TheChek News Flow

Nielsen data suggest the Food/HPC market declined by 1% in the 4 weeks ending 27 November (vs flat YTD at 27 November). Positive volume growth was offset by continued deflation in Western Europe. 

■ Food sales were broadly flat in the 4 weeks, with mid-single digit growth in Soups and Tea, offset by high-single digit declines in Margarine and Baby formula sales. Personal Care sales declined by 1% in the period, with mid-single and double-digit growth in the Colour cosmetics and Cough & Cold categories, respectively, more than offset by mid-single digit declines in the Hair Care categories. Household Care sales declined by 4% in the period. 

■ Nestlé's sales decreased by 1% in the period, driven by mid-single digit declines in its Soup (55bps market share loss YTD at 27 Nov) and Chocolate confectionery (65bps market share loss YTD at 27 Nov) categories. Nestlé's Pet Care and Waters sales were up low-single digit in the period. 

■ Unilever's sales declined by 6% in the 4 weeks, driven by a doubledigit decline in its UK sales (continued reaction to pricing?). Home Care sales were down double digits in the period, driven by a tough comparator and the UK, whilst mid-single digit decline in Unilever Foods was driven by a double-digit decline in its Margarine sales. Personal Care (impacted by Soap/Shower Gel) and Refreshment sales remained negative in the period. 

■ Danone's sales declined by 6% in the period, with a sequential decline in its Yogurt category – Activia's sales were down high-single digit despite the relaunch of the brand. Mid-single digit sales decline in Danone Waters was impacted by a strong comparator, whilst Baby formula sales (down high-single digits) continue to be impacted by a shift to direct sales by manufacturers due to tightening regulations in China. 

■ L'Oréal's sales declined by 1% in the 4 weeks, driven by a mid-single digits decline in its France sales. High single digit sales growth in L'Oréal's Colour cosmetics (130bps of market share gain) category was offset by mid-single digit declines in its Hair Care categories.

Preliminary RevPAR data for December 2016 are in line with our scenario and seem to confirm that the market is bottoming out. RevPAR is in low negative territory at -1.4% (vs. November +1.0% and -5.9% in the first ten months of the

year), but we note that COP 21 was held in Paris in December 2015. We believe the French market should be helped by easier comparables in 2017E. Accor (Buy) is the most exposed company to France (c.22% of its total EBIT).

*RevPAR down 1.4% in December 2016

HotelCompSet data shows Preliminary RevPAR in December 2016 down by 1.4% in France, with an occupancy rate of +2.0 pts and ADR of -5.1%. This performance is in line with our scenario of RevPAR being down by low single-digits in December (climate change event COP 21 was held in Paris in the first two weeks of December last year). Nevertheless, this highlights that trends are stabilizing in France, and it follows an encouraging month of November (+1.0%). It also suggests that RevPAR is down 5.1% in FY 2016E in France.

* Regions are robust, Paris improving but still negative

By area, Regions remain robust with RevPAR increasing by 3.6%. Performance in Paris is encouraging with RevPAR down 3.8% (the lowest decline in 2016). Ile-de-France (the Paris’ region) is weak with RevPAR down 10.8%.

* Budget segment is outperforming, upscale improving

By segment, budget hotels show the best performance with RevPAR up 1.3%. Economy and midscale segments are mixed with RevPAR decreasing by 3.0% and 2.1%, respectively. We note the encouraging figure in the upscale segment with RevPAR only slightly down (-0.8% in December vs. -9.1% YTD).

* We rate Accor as Buy with a target price of €41

Accor is the largest operator in France and derives about 22% of its total EBIT from France. We believe that better RevPAR trends in France, helped by easier comparables (with the terrorist attacks occurring in Paris in November 2015), should improve market sentiment. We maintain our Buy rating with a target price of €41 on Accor.

*SYNGENTA-ChemChinaEU merger deadline extended to 12/4(10 days)....+0.25%

*LVMH-Zenith says CEO Magada leaves, Biver takes over..............+0.5%

*STATOIL-To drill 30 exploration wells in 2017 - DN Reports........+0.5%

*LONZA-Concludes sales of peptides bizz ops,non-cash w/d CHF44m....+0.75%

*VW-Former CEO Winterkorn collecting €1.1m pension says Bild.......+0.5%

*SANOFI-Loses bid to overturn Amgen PCSK9 patent verdict...........-1%

*GRAND CITY-Tragets MDAX latest end-2017 says CEO - Boersen........-0.75%

*NEXT-Full price sales -0.4%,another tough year,clothing slow......-3%

*IAG-BA Cabin crew plans 48-HR strike from 10th Jan................-1%

*RYANAIR-Dec Load factor 94%,Dec passengers 9mln...................+1%

IAG - BA cabin crew said to plan 48-hr strike from Jan 10th...............-1.5%

NEXT - Full price sales -0.4%.Says preparing co for tougher times............-2%

ULTRA ELEC - awarded extension to sonobuoys contract for £9.7m.............+0.5%

AGGREKO - awarded contract for the Winter Games in 2018 worth $40m...........+1%

STAFFLINE - sees FY results inline,demand in staffing biz remains strong...+0.5%

CARILLION - awarded phase 1 contract for the One Central development in Dubai+1%

CAMBRIA AUTO - LfL sales ahead,sees some pressure on new car margins.......-1.5%

HILTON FOOD - To form JV with Portugal's leading food retailer Sonae.........+1%

CARILLION - JV gets 160m contract for phase 1A6 of One Central...............+1%

APPLEGREEN - Proposed purchase of 50% of Dublin fuel terminal................+1%

B&M - record Christmas,Q3 revs +20.5%,LfL +7.2%,confident will meet FY expec.+2%

Shift to composite materials in Airbus wings spurs interest from France and Germany

Stephen Cheetham says he is “scared witless” about the impact of Brexit on British manufacturing.

But the chief executive of PK Engineering, a small aerospace supplier in the West Midlands, is pressing ahead with a £500,000 investment in new equipment to keep up with the demands of its clients.

“For us that is a very big investment, but I see business opportunities today and I think I would be a fool not to invest,” he says.

PK Engineering, which employs just over 40 people and makes precision machined parts, is not the only supplier to the aerospace industry with mixed expectations.

For many UK aerospace companies, business has never been better; the order backlogs at Boeing and Airbus offer the best part of a decade’s work and production levels are accelerating to record levels.

Last year, the UK aerospace sector grew 6.5 per cent to £31bn, 87 per cent of which was exported. Aerospace has seen average annual growth of close to 10 per cent between 2011 and 2015, outpacing the wider manufacturing industry, according to ADS, the industry lobby group.

But uncertainty over the terms and conditions of Brexit has raised questions about the next generation of aircraft programmes, with other countries lining up to challenge some of the UK’s key positions.

Within the next year Boeing is expected to decide on the launch of its next new aircraft, likely to be a single-aisle, mid-range passenger jet. Airbus will have to respond and a new era of aircraft innovation will begin.

“As work on research and development goes on, there will be opportunities to pull work away from the UK,” says an executive from one of the UK’s biggest aerospace companies.

The UK is already falling behind its continental European rivals on key aerospace infrastructure, such as test beds for engines and aircraft structures, that supports the development of high-value design and cutting edge technology, according to a recent report by Roland Berger for the Aerospace Technology Institute.

Airbus, one of the UK’s biggest employers in the sector, will face pressure to bring jobs back to France, Germany and Spain, its original stakeholder countries, say several suppliers. “We are very worried about the impact of Brexit on the whole Airbus discussion,” says one.

The UK plays a leading role in wing technology, one of the most critical and lucrative parts of aircraft manufacture, and work that other countries are keen to grab.

Britain’s position weakened during the shift from aluminium to lighter composite materials. While UK companies designed and manufactured virtually the entire wing for Airbus’s superjumbo, the A380, the top and bottom skins of the wing for the newer A350 went to Spain and Germany, both keen to accelerate development of their aerospace sectors.

“There is a constant move by Germany to get as much wing work out of the UK because it is the most valuable,” says the aerospace executive. “There will be countries looking at the UK’s position as the world’s second-largest aerospace sector and thinking that if it wasn’t [in the EU] this could actually benefit them.”

“There is a recognition there is a threat there,” said one government official, citing this as the spur to government investment last year in a new £37m wing integration research facility in Filton, north of Bristol.

Access to highly skilled EU labour, to Europe’s research projects and funding and its relationship with Airbus are critical to Britain’s position as the world’s most important aerospace sector after the US.

“In the UK that is particularly important because we do not manufacture a whole aircraft any more,” says Malcolm Scott, corporate development director of the ATI.

Many companies are worried that their competitiveness will be dulled by restricted access to their employees in continental Europe. About a quarter of Rolls-Royce’s workforce is in the EU outside the UK, and like many aerospace companies these workers are often transferred at short notice to deal with temporary production challenges. “Free movement is a big issue for us,” said one senior executive.

Some foreign companies are rethinking investment into the UK, say industry bodies.

Andrew Mair, chief executive of the Midlands Aerospace Alliance, said he is aware of one big aerospace company debating whether or not to put further money into the UK. “In terms of attractiveness . . . in terms of political stability, the UK goes down,” he says.

Concerns are also mounting over the UK’s membership of the European Aviation Safety Regulator, which certifies aircraft, engines and their components.

If the UK opts to create its own regulatory regime, and UK suppliers still have to seek certification from EASA, costs would rise.

Although aircraft and their parts are exempt from tariffs under World Trade Organisation rules, there is a niggling fear that competitors could encourage governments to find loopholes during exit negotiations that would raise the cost of business for UK companies. For example, the UK’s aerospace supply chain could be hit if EU exemptions for the raw materials used to make those components are reversed.

“We are worried about where the dividing line will fall,” said the boss of one leading aerospace company. “What counts as a component? We need to make sure [ministers] don’t do anything stupid when they are negotiating woollen socks against nickel alloy.”

Finally there are worries that the decision to go it alone could lead to big non-tariff penalties such as costly delays at borders if the UK withdraws from the customs union.

Without long-term commitments from government on how EU funding will be replaced, how regulations will change, and on continued access to international talent, the UK’s aerospace industry could face a crisis of competitiveness, several aerospace executives say.

The industry is working hard to pass that message to ministers, arguing that time is running out if the UK is to be well placed to win business in the next aerospace cycle. David Jones, minister at the Department for Exiting the EU, met executives from Airbus and Rolls-Royce before Christmas to hear their concerns. “He was asking the right questions,” says one executive who was present.

But the government’s plan for Brexit remains a “black box”, says another. If Britain leaves the EU and “we have to start negotiating on a sector-by-sector basis, that will take time, and every single day that goes past we will be less competitive.”

New headache for investors still grappling with writedown warning

Investors in Toshiba faced fresh worries after a report that Japan’s securities watchdog has turned up new evidence in its pursuit of criminal charges against former executives at the scandal-plagued conglomerate.

Shares in the company fell more than 5 per cent on Wednesday morning as the Tokyo stock market opened for its first day of trading this year, before recovering some poise. The stock was up 1 per cent at ¥285.8 in afternoon trading while the broader market was up 2.4 per cent.

The volatility came after the Asahi newspaper reported on Tuesday that the Securities and Exchange Surveillance Commission planned to present new findings to Japanese prosecutors, alleging that Toshiba’s former top management played a role in the padding of profits by ¥40bn ($339m) over a three-year period.

The SESC and Toshiba declined to comment on the report. Toshiba’s former top executives have denied any wrongdoing.

New findings by Japanese regulators would be the latest blow for the struggling nuclear-to-electronics group, after revelations last week that it is facing a multibillion-dollar writedown at its US nuclear division Westinghouse.

According to the Asahi report, the SESC alleged that Toshiba may have violated Japanese law by falsely reporting a rise in profits at its personal computer division during the 2012-2014 fiscal years. Following its investigation, the SESC concluded that the padding of profits was done on the instruction of top management.

The allegation is part of the SESC’s long-running investigation into Toshiba’s accounting scandal where the company has admitted to inflating its net profits by $1.3bn over seven years.

Under its new chairman, Mitsuhiro Hasegawa, the SESC has recently expressed its intention to push ahead with the probe beyond a fine of ¥7.37bn, which Toshiba paid a year ago.

The SESC reportedly plans to present prosecutors with new evidence it has uncovered, including emails to former chief executives. Prosecutors have thus far opted not to pursue a criminal case due to a lack of evidence and differences in accounting rules during the years in question.

Former chief executives at Toshiba, including Hisao Tanaka, who stepped down in 2015, have denied giving instructions to their subordinates to cook the books.

Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management, said a potential criminal investigation into Toshiba’s former executives would be another headache for investors who are still weighing the fallout from the company’s recent writedown warning.

Toshiba’s shares plunged 37 per cent in the last week of December after the group announced it could book “several billion dollars” of impairment losses related to Westinghouse’s $229m acquisition last year of Chicago Bridge & Iron’s nuclear construction subsidiary, Stone & Webster.

Analysts say the latest impairment loss could be at least as large as the $2.3bn writedown Toshiba took on its nuclear business in April, and threatens the efforts by Satoshi Tsunaka, the new chief executive, to rebuild investor confidence following its accounting scandal.

“We don’t know yet how far the impairment losses will expand and the nuclear business is clearly no longer as profitable as in the past,” Mr Akino said. “The uncertainty still hanging is what kind of survival strategy Toshiba has.”

Macro :

- Infrastructure Spending, Taxes Top Deutsche Bank Worries List

- China Said to Consider Options to Back Yuan, Curb Outflows

- Asia’s Richest Families Are Abandoning ‘Complacent’ Hedge Funds

- China Said to Consider Options to Back Yuan, Curb Outflows (2)

Keep an eye on :

- ABI BB : AB InBev Investor Bevco Buys EU47.7m of Brewer’s Stock

- AC FP : Choice Hotels, Marriott Fall Amid Hilton’s Spinoff, Hilton Spinoff HGV May Trade at Premium in Regular-Way: SunTrust

- AZA IM : Alitalia Plans EU1.1B Loans, Cuts to Avoid Failure: Messaggero

- BINCK NA : Old Mutual Reports Higher BinckBank Stake of 5.62%: AFM Filing

- BWO NO : Bw Offshore Sees Settlement for FPSO Cidade De Sao Mateus

- DIS US : Disney Studios Ends Year With $7.605b in Global Box Office Gross

- FCT IM : Fincantieri Bid for STX France Approved by S.Korea Court: Echos

- GYC GY : Grand City Targets MDax Listing by End-2017: Boersen-Zeitung

- IAG LN : British Airways Cabin Crew Plans 48-Hr Strike From Jan. 10: PA

- ISP IM : Intesa Sanpaolo Says It Underwrites Glencore-Qatar Rosneft Deal

- MC FP : LVMH’s Zenith Says CEO Magada Leaves, Biver Takes Over

- NXT LN : Next CEO Expected to Be ‘Downbeat’ in Trading Update: Sky

- SAN FP : Sanofi Loses Bid to Overturn Amgen PCSK9 Patent Verdict

- SAN FP : Sanofi losed bid to overturn Amgen PCSK9 patent verdict, REGN -3.1% AMGN +1.4% in after hours

- SAN FP : Sanofi Soliqua 100/33 Diabetes Treatment Now Available in US

- SLIGR NA : Sligro 2016 Revenue Matches Estimates, 4Q Sales Increase

- STL NO : Statoil to Drill 30 Exploration Wells in 2017, DN Reports

- SYNN VX : ChemChina, Syngenta Request Extension of EU Review to April 12

- TSLA US : Tesla Drops 1.6% Post-Market; 4Q Deliveries Below View

- TOM2 NA : Intel to Buy 15% Stake of HERE Mapping Venture

- TRI FP : Trigano Buys Auto-Sleepers Investments; No Price Given