deutsche Bank-Commerzbank Merger: Handelsblatt
- CHR DC : Chr. Hansen Names Givaudan’s Graber New CEO
- CYTX US : Cytori Gains; Maxim Sees as Acquisition Candidate After Tigenix
- DAI GY : Carmakers Risk EU4.5 Bln EU Emissions Fines From 2021: Study
- DHER GY : Luxor Funds Sell 4.89M Shares in Delivery Hero for EUR31.75/Shr
- DBK GY : Deutsche Bank Sees ’Small’ FY 2017 After-Tax Loss
- DLG GY : Dialog Semiconductor 4Q Rev ~$463M, Slightly Above Guided Range
- DBD US : Diebold Nixdorf Holder Atlantic Investment Cut Stake to ~6.8%
- DUFN SW : HNA Is Said to Weigh Sale of Two London Canary Wharf Offices
- EDF FP : Macron Says Progress on Nuclear Energy With China Expected Tues.
- EOAN GY : EON Board to Decide Monday on Sale of 47% Stake in Uniper: BZ
- ESA IM : Esaote purchase by Chinese consortium may be blocked by Italian government
- FRE GY : Fresenius to Focus on Acquisitions as Part of Growth Plan: BZ
- GIVN SW : Givaudan Appoints Louie D’Amico as President of Flavour Business
- HAIN US : Hain Portfolio ’Too Diverse For Single Buyer:’ Wells Fargo
- KNIN SW : Kuehne + Nagel Chairman Seeks Bolt-on, Asia Deals, FuW Reports
- LSE LN : London Stock Exchange’s LCH Posts Record 2017 Clearing Volumes
- TAP US : Molson Coors Brewing Acquires U.K.’s Aspall Cyder
- NFLX US : Netflix Propels TV Production, Dethrones HBO With Critics
- NESN SW : Ferrero Is Said to Lead Nestle U.S. Confectionery Ops Bid: CNBC
- NRS NO : Norway Royal Salmon Cuts 2018 Harvest Volume Forecast on Virus
- NOVN SW :
- NOVOB DC : Novo Nordisk Seeks to Buy Ablynx for up to €30.50/Share in Cash
- NVDA US : Volkswagen, Uber to Deploy Nvidia’s Technology for Self Driving
- UG FP : Opel CEO Confident of Avoiding Emissions Fines: Welt am Sonntag
- QIA GY : QIAGEN and DiaSorin Partner to Offer Fully Automated Tuberculosis Detection With QuantiFERON-TB Gold Plus Available on LIAISON Analyzer Systems
- QCOM US : Qualcomm Processors Affected by Meltdown, Spectre: the Register
- ROG SW : Roche, GE in Partnership to Develop Diagnostics Platform
- SAB SM : Sabadell Suspends Sale of Quiron Hospitals: El Confidencial
- SAN FP : Sanofi Gets Hemophilia Drug Rights in Revised Alnylam Alliance
- SAS NO : SAS Low Valuation Is One Reason to Buy Shares: Dagens Industri
- SGRE SM : Siemens Gamesa Is Said to Be in Talks on 700-Megawatt Wind Deals
- SOP FP : Sopra Steria Says It Will Buy Germany’s Bluecarat
- SPOTIFY IPO : Spotify’s Chief Content Officer to Leave Company: Recode
- SYNN SW : Syngenta Will Delist American Depositary Shares from NYSE
- TCG LN : Thomas Cook, Accor Among Top Leisure Picks at Morgan Stanley
- VAO GY : Vapiano Says Met Expansion, Sales Targets in FY 2017
- DG FP : Vinci Airports Wins Concession for Belgrade Airport: Kurir
- VOW3 GY : VW Estimates It Sold About 10.7 Mln Vehicles in 2017: Bild
- VOW3 GY : Volkswagen, Uber to Deploy Nvidia’s Technology for Self Driving
- ZURN SW : Zurich Life Singapore to Hand Over S$6b Coverage by 1H18: BT

>>> Europe : Brokers Upgrades & Downgrades - 8th of January 2018

>>> Up
* AB InBev Upgraded to Buy at Investec
* Air Liquide Upgraded to Overweight at JPMorgan; PT 115 Euros
* Standard Life Aberdeen Upgraded to Buy at Jefferies
* Technogym Upgraded to Buy at Kepler Cheuvreux; PT 9 Euros
* Thomas Cook Raised to Overweight at Morgan Stanley
* Umicore Upgraded to Overweight at JPMorgan; PT 48 Euros
* United Technologies Upgraded to Buy at Goldman; PT $173
* Yara Upgraded to Outperform at Bernstein

>>> Down
* Aker BP Downgraded to Neutral at Credit Suisse; PT 180 Kroner
* Arkema Downgraded to Neutral at JPMorgan; Price Target 110 Euros
* BASF Downgraded to Neutral at JPMorgan; PT 95 Euros
* Buwog Downgraded to Hold at HSBC; Price Target 34 Euros
* Deutsche Bank Downgraded to Hold at HSBC; PT 16 Euros
* Fidessa Cut to Underperform at Credit Suisse; PT 23.50 Pounds
* Givaudan Downgraded to Underperform at Bernstein
* Hargreaves Lansdown Downgraded to Underperform at Jefferies
* Jupiter Downgraded to Hold at Jefferies
* Ladbrokes Coral Cut to Equal-weight at Morgan Stanley
* LVMH Downgraded to Market Perform at Raymond James
* Paddy Power Cut to Underweight at Morgan Stanley; PT 75 Pounds
* Scandic Cut to Underweight at Morgan Stanley; PT 105 Kronor
* Snap Downgraded to Hold at Jefferies; Price Target $15
* Umicore Downgraded to Market Perform at Bernstein
* Wacker Chemie Downgraded to Neutral at JPMorgan; PT 165 Euros

>>> Initiation
* Bakkavor Group Rated New Hold at Kepler Cheuvreux; PT 2 Pounds
* City Pub Group PLC/The Rated New Buy at Berenberg
* Just Group Rated New Buy at HSBC; PT 1.92 Pounds

>>> Call

>>> Asian Update

Asia Market Update: China foreign reserves gain for 11th consecutive time; markets generally higher in a quiet session, Korea suspected of intervention

***Headlines/Economic Data***
General Trend: Asian markets trade generally higher after Friday's gains in the US
-Property developers in China and Hong Kong outperform amid release of Dec sales figures
-Chinese cement names (Anhui Conch, China Res Cement ) raise FY17 outlooks on higher prices
-South Korea steps up currency warning: Korean Won (KRW) weakens ahead of Tuesday’s expected talks with North Korea

Japan
-Nikkei 225 closed for holiday
- Fast Retailing: Reports Dec Uniqlo SSS +18.1% y/y (includes online sales); cites factors including cold weather conditions (from Jan 5th after close)

Korea
-Kospi opened +0.5%
-Automakers gain: Hyundai Motor +0.9%, Kia +1.1%
- Chipmakers trade mixed: Samsung Electronics flat, Hynix -1%
-General strength among financials and chemicals: KB Financial +4%, Lotte Chemical +8%, LG Chemical +3.5%
-LG Electronics, 066570.KR Reports prelim Q4 (KRW)Op 366.8B v 464Be; Rev 16.97T v 16.3Te
- (KR) South Korea reiterates will take steps if one-sided moves are seen in FX market; to take steps 'sternly' in case of drastic move in FX; Amid the comments, USD/KRW is now moving higher on the session, currently +0.4%, speculation that South Korea officials may have intervened on today's session by purchasing US dollars (USD) in order to slow the rise of the Korean Won (KRW)
-(KR) Bank of Korea (BoK) sells KRW600B in 6-month monetary stabilization bonds: yield 1.60%
-(KR) Bank of Korea (BOK) banks are likely to tighten their rules on household loans in Q1 of this year amid a recent trend of rising interest rates
-(KR) South Korea Finance Ministry: finalized the details on a tax code overhaul whose main features are the levying of an additional tax on owners of multiple homes, a move intended to curb rising housing prices, and the raising of the highest corporate income tax rate
-(KR) South Korea official: special investigation will be implemented on virtual accounts used for cryptocurrency deals, as part of the government’s recent pledge to crack down on excessive speculations
Looking Ahead: LG Electronics may report prelim Q4 results later today; Samsung Electronics may report prelim Q4 results on Tuesday
- South Korea and North Korea expected to hold talks on Tuesday which are expected to cover the Winter Olympics and other issues

China/Hong Kong
-Hang Seng opened -0.1%, Shanghai Composite -0.2%; Shanghai markets later pare losses
-Hang Seng Property/Construction Index +1.8%; Financials -0.5%
-China airlines trade broadly higher: China to permit airlines to independently set prices for top routes – US financial press
- (CN) China NDRC: China to support merging of coal and electricity companies, sector names stronger on the news from Friday
-(CN) PBOC has asked banks to let foreign firms freely remit yuan profits, dividends - China Daily
- (CN) China Hebei province planning to cut 6.0Mt steel capacity in 2018 - Chinese press
-(CN) China NDRC: China to support merging of coal and electricity companies
-(HK) Hong Kong Monetary Authority (HKMA) Chan: As of Nov Hong Kong home prices 101% above the 1997 peak
-(CN) CICC sees PBOC raising interest rates by 25bps in 2018
- (CN) China PBOC deputy head of research Ji Min: There is room for an increase in interest rates in the short term as industrial product prices and enterprises' profitability have improved since last year - China Daily
- (CN) Chinese Academy of Social Sciences (CASS) expected China's economy to post stable growth in 2018 and expand by around 6.7% from 2017, despite headwinds from both home and abroad - China Daily
-(CN) China PBoC: Skips OMO for 10th straight session; Net drains CNY40B v CNY130B prior
-USD/CNY (CN) China PBoC sets yuan reference rate at 6.4832 v 6.4915 prior (strongest yuan fix since May 2016)
-(CN) China Dec Foreign Reserves: $3.140T v $3.127Te (highest since Sept 2016, 11th consecutive gain, biggest gain since July); 2017 FX reserves rose $129.5B to $3.1405 v $3.011Tin 2016 (first annual rise since 2014)
- 1169.HK Reports FY17 Pretax CNY30B, +41% y/y; Rev CNY241.9B, +20% y/y
-HNA Holdings -2.5%: HNA units said have missed payments to more China banks – press

Australia/New Zealand
-ASX 200 opened +0.3%; closed +0.1%
-ASX 200 REIT Index +0.6%, Financials +0.2%
-(AU) Australia Dec Foreign Reserves (A$): 85.4B v 85.8B prior
-(AU) Australia Department of Industry, Innovation and Science quarterly Resources and Energy report made near-term changes to the iron ore price outlook but kept longer-term projections unchanged
- (AU) Australia Dec AiG Performance of Construction Index: 52.8 v 57.5 prior
Looking Ahead: Australia Nov Building Permits due to be released on Tuesday

Other Asia
- (TW) Apple supplier LARGAN Precision -4.5%: Reports Dec Rev NT$4.88B, -10.4% y/y
-2409.TW Reports Dec Sales NT$25.8B, -17.1% y/y

North America
-(US) S&P 500 companies are expected to report Q4 y/y earnings growth of 10.5%, revenue growth seen at 6.7% - Financial Times; Earnings growth is expected to be led by Energy, Materials and Technology sectors
-(US) Pres Trump: will try to get a bipartisan deal on welfare reform or will hold the issue for a later time - meeting with GOP leaders at Camp David; Hopefully economic advisor Gary Cohn will be staying for a long time
-(US) Fed's Williams (2018 voter): Reiterates three rates hike in 2018 makes sense - financial press interview
- (US) White House chief economist Hassett: Fed would not need to tighten policy at a faster rate in response to recently passed tax cuts - American Economic Association; White House modelling shows the economic effects of the tax plan result in interest rates that are not inconsistent with the Fed’s current guidance.
-Celgene: Confirms to Acquire Impact Biomedicines for $1.1B upfront and up to $1.25B in contingent payments, Adding Fedratinib to Its Pipeline of Novel Therapies for Hematologic Malignancies
Looking Ahead: Consumer Electronics Show (CES) to be held in Las Vegas Jan 9-12

Europe
-(UK) UK PM May said to plan cabinet changes, which are expected to include a cabinet minister for 'no deal' – UK Press
- (EU) ECB's Weidmann (Germany, head of the Bundesbank): central bank should set a concrete date for ending its QE program; signs for inflation to return to a level that is sufficient to maintain price stability - El Mundo
-(UK) UK Visa Dec Consumer Spending Y/Y: -1.0% v -0.9% prior (first Dec decline since 2012)
-(SA) Saudi prosecutors confirm 11 princes were arrested for 'disturbing public order' after they staged a sit in at a royal palace
-UBS CEO Ermotti: Will not discuss relationship with HNA; Wealth management business needs to continue to evolve; premature to discuss stock buybacks
-ABLX.BE Rejected proposal from Novo Nordisk to acquire it for up to €30.50 per share in cash

***Levels as of 01:00ET***
- Nikkei225 closed, Hang Seng -0.1%; Shanghai Composite +0.5%; ASX200 +0.1%, Kospi +0.5%
- Equity Futures: S&P500 +0.1%; Nasdaq100 +0.1%, Dax +0.3%; FTSE100 -0.0%
- EUR 1.20.52-1.2012; JPY 113.27-113.02; AUD 0.7873-0.7836;NZD 0.7184-0.7161
- Feb Gold -0.3% at $1,318/oz; Feb Crude Oil +0.2% at $61.55/brl; Mar Copper -0.2% at $3.23/lb

>>> Barron’s weekend summary: positive features on FDX, UPS, gold stocks

Barron’s weekend summary: positive features on FDX, UPS, gold stocks 

* Cover story: Article on the fee divide in mutual funds says that despite a shift among investors to lower-cost funds, $1.3T—more than 8% of the industry’s assets—remains in the two priciest quintiles of annual fees; Barron’s culled data from Morningstar Direct, Broadridge Financial Solutions, and BrightScope to find the most egregious examples of high fees, and discover what kind of investor is paying them. 

* Features: 1) Positive on FDX, UPS: Rising postal rates might pinch AMZN, but would benefit the delivery companies, which are thriving because of e-commerce and could gain cover for more price increases; 2) A recent 6% rise in gold prices “has some investors wondering whether the market’s modest assumptions about gold and gold-mining stocks need to be reconsidered”; 3) Positive on Polyverse: Three-year-old cybersecurity startup claims it could have prevented last year’s WannCry virus from succeeding because its system keeps scrambling code, so that doors discovered by hackers close quickly; 4) Despite its naysayers, the Consumer Electronics Show can be an effective way to reach customers, developers, and investors, and breakout companies can gain funding, partnerships, and credibility. 

* Tech Trader: Positive on INTC: The company has faced criticism for a recent revelation that its chips are vulnerable to hackers, but the real problem is “the nature of technology, and how the industry approaches computer security.” 

* Trader: With the Dow hitting 25,000, it’s hard not to wonder if sentiment is getting a bit frothy—and easy to forget what a selloff could look like; For large banks, the big question about the new tax law is how much of the windfall will make its way to the bottom line and how much will be spent; DB analyst Carlo Santarelli says what matters for Macau casinos isn’t how fast GGR is growing, but the fact it is growing at all. 

* Mutual Fund Quarterly: After red-hot growth among FAANG stocks, investors may want to consider reducing their exposure by rebalancing into funds less weighted in technology; Sue Thompson, an advisor to asset managers and strategists in the ETF business, brings years of experience at Vanguard, Barclays Global Investors, and BLK to her work; Of the 48 ETFs launched by insurance companies last year, USMC, GDVD, DMRL, CSML, DMRI grew the fastest; Christopher Lin, co-manager of FOCPX, talks about FAANG stocks; “Economic engines around the world fired in unison in 2017, with all 45 countries monitored by the OECD on track to show growth for the year.” 

* Small Caps: A Barron’s analysis found that during each of the past five years, analyst recommendations for small-caps have had little to no power to predict returns over the following calendar year. 

* European Trader: Cautious on Just Eat, Delivery Hero: European food-ordering companies have seen gains of more than 20% during the past six months, but shares at this point may be overpriced. Emerging Markets: Markets in Saudi Arabia and Russia struggled last year, but could be set to regain ground and offer investors gains this year. 

* Commodities: “The price of regular unleaded gasoline this year will climb to its highest annual average since 2014, thanks in large part to crude-oil production cuts led by OPEC countries.” 

* Streetwise: Tech companies are likely to ramp up their M&A efforts in 2018; AMZN continues to buy brands, while AAPL prefers to transform its businesses internally—but a change in that strategy could be the biggest story of the year.

WSJ : Celgene Nears Deal to Buy Impact Biomedicines for as Much as $7 Billion

Celgene Nears Deal to Buy Impact Biomedicines for as Much as $7 Billion
Potential deal calls for Celgene to buy the San Diego company in three stages

Celgene Corp. CELG -1.58% is nearing a deal to buy cancer biotechnology concern Impact Biomedicines for as much as $7 billion, according to people familiar with the matter.

The potential deal, which could be announced Monday, calls for Celgene to buy the San Diego company in three stages, the people said.

First there would be an upfront payment of about $1 billion, with the next two stages dependent on approvals from the Food and Drug Administration and successful commercialization, the people said.


Celgene, based in Summit, N.J., is one of the biggest U.S. biotech companies, specializing in a form of cancer known as multiple myeloma.

WSJ : Bitcoin Finds a Home in Cash-Loving Germany

Bitcoin Finds a Home in Cash-Loving Germany
Country is turning into a development hub for virtual currencies and blockchains

BERLIN—A motley crew of old-money investors, entrepreneurs, crypto-anarchists and anti-inflation hawks is rallying around bitcoin in a surprising place: cash-loving Germany.
Driven by interest from these very different constituencies, Germany and especially its capital are turning into a development hub for virtual currencies and blockchains, the distributed ledger technology that underpins them.
“It’s a technology driven by anarchists who wanted to get rid of banks, and now the banks are promoting the technology,” said Shermin Voshmgir, founder of BlockchainHub, a Berlin-based think tank that advocates for blockchain and the decentralized web. “Many of the main actors are based in Berlin,” she said.
Germany’s Deutsche Bank AG and Bertelsmann SE, among the biggest investment banks and media companies in the world, are both looking to integrate blockchain into their operations, according to company insiders. In Munich and Bonn, fintech startups and venture capitalists are jumping into the cryptocurrency field. In Berlin, a world-class blockchain coding community has been growing for years.
There have been 1307 blockchain-related computer coding projects running in Germany since 2008, according to an analysis by Deloitte of the coding platform GitHub, good enough for fourth place in the world, behind China, the U.S. and the U.K., and ahead of Japan. Members of the Berlin scene say that their real share of the development could be higher since projects aren’t always based where coders are doing the work.
The traction of cryptocurrency in Germany—a country known for its love of cash, skepticism toward complex financial instruments and late adoption of tech trends—comes as a surprise.
A 2016 study in the International Journal of Central Banking showed that Germans used cash for 82% of transactions and 53% of all payments by value—far more than American, British or French consumers. A popular German maxim holds that “nur Bares ist Wahres,” or “only cash is real.”
But Germans’ love of cash hides a deeper obsession: a pervasive fear of inflation born from the trauma of prewar hyperinflation.

This fear has made Germans suspicious of the loose monetary policies conducted by the European Central Bank in the wake of the eurozone debt crisis. And it may be fueling some of the interest in bitcoin, which makes creating new coins onerous and caps the total number of coins in circulation, giving it strong anti-inflationary credentials, according to entrepreneurs and experts in Germany who have watched its rise.
It is also a system governed by rules rather than bankers, which followers of Germany’s dominant ordo-liberal school of economic policy find infinitely preferable to individual discretion.
And, said Jürgen Stark, a German and the former member of the European Central Bank’s executive board, “there are also a lot of market participants that, in the context of low or even negative interest rates, are ready to take a risk.”

Some, like Jörg von Minckwitz, see bitcoin’s appeal in its absence of central authority. The founder of bitcoin-based startup Bitwala in Berlin’s Kreuzberg area said he got interested in cryptocurrencies during the debt crisis around 2011. “We in Germany have always had really big issues with central authorities” and “people who tried to control our money,” he said.
The startup community in Berlin has also been attracting expatriates with the anarchist and privacy-activist undercurrents that had their beginnings in Berlin almost a century ago.
Trent McConaghy, a Canadian who founded BigchainDB GmbH in Berlin to create decentralized database software for companies, said the capital’s history of openness reaches back to the Weimar period and got a boost from West German draft-dodgers during the Cold War.
“The (city’s) subversive element just got way exponential,” Mr. McConaghy said. “This is the substrate on which tech brews in Berlin.”

Jörg Platzer, a German information architect with 30 years of experience, calls his Kreuzberg bar Room 77 “the first bricks ’n’ mortar business ever [to have] accepted Bitcoin” and says the Stammtisch there on the first Thursday of every month is “the longest running Bitcoin meetup on earth as far as we know.”
He has paid some of his local beer suppliers on and off with bitcoin for years. “At its core it’s about the progress of the technology, and it’s disrupting and liberating potential,” he said.

Andreas Schildbach, a Berlin-based programmer, was an early developer of the mobile bitcoin wallet, a way of storing and paying with the currency from a smartphone. Gavin Wood, co-founder of Ethereum, the second-most prominent blockchain system, said most of the development work was completed by teams in Berlin. Insiders say that the city hosts myriad other coders working for companies registered officially in places like the U.K. or the Netherlands.
Mr. Schildbach declined to comment.
The excitement around cryptocurrencies and blockchain now reaches from that Berlin scene to the biggest bank in Frankfurt.
Blockchain “is a fabulous enabling technology that will help optimize our existing business but more importantly will open up new revenue streams,” said Thomas Nielsen, Deutsche Bank’s chief digital officer for transaction banking.
Venture capitalists who have long lamented the country’s cautious embrace of new technologies are piling in too.
Finally German companies are sensing the chance to take part in leading a tech trend, said Alexander von Frankenberg, managing director of Germany’s High-Tech Gründerfonds, the country’s most-active seed-stage investor with backing from old-money German industrials like BASF SE , the world’s biggest chemical company by sales, and the engineering group Robert Bosch GmbH.
Felix Haas, a venture capitalist in Munich, says “every week I have a business plan on my desk related to cryptocurrencies.” Last month he launched a company called House of Coins to sell real estate in the Bavarian capital for bitcoins.
“Finally we are not missing the boat.”

FT : Airbus prepares for generation shift at the top in landmark year

Airbus prepares for generation shift at the top in landmark year
Executive departures, corruption probes, and power battles have taken their toll

A joke has been doing the rounds in Toulouse, cradle of France’s aerospace expertise and home to Europe’s industrial champion, Airbus. What does Airbus do? It makes cars that fly and jets that stay on the ground.

The jest neatly encapsulates concerns that have been voiced inside and outside Airbus, as the company prepares for a generational shift in its executive ranks this year after a turbulent 2017.

While Airbus explores new markets with prototypes for futuristic flying taxis, it has struggled to deliver its popular A320neo single aisle aircraft due to problems with its new Pratt & Whitney geared turbofan engine. 

Meanwhile, the image of its bread-and-butter commercial jet arm has been tarnished by a controversy over corruption investigations that could cost it billions in fines. 

At the same time, a brutal battle for power at the very top of the company was resolved only in December with the announcement that two of Airbus’s most respected senior executives would leave the company over the next 18 months. 

And they are not the only ones. The departures of French-born chief operating officer, Fabrice Brégier, in February and German-born chief executive Tom Enders a year later, come as the group steels itself for the retirement of a generation of trusted senior management (see below) who helped to take Airbus from European upstart to a global force rivalling Boeing of the US. 


These departures, the corruption probes, and management infighting have taken their toll on morale already shaken by a corporate restructuring aimed at radically changing traditional hierarchies and ways of working. 

“People get nervous and confused,” says one senior executive. “Multiple things are happening . . . and you cannot have [the top two executives] trying to kill each other. That doesn’t work.”

Amid the turmoil, some insiders are wondering whether management’s attention has been dangerously diverted from pressing strategic issues, such as how to address weaknesses in Airbus’s core aircraft product range. 

While Airbus’s re-engined A320neo is selling like hot cakes, helping it to snatch more than 50 per cent of the high volume segment from Boeing, it is being trounced in the high margin wide-body market by its US rival. 

Boeing may this year step up that pressure by launching a mid-size jet, incorporating the latest technologies. Should it do so, Airbus will be under pressure to respond. 

The difficulty is that Airbus is only just recovering from the engine and cabin equipment supply problems that delayed deliveries of its A320neo single aisle and the A350 wide-body. 

This year it also has to step up production of these aircraft while bringing its re-engined wide-body, the A330neo, into service. Nor has Airbus yet resolved the fate of its poorly selling A380 superjumbo which, without a new order this year, may finally have to be laid to rest. 

It also continues to struggle with the ever troublesome A400M military transport aircraft programme, and has had to appeal to its government customers to revise delivery schedules to avoid crippling penalties.

Boeing, meanwhile, appears to be managing its production challenges rather more smoothly than Airbus, even if it too has had a few hiccups, not least on its much delayed KC-46 tanker. The US company has also managed a generational shift of management without the tensions that have wracked Airbus. 

“There is no question that Boeing has had the upper hand [in 2017],” says Scott Hamilton of Leeham, the aerospace consultancy. “The distractions at upper end [in Airbus] are there; they are serious. Boeing feels invincible right now. Airbus is under siege.”

Sash Tusa, aerospace analyst at Agency Partners, is concerned that Airbus management may have been too preoccupied with marginal, but headline grabbing projects such as flying taxis and digital innovation, rather than focusing on weaknesses in the portfolio.

“If you don't have sufficient strength across your whole aircraft range it doesn’t matter that you have digital this or that," he says. "The issue is whether Airbus has the ability to think strategically enough at a time of massive management change."


As well as the crisis over the A380, senior management need to address weaknesses in the A350, where the stretched A350-1000 version that should have challenged Boeing’s larger 787 and 777 is not selling as well as hoped, he says.

“The A350 is going in the wrong direction,” he says. “People are switching for the smaller version, not upgrading. Down-gauging is really bad for margins and it is a sign that the A350-1000 is not a good enough product.” 

Not everyone is convinced that management is overlooking pressing strategic challenges, however. The deal to acquire Bombardier’s C Series aircraft programme for $1 — expanding Airbus’s product range at the smallest end with a technologically advanced jet — is considered by some in the industry to be a master stroke, given that the development risk is largely over.

“What they did with that was brilliant,” said one supplier. “Bombardier went through all the challenges. Now it works and will have the Airbus infrastructure. They will have a great aircraft in 100-150 passenger range.”

Moreover, Airbus may not have to invest billions in a new aircraft should Boeing launch its new jet, says Mr Hamilton. 

“Do they want to launch a brand new aeroplane programme at this time? No,” says Mr Hamilton. “But they could do one more round of improvements to the A321 and . . . then Boeing will have a hard time to close the business case on the new mid-sized aircraft.”

Internally, executives are confident that 2018 will see a big push to market the existing wide-bodies. That job may be made harder, say some, by Boeing’s aggressive stance on pricing the 787, which is hitting Airbus’s A350. But, says one executive, “the A350 and A330neo are both solid planes. We don’t need to cut prices. We need a more aggressive marketing of the programme”.

Another executive in head office dismisses the suggestion that management has been too distracted to think strategically. “Rest assured we are working on all these things,” he says. “We will never ever repeat the mistake we made with the Dreamliner where we were not prepared and got into panic. We are a much better organised and structured company.”

The priority now in the final year of Mr Enders’ leadership will be to “modernise the company” by exploiting the opportunities of digitalisation for more efficient design, development and production. 

The turmoil is an opportunity as much as a challenge, the executive suggests. “We are convinced we are on the eve of a new revolution in aerospace,” he says. “Tom Enders is there for 14 months. And he has probably never been freer to act than now.”

FT : Carillion puts outsourcers’ accounting practices into spotlight

Carillion puts outsourcers’ accounting practices into spotlight
Watchdogs probe the way industry books revenues as contracts become more complex

If Carillion was a bricks n’mortar building rather than a bricks n’mortar business employing 43,000 workers it would be rubble by now.

It is a miracle of engineering that Carillion still stands. Its debt — close to £900m — plus a £590m pension deficit tower over equity. The shares have fallen from above 200p a year ago to 17p, valuing the group at £75m, and it has only just averted breaching its banking covenants.

Carillion — created by cementing together the construction and support services divisions of Tarmac, Wimpey, Mowlem and Alfred McAlpine — was once capitalised at more than £2bn. It is a beyond-textbook illustration of what happens to businesses built on asset-light balance sheet and debt-fuelled acquisitions in challenging conditions. Yet until half way through last year, investors seemed confident the group was big enough to overcome the structural weaknesses facing outsourcers — long-running contracts won on poor terms, rising costs and unyielding customers.

A year ago Richard Howson, Carillion’s then chief executive, talked of good growth in revenues and operating profits and declared Carillion to be “well positioned” to reduce its £586m borrowings. In May he said trading conditions “remained largely unchanged”.

Then in July the group warned that cash was gushing from key contracts, debt was rising, it would have to write off £800m and scrap its dividend and Mr Howson was leaving. Suddenly the FTSE 250 stalwart was a stock market titch. 

Now the Financial Conduct Authority is checking for damp. It is probing the timeliness and content of announcements underpinning Carillion’s shares between December 7 2016 and July 10 2017. 

The FCA is taking its newish powers to police and punish market abuse seriously. It has castigated several companies over information disclosure and has been going over statements made by Mitie in the run-up to its profit warning in 2016 that knocked a quarter of its stock market value. 

But the City overseer is not alone in its interest in hod-carrying companies. 

Accounting watchdogs have also been sliding their rulers over the way companies book revenues. Unsurprisingly their attention has been caught by outsourcers and their bundled, multi-faceted contracts with embedded costs for acquiring customers and supply-chain financing. 

These contracts have become more complex. In the early days of the early 2000s, when returns on capital were high and executives could offset low operating margins through economies of scale, terms were relatively straightforward. But outsourcers overstretched themselves, taking on too much and signing up to projects they couldn’t control or predict. 

Carillion expanded everywhere from Canada to the Middle East and into everything from maintaining army barracks to energy-from-waste projects. The group has continued to win big projects, such as helping to build the HS2 rail link to Birmingham. But contracts have been drying up as fast as labour costs have risen. Cash has become harder to collect and the bills have piled up.

As one analyst puts it: “The issue was pretty basic. Growth and revenues slowed. The answer was more acquisitions or use aggressive accounting techniques.” Many companies did both. That includes Mitie, which under new management, admitted last year to aggressive accounting practices in May when it wrote off £40m or so of its assets and restated its 2016 accounts.

As UBS says, outsourcing “contains the greatest degree of accounting judgments today”. That will change. Rule setters have introduced measures to align reported income to cash. It will create short-term confusion over underlying earnings, but “greater clarity in the long term”, says UBS.

Trouble is, Carillion’s shareholders can’t wait. Some may hope that Andrew Davies, who replaces Mr Howson as chief steeplejack this month, can repair the group’s stock market rating from his boatswain’s chair. They will be lucky. The group has staved off its lenders for a bit. But a debt-for-equity swap is on the cards. 

The banks now in charge of Carillion will be slow to call in the demolition team. The group is, after all, one of the UK government’s biggest contractors, employs thousands of sub-contractors and is entwined with rivals in joint ventures. Unravelling the cross-guarantees and insurance bonds would take time and skill. But when necessary, lenders are as adept as any demolition expert at causing unstable skyscrapers to implode and minimising the damage to surrounding buildings. Note to investors, it takes months to prepare sites, but a building can fall in on itself in less than 10 seconds.

FT : Metrovacesa plans IPO as investors eye Spanish property market

Metrovacesa plans IPO as investors eye Spanish property market
Casualty of 2008 crisis hopes to capitalise on growing domestic confidence

One of the Spanish property groups that blew up most spectacularly during the global financial crisis is planning a return to the stock market, hoping to capitalise on the growing investor appetite as the country’s house prices start to recover.

A decision was expected by Metrovacesa on Monday morning, said people familiar with the process, with shareholders expected to sign-off on selling between 25 to 40 per cent of the company in an initial public offering, likely to take place in early February.

With a net asset value of €2.6bn, according to company figures, the listing is likely to be the largest by a European residential property developer. The current record holder, according to Dealogic, is Spain’s Neinor Homes, which listed last year with a market capitalisation of €1.3bn.

The move points to the wider recovery in the residential property sector in Spain and follows a spate of similar IPOs over the past year, which started with Neinor Homes in March and then Aedas Homes in October. Another company in the same sector Vía Célere, has also been considering a float. Institutional demand for Spanish property has been strong, with Blackstone taking over €30bn worth of distressed property loans in August.

This comes as house prices in Spain, particularly in big cities such as Madrid, Barcelona and Valencia, have started to rise again over the past two years as Spanish economy has experienced robust growth, with gross domestic product expected to rise 2.6 per cent in 2018.

Investment back into Spain’s property market has come in stages, starting with international distressed debt funds from 2013 and then moving to real estate investment trusts — known in Spain as Socimi — investing mostly in commercial property. The latest stage in the maturing market signals the residential building market returning.

People close the Metrovacesa operation say that on top of the positive macro trends in Spanish property, the company should be attractive to the market because of its large existing land bank, which is worth €2.6bn and allows for eight years of development.

They also point to the strategy of having more land than rivals which still needs permissions to be developed on. This is higher risk, but has higher margins as well. Most of the land to be built on is in large cities, where demand is higher. The company is targeting 5,000 deliveries a year from 2019, up from 2,400 in 2017.

It has been a long road to recovery for the Spanish residential construction sector. In the boom years of the mid-2000s construction companies in the country built more residential homes every year than the rest of Western Europe combined. They also expanded internationally, with Metrovacesa doing the biggest property deal in British history in 2007 buying a tower in Canary Wharf.

But when the financial crisis hit, property prices in Spain fell as much as 40 per cent, and the vast majority of players in the highly-leveraged sector went bankrupt. Metrovacesa, which was owned by the Sanahuja family, was in taken over by its creditors Santander, BBVA and Banco Popular in 2008.