FT : Adidas CFO says investors are not pushing for Reebok sale

Adidas CFO says investors are not pushing for Reebok sale

Adidas is not facing pressure to trim its portfolio beyond the sale of footwear brand Rockport and several golf labels, despite the recent arrival of three big activist shareholders, the German sportswear group’s chief financial officer has said.
Over the course of 2015, the US investor Mason Hawkins, Belgium’s Albert Frère and the Egyptian billionaire Nassef Sawiris have all built up stakes in Adidas. Mr Hawkins and Mr Sawiris earlier this month set up a combined entity to co-invest in European companies.
Their purchases have prompted speculation that they could push for the German group to offload low-performing assets such as Reebok or the US golf brand TaylorMade.
One top 20 investor said that shareholders expect the trio to demand a role in the search for a successor to Herbert Hainer, Adidas’s longstanding chief executive, whose contract expires in 2017.
But Robin Stalker, Adidas’s chief financial officer, said that the investors had not been pushing for the group to sell assets. “I’ve never had a conversation where anyone has given me any pressure about anything,” he said in an interview with the Financial Times
Mr Stalker conceded that the company — which posted operating profits of €1.08bn from sales of €12.7bn in the first nine months of the year — had not yet met its ambition of a double digit operating margin.
But he added that Adidas as had “good discussions” with Mr Hawkins’ Southeastern Asset Management and Mr Frère’s GBL. He said the group had not yet spoken to Mr Sawiris, who has built up a stake via his investment vehicle NNS Holding.
“What has been of interest to everybody is that we have said that we are prepared to look at our portfolio. We’ve done a very good review of that,” said Mr Stalker. After selling off footwear business Rockport, Adidas indicated it might sell its Adams and Ashworth golf brands.
The group plans to decide in the first quarter of next year whether to part company with TaylorMade as well, which, like other golf brands, has been hit by a decline in the popularity of the sport. It has lost money this year.
Mr Stalker said that Adidas would make the decision based on how TaylorMade fits into its overall strategy. “We are more in soft goods and footwear than we are in hard goods. The TaylorMade part of golf is hard goods . . . If we were to decide to divest, it has to be for the right price. We don’t need to sell TaylorMade,” he said.
The arrival of the new investors comes at a critical juncture for Adidas, which in March launched a new strategy in a bid to boost profitability and close the gap on its arch-rival Nike.
A key part of the strategy is a marketing push in the US, where Adidas has been investing heavily to recover ground after losing its second place in the market to Under Armour last year.
Mr Stalker concedes that Adidas’s US business has been an “area of scepticism in some parts of our investor community” because of the company’s lack of scale in comparison to Nike.
But he said he is confident that Adidas’s offensive in the country — including signing sponsorship deals with an additional 250 American footballers and a similar number of baseball players — will bear fruit. The group will also double the number of basketball players it has under contract over the next couple of years.

>>> US After hours ZN +8.4% after City of Nazareth gran


After Hours Summary: ZN +8.4% after City of Nazareth grants approval of their exploratory drilling request; PBY +6.3% after Carl Icahn raises cash bid to $18.50/share

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings: Nothing of Interest

Companies trading higher in after hours in reaction to news:  ZN +8.4% (City of Nazareth grants approval of their exploratory drilling request from Israel's Northern District committee), PBY +6.3% (Icahn raises cash bid to $18.50/share; above Bridgestone's $17.00/share cash offer)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings: Nothing of Interest

Companies trading lower in after hours in reaction to news:  RMBS -1.5% (renews patent license agreement with Toshiba (TOBSF) for three years)

>>> Asian Update

Asian Mid-session Update: Energy sector under pressure as Oil retreats from last week's gains


***Economic Data***
- (KR) South Korea Nov Department Store Sales y/y: 1.0% v +11.4% prior; Discount store sales y/y: -3.7% v -0.5% prior
- (PH) Philippines Oct Trade Balance: -$1.9B v -$1.4Be; Imports $6.5B v $6.3B prior
- (VN) Vietnam 2015 YTD Retail Sales: 9.5% (biggest increase since 2011)

***Index Snapshot (as of 03:30 GMT)***
- Nikkei225 flat, S&P/ASX +0.9%, Kospi flat, Shanghai Composite +0.2%, Hang Seng +0.3%, Feb S&P500 +0.1% at 2,050

***Commodities/Fixed Income***
- Feb gold +0.3% at $1,072/oz, Feb crude oil +0.1% at $36.84/brl, Mar copper +0.7% at $2.10/lb
- GLD: SPDR Gold Trust ETF daily holdings fall 1.2 tonnes to 643.6 tonnes
- (SA) Saudi Aramco chairman: Oil glut to ease in 2016; Supply from N America, including US shale, continues to decline - financial press
- (KR) South Korea Energy Ministry: To lower city gas prices by 9%, effecitve Jan 1st - Korean press
- (CN) 9 of the largest copper smelters in China to reduce sales of spot metal by 200K in Q1 2016 in order to counter lower prices - financial press
- (CN) PBoC to inject CNY10B in 7-day reverse repos (51st consecutive injection); Offer yield at 2.25%, unchanged from prior
- USD/CNY: (CN) PBoC sets yuan mid point at 6.4864 v 6.4750 prior; weakest Yuan setting since June 2011

***Market Focal Points/FX***
- Asian equity indices are marginally higher, however the prevailing theme of pressure from the energy space has carried over from the US session. PetroChina and CNOOC were among the laggards in Hong Kong, as WTI crude has pulled back below the $37/brl mark. After Saudi Arabia announced lower expected revenue from oil sales, traders anticipate the kingdom to defend its market share and not succumb to pressure of reducing output. Late in US hours, Saudi Aramco chairman noted that oil glut is still expected to ease in 2016, with supply in North America having plateaued.

- China central bank's Q4 Monetary Policy Committee Meeting draft unveiled overnight reiterated the view of prudent monetary policy approach and flexibility in using various tools. Today's open market operations by the PBoC were uneventful, with another CNY10B offered at the same 2.25% 7-day reverse repo tool. The central bank did however resume its notable weakening of CNY midpoint, announcing a fresh 4 1/2 year low fix. Separately, Shanghai Academy of Social Sciences forecast 2015 GDP of 6.9%, and slowing in 2016 to 6.8% and 2017 to 6.5%. Resident researcher said sector performance will vary based on external conditions like global commodity prices, geographical politics and Chinas relations with its core trading partners.

- In Japan, the Japan Center for Economic Research (JCER) estimated Nov GDP at +0.1% m/m v +0.4% in Oct - the 2nd straight month of increase. Exports growth slowed to +0.1% v +1.1% prior, while CapEx turned negative at -1.0% v +1.3% prior. The lack of consistency in these key sectors of the economy help explain growing dissatisfaction with the progress of Abenomics - according to the latest Nikkei survey, 44% give a rating of disapproval to Abenomics vs 38% approval.

- In FX, USD majors remained contained to narrow ranges. USD/JPY traded in 20pip range above 120.20, EUR/USD was also in a 20pip window above 1.0960, while AUD/USD was up nearly 30pips from the lows as high as 0.7270. NZD/USD was a notable outperformer with a 30pip rally to 0.6870 - a 2-month high.

***Equities***
US equities / ADRs:
- ZN: Granted Approval of Their Exploratory Drilling Request (Hafkada) From Israels Northern District Committee; +8.4% afterhours
- PBY: Icahn sends letter; raises offer to $18.50/shr (vs $17/shr from Bridgestone) - filing; +6.3% afterhours
- WSH (+2.5% afterhours): To be added to S&P500, replacing FOSL, which will move to the S&P400; ADPT (+3.8% afterhours) added to S&P600
- LOCK: Enters into credit agreement with Equifax - filing; +0.6% afterhours

Asia by sector:
- Consumer discretionary: Oriental Land 4661.JP +0.4% (raising prices at theme park)
- Industrials: Hyundai Motors -1.0% (workers approve wage agreement)
- Energy: Beach Energy BPT.AU -7.6% (Norges Bank sells stake)
- Financials: Evergrande Real Estate 3333.HK (halted ahead of major transaction)
- Technology: Toshiba 6502.JP +1.2% (seeking ¥300B bank funding)

>>> US Close Dow-0.14% S&P-0.22% Nasdaq0.15% Russell-0.56%

Closing Market Summary: Energy Sector Leads Stocks Lower

The stock market began the abbreviated trading week on a lower note with the S&P 500 surrendering 0.2%; however, Monday's participation left a lot to be desired considering fewer than 600 million shares changed hands at the NYSE floor.

Equity indices stumbled out of the gate with the energy sector (-1.8%) leading the opening slide. The growth-sensitive sector responded to a nightlong retreat in crude oil, which settled lower by 3.3% at $36.86/bbl. The energy component saw additional selling pressure after China reported its sixth consecutive monthly decline in industrial profits (-1.4% in November).

The disappointing data from China cast a pall on the overall risk sentiment and a 2.6% decline in the Shanghai Composite certainly did not help matters. Interestingly, the index held its ground through the first half of the session, but plunged in afternoon trade.

The situation was a bit different in the U.S. as stocks stumbled out of the gate, spending the afternoon in a slow rally off late-morning lows. Two sectors—consumer discretionary (+0.3%) and utilities (+0.2%)—eked out slim gains while the remaining eight groups registered losses. Slow was the operative word as light trading volume made for a quiet trading day and thin trading conditions are expected to persist throughout the week.

The energy sector (-1.8%) spent the day behind its peers, which kept the market on the defensive despite flashes of relative strength in a few other areas. For instance, the consumer discretionary sector (+0.3%) settled just above its flat line with Amazon (AMZN 675.25, +12.46) and Disney (DIS 107.25, +1.39) underpinning the modest advance. Amazon rallied in reaction to upbeat holiday shopping data while Dow component Disney benefited from a strong weekend at the box office for the latest installment of the Star Wars series.

Elsewhere, the top-weighted technology sector (-0.1%) also finished ahead of the broader market, but Apple (AAPL 106.82, -1.21) surrendered 1.1%, returning into the neighborhood of its December low. High-beta chipmakers also struggled with the PHLX Semiconductor Index falling 0.4%.

Unlike stocks, Treasuries climbed in the morning and maintained slim gains into the close with the 10-yr yield falling one basis point to 2.23%.

Investors did not receive any economic data today, but tomorrow, the October Case-Shiller 20-city Index (consensus 5.4%) and December Consumer Confidence (consensus 93.5) will be reported at 9:00 ET and 10:00 ET, respectively.

  • Nasdaq Composite +6.4% YTD
  • S&P 500 -0.1% YTD
  • Dow Jones Industrial Average -1.7% YTD
  • Russell 2000 -4.7% YTD

FT : Saudis unveil radical austerity programme


Saudi Arabia on Monday unveiled spending cuts in its 2016 budget, subsidy reforms and a call for privatisations to rein in a yawning deficit caused by the prolonged period of low oil prices.
The Gulf kingdom has kept oil production at high levels in an attempt to force out higher-cost producers, such as shale, and retain its market share. But this year’s deficit ballooned to 367bn Saudi riyals ($97.9bn,) or 15 per cent of gross domestic product, as oil revenues fell 23 per cent to Sr444.5bn.

Seeking to ward off future fiscal crises, the ministry of finance confirmed wide-ranging economic reforms, including plans to “privatise a range of sectors and economic activities”.
Riyadh would revise energy, water and electricity prices “gradually over the next five years” to optimise efficiency while minimising “negative effects on low and mid-income citizens and the competitiveness of the business sector,” it added.
The first reforms will be effective from Tuesday, including an increase in gasoline prices, a rise in electricity tariffs for the wealthiest consumers, a modest increase in water costs for all, and changes to all energy prices for industrial users.
The government will also seek to implement a plan for the introduction of a sales tax across the six Arab Gulf states.
The success or failure of the reforms will help define the legacy of King Salman bin Abdulaziz al-Saud and his influential son, Deputy Crown Prince Mohammed bin Salman, who is overseeing the programme.

The kingdom’s austerity and reform programme, a reaction to the past decade of profligate spending, has raised alarm among parts of the country’s business community, who are already reeling from this year’s cuts that have triggered widespread delays in government payments.
Radical reforms to the social contract between Saudi citizens and the ruling al-Saud family also threaten discord at a time when Islamist extremist groups such as Isis have threatened the country.
Real gross domestic product this year is expected to rise by 3.35 per cent, with the private sector growing at 3.74 per cent.
“We see real GDP growth decelerating sharply in 2016, albeit remaining positive,” said Monica Malik, chief economist with Abu Dhabi Commercial Bank. “Non-oil GDP is forecast to moderate with the lower government spending feeding into the wider economy.”
The government’s austerity measures have been accompanied by extra spending items, such as the Saudi-led war in Yemen and Sr88bn in bonus payments for civil servants when King Salman ascended to the throne in January.
The 2016 budget envisions spending Sr840bn in 2016, compared to the Sr975bn that is forecast to have been spent this year and Sr1.14tn in 2014. Actual spending has outstripped projections by as much as a quarter for the past decade, but the government is trying to instil greater fiscal discipline.
Revenues in 2016 are forecast at Sr514bn, down from Sr608bn this year. The budget projects a deficit of Sr326bn in 2016.