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News : International Last Updated: Feb 26, 2013 - 11:27 AM


Markets: Kerry reports 2012 profit dip; DCC to decamp to London Stock Exchange
By Finfacts Team
Feb 26, 2013 - 11:24 AM

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Justin Doyle, Investec Bank Ireland, said today:

  • "As exit polls suggested, Bersani's PD party and coalition grouping look to have won by a thin margin in the lower house, with the Italian political system operating 'winners majority' take control. However, Berlusconi is still disputing this;
  • But the results in the Senate suggest that no party or coalition will have enough seats for control there. So whilst Bersani's centre left has said it will try to form a government, it remains unclear what options it has to do this. It cannot garner enough seats in the Senate even with Monti's Civic Choice;
  • Note that the Senate results give the centre-left coalition 113 Senate seats, Berlusconi’s coalition 116 seats, Grillo’s 5-star movement 54 seats and Mario Monti 18 seats. All are well short of the 158 seats to form a Senate majority;
  • Hence it does now look as if Italy could be headed back to the polls again in a re-run, with a period of instability and uncertainty ahead and little scope for continued reform in the interim;
  • Clearly this is negative for risk assets. The Euro has struggled overnight on the news and Italian government bond yields are likely to climb on the back of this (with an Italian bill auction due this morning)."

CRH reports sales rise in 2012 and profit dip; Myles Lee to retire

Kerry, the food group, today reported its sales revenue rose by 10.3% to €5.8bn for the year ending December 2012.

It said its trading profit increased by 10.8% to €555m, but profits after tax fell by 26% to €267m from €360.7m.

Results detail

Liam Igoe of Goodbody said: Kerry Group Results ahead, but FY13 trimmed - - "Kerry Group’s adjusted EPS (fully diluted) increased by 11.3%, 1% above our 10.5% forecast. Ingredients was the main driver of growth (+3.4% lfl), with Kerry Foods (-1.5% lfl) impacted by the weak consumer backdrop.
Operating margins edged up, as expected, due to the benefits of plant rationalisation and operational gearing from improving volumes. The 1Kerry project has been addressing all the back office functions (finance, purchasing) while also rationalising the number of Kerry plants globally (150 facilities in 25 countries). Kerry Ingredients margins increased 10bps, while Kerry Foods margin fell 20bps and profits were behind forecasts reflecting the difficult market background.

Underlying net debt was lower than forecast when adjusted for the acquisition spend of €177m. The Pensions directive IAS 19 will be incorporated into forecasts from FY13 (and retrospectively), with a net impact in EPS terms of 3.6c.

Overall the results were slightly better than expected, with continued positive trends within the larger (78% of EBIT) Ingredients division. The company is guiding 7-11% EPS growth in the current year. Assuming a mid-range guide, this would imply a base EPS of 259c (Goodbody current forecast 259.9c), from which 3.6c needs to be deducted for IAS 19, implying 255c for FY13. The results statement does not change our overall stance on the stock which we rate 'Hold'."

DCC, the business services group, today said it wants to seek admission to the London UK Index Series, following a review of its listing arrangements.

The company said this will require cancelling of its shares on the Irish Stock Exchange.

DCC's shares, currently traded on both the ISEQ and the London Stock Exchange, but it will end its Irish listing in May and then trade only in sterling in London.

DCC also said that it will change its reporting currency from euro to sterling to reflect the fact that most of its group revenue and operating profits are now generated in the UK in sterling.

Royalty Pharma, a US private equity group, which buys the rights to patented drugs, on Monday made a bid to acquire Elan, the Irish-headquartered drugs business, in a deal valuing the company’s equity at $6.6bn.

The $11-a-share move is seen as an effort to gain access to future income from Tysabri, the multiple sclerosis (MS) drug jointly developed by Elan that it this month sold to its US partner Biogen Idec for $3.25bn in cash but with continuing royalties.

Elan’s board in a response, calling the offer “highly opportunistic” and “heavily conditional”, while highlighting that it would consider the bid alongside a number of strategic options under discussion over the past year “to the benefit of our public shareholders”.

Economic View 1: Agreement on further pay cuts a big step forward; David O'Leary, chief economist of Goodbody, comments  - - "Another potentially dangerous hurdle on the way to sustainable public finances looks to have been crossed, with the confirmation of agreement between union leaders and the government on a range of new cost-saving measures in the public service. When the negotiations were called last November, we assumed that there would be a long and drawn out process and that the government target of end-February looked optimistic. In this regard, the conclusion of the talks, with the required €1bn target agreed upon is a welcome surprise.

With regards to the actual measures, a range of reductions to public pay have been agreed at the Labour Relations Commission. These include graduated pay cuts ranging from 5.5% to 10% for public servants earning over €65,000, to increases in working hours and reductions in overtime payments. These measures will now go to union members in a ballot. Although the outcome of this ballot is still uncertain, it is likely to go through given the fact that the government has said it will legislate for pay cuts if the savings are not achieved through negotiation. Moreover, the straight pay cuts only affect the c.20% of public sector employed earning over €65,000.

This is the latest in a series of cost reductions in the public sector pay and pensions’ bill and quite possibly the last. While there are still hurdles to cross in the government’s fiscal consolidation strategy, public sector pay reductions is potentially the most difficult from a political point of view. Should this agreement be ratified by union members, this will represent a significant step forward."

Economic View 2: Political instability back on the agenda after Italian election; Dermot O'Leary adds -- "After a relatively stable period under the stewardship of Mario Monti’s technocratic government, political instability looks like making a return to Italy and the euro area. The results of the Italian election this morning show an effective deadlock between the centre-left movement led by Pier Luigi Bersani (29.5% in the lower house, 31.6% in the upper house) and the centre-right movement led by Silvio Berlusconi (29.2% in the lower house, 30.7% in the upper house). The big surprise appears to be the support garnered by Beppo Grillo, who managed to get almost a quarter of the votes in both houses. With these results, it appears unlikely that a stable government will be formed and puts another election in the coming months on the agenda.

The effect on the euro has been immediate, falling close to $1.30 this morning, relative to $1.33 yesterday afternoon. Italian ten-year yields have risen by 70 basis points to close to 5% once again, and other peripheral bond markets have also seen increases in yields. While 5% is still a manageable level for Italy, a prolonged period of political uncertainty suggests that yields may rise further from here. It remains to be seen whether it may open up the possibility of countries like Italy having to use OMT over the coming months.

We will have to wait to assess the full consequences of last night’s vote, but it does highlight the political risks that are associated with the austerity policies that are being pursued by politicians in the euro area."

Irish government reaches agreement on public sector pay: Conall Mac Coille, chief economist of Davy, said: "Speculation on the Italian election result led to a volatile day's trading yesterday. Stock indices fell sharply in late trading as a hung parliament seemed the likely outcome. Markets largely shrugged off the news that Moody's had downgraded the UK's triple-A rating. The UK 10-year gilt yield fell 3 basis points on the day. That said, the sterling exchange rate fell sharply against the euro and the dollar. The news that the Irish government has agreed a new agreement to reduce public sector pay by €1bn is a welcome sign that it is intent on reducing the bloated public sector pay bill.

Irish government reaches agreement on public sector pay

The Euro Stoxx 50 closed up 0.4% yesterday but the S&P500 fell 0.7%. The key event yesterday was the Italian election. Stocks had rallied early in the day on exit polls, suggesting that Pier Luigi Bersani's party had performed well enough to form a majority and exclude Silvio Berlusconi from a new government. But these gains were erased in late trading as a hung parliament became the most likely outcome. The euro fell to a six- week low against the dollar at $1.31. Macroeconomic data released today on house price inflation, new home sales and consumer confidence will provide a clearer picture of the health of the US economy. In this vein, Federal Reserve Chairman Ben Bernanke's congressional testimony will be closely watched, not least given the recent mixed messages on whether the Fed is committed to $85bn of asset purchases per month until labour market conditions improve.

Sterling fell to its lowest level since July 2010 against the dollar yesterday and to a 16- month low against the euro, following the news that Moody's Investors Service had cut the Triple-A rating. As in recent US and French downgrades, the ratings action had little impact on government bond yields. UK gilt yields actually fell to 2.08%, by 3 basis points on the day, despite the downgrade. However, the lack of an adverse market reaction to Moody’s decision will probably increase the pressure on Chancellor George Osborne to relax the pace of his fiscal consolidation plan in the March Budget.

Meanwhile, the Irish government appears to have reached agreement on a new Croke Park agreement on public sector pay. The agreement is reputed to save around €300m in 2013 and up to €1bn per annum by 2015. This compares with the €725m of pay savings underpinning Budget 2013, the €458m bulk of which was expected from the high spending Department of Health, €56m from the Garda Siochana and €220m unallocated. However, the announced savings probably do not net out reduced tax revenues as pay is cut. Nonetheless, given overshooting current expenditure and undue focus on capital expenditure and job cuts, yesterday's agreement is a welcome sign that the government is intent on reducing the bloated public sector pay bill."

US Markets

In New York Monday, the Dow plunged 266 points or 1.55%  to 13,784.

The S&P 500 slid 1.83% and the Nasdaq slipped 1.44%.

Asia Markets

The MSCI Asia Pacific fell 0.6% in Tokyo Tuesday.

The Nikkei 225 dipped 2.26%; China's Shanghai Composite Index dropped 0.50%;  Korea's Kospi index fell 0.47%; Australia's S&P/ASX 200 dropped 1.03% and in Mumbai, the Bombay Stock Exchange's Sensex index declined 1.64%.

Europe Markets

In Europe, the Dow Jones Stoxx Europe 600 is off 0.95% in mid-morning trading Tuesday.

In Dublin, the ISEQ  is up 0.06%.

CRH is up 1.05%; Kerry has risen 0.45%; Elan is off 0.05%  and DCC is down 0.13%.

European Benchmarks

Irish Share Prices

Key Index Performance Statistics

Euribor Rates

AIB Daily Report

Bank of Ireland Daily Report

Currencies

The euro is trading at $1.3086 and at £0.8617.

For live currency updates, check the right-hand column of the Finfacts home page.

The US dollar fell to $1.6038 per euro on Tuesday, July 15, 2008 - an-all time record.

Commodities

The Baltic Dry Index, a measure of shipping costs for dry commodities, hit an all-time High of 11,771 on the 21st of May, 2008. From that time it reversed and on the 5th of December, 2008 it hit a low of 663 - - close to a 1986 low.

On Thursday, July 15, 2010, the index fell for the 35th straight session, by 9 points, or 0.537%, to 1,700 points, Bloomberg report.

On Monday this week, the BDI rose 3 points or 0.41% to 743 - -  the BDI is up 6.29% in 2013.

Crude oil for April 2013 delivery is currently trading on the Chicago York Mercantile Exchange (CME/Nymex) at $92.31 down 80 cents from Monday's close. In London, Brent for April delivery is trading on the International Commodities Exchange at $113.34. The North Sea benchmark accounts for two-thirds of the global market.

Bloomberg reports that for the first year since the futures were created, Brent crude is poised to overtake West Texas Intermediate (WTI) oil as the world’s most-traded commodity.

Daily trading in Brent jumped 14% to average 567,000 contracts in the year to November 20 compared with all of 2011, while WTI fell 17% to 575,000, according to data from the ICE Futures Europe exchange in London and New York Mercantile Exchange compiled by Bloomberg. The number of Brent futures changing hands has exceeded those for WTI every month from April through October, the longest streak since at least 1995.

Brent, produced in the North Sea, is gaining favour among traders because of its role as the benchmark for energy prices from Saudi Arabia to Russia. Prices have climbed 34% in the past two years, reflecting everything from war in Libya to the embargo on Iran. WTI, the main grade in the US, has risen 9% as the nation, which prohibits crude exports, has struggled to clear a glut at Cushing, Oklahoma, the delivery point for Nymex futures.

Gold spot price

The spot price of an oz of gold is trading in New York at $1592.20 down $1.40 from Monday's closing New York.

Gold had hit a record high of $1,921.05 a troy ounce on Sept 06, 2011.

Check out our subscription service, Finfacts Premium , at a low annual charge of €25 - - if you are a regular user of Finfacts, 50 euro cent a week is hardly a huge ask to support the service.


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