Markets Live chat transcript for the chat ending at 12:10 on 2 Feb 2012. Participants in this chat were: Paul Murphy Joseph Cotterill, FT Bryce Elder/FT
PM
Hello from sunny, freezing London
11:00AM
PM
New York style winter weather here
PM
This is Markets Live
PM
We’ve got a busy session today.
PM
We’ve got a slew of results.
PM
S&N, Deutsche bank, AstraZeneca, Shell etc.
PM
We might even discuss Facebook
PM
We’ve got China bailing out Europe. Maybe
PM
I should also mention that we are going to be doing plenty on Unilever
PM
Because we have a special guest on the show today.
JH
good morning everybody glad to be back, even if its a bit brave
PM
Jean-Marc Huet
PM
Chief financial officer at Unilever.
PM
Hi there Jean-Marc
PM
Coming on ML in a mo to answer your questions.
BE
(@Jarvis, settle down.)
JH
hi there paul
PM
We expect everyone on the right to remain respectful.
PM
And make questions thoughtful.
PM
Quick mention of Glencore Xstrata
PM
Before we go to Unilever
PM
V quick
PM
Bryce you there?
BE
Yeah, we’ll leave this as a placeholder on the story
BE
And return to it later
BE
Once you’ve all formulated your thoughts.
BE
My first thought is that it stinks.
BE
But that’s an aside.
PM
$80bn merger in prospect.
PM
Actually it must be 90bn post this morning’s price action.
JH
im ready and roaring to go!
BE
First, quick note from Christopher LaFemina at Jefferies
BE
To sum the Glenstrata circumstance.
BE
Then we’ll push on.
BE
This morning, Xstrata confirmed that it has received an approach from Glencore for an all-share merger of equals, which may or may not lead to an official offer being made by Glencore. We have long believed that a merger of these two companies would be strategically sensible and is highly likely, although the timing is far from certain. Three points to consider this morning: 1) why, 2) timing, 3) structure and valuation.
BE
First, why. Glencore’s core business is commodities marketing and trading. However, the growth potential for this business via third-party contracts may be limited as Glencore already has 40-60% market share in many commodities. If Glencore is to grow this area, we think the company may need to backward integrate more substantially into mining, as it has been doing in recent years. Glencore already markets Xstrata’s coal, nickel, and ferrochrome, but could gain access to Xstrata’s copper and zinc via a merger. Xstrata’s massive growth pipeline in copper makes up about 20% of all probable global copper production growth over the next decade.
BE
Second, timing. We have always argued that the timing of a potential merger will be most dependent on valuation, circumstance, and access to funding.
BE
On valuation, the fact that Glencore is now trading at a discount on P/E to Xstrata on our estimates means that the valuation potential for an acquisition may be strained, limiting the premium Glencore could pay (if we assume Xstrata shareholders ultimately demand a premium). As we highlighted this past fall in our note “Xstrata: Value & Catalysts,” a challenge Glencore faces is that each time its equity trades at a valuation premium to Xstrata, the market may expect the company to bid for Xstrata, thereby compressing the valuation differential between the two equities.
BE
On circumstance, this timing is somewhat surprising as we are days ahead of earnings season, and numbers from both Xstrata and Glencore may be strained due to higher-than-expected operating costs and weak marketing earnings. The risk to our Glencore estimates in particular may be to the downside as margins in marketing were likely lower than we had forecasted and costs in mining likely higher than we are assuming.
Also one difficulty will be Glencore’s ability to access debt markets for a deal of this scale, assuming there is a substantial cash kicker rather than just an all-share nil premium merger of equals. Glencore has noted in the recent past that it has easy access to credit given its business scale and prospects for M&A, but this may still be a challenge.
BE
Lastly, structure and valuation. On our numbers, assuming the deal is ultimately structured so that Glencore purchases Xstrata at a premium rather than as a nil premium merger of equals, and benefits from c$500m of synergies: If Glencore pays with all shares, it could pay no premium and still make a deal that would not be dilutive for its own shareholders. If Glencore pays with 70% stock and 30% cash, it could pay up to a 20% premium and still be EPS accretive. If Glencore pays with 50% stock and 50% cash, it could pay up to a 40% premium and still be EPS accretive.
In short, this is the deal the whole market has been waiting for. Both companies have said in the past they would be interested in merging due to their complementary business models and shared corporate culture. In our view, this may be the rare case where a nil premium merger of equals in which shareholders of both companies share the synergies is possible and maybe even sensible and likely. A deal like this would never be easy, but now is as good a time as any for it to happen. We retain our Buy ratings on shares of Xstrata and shares of Glencore, and we believe a merger of these two companies could create value for each.
BE
Right. Plenty to chew on there before we return to this STINKING DEAL.
BE
Meantime, we have a clear path for Unilever.
PM
Cheers for that
11:06AM
PM
We now have Jean-Marc Huet from Unilver
PM
Thanks for joining us
JH
thanks for having me
PM
We have a number of advance questions.
PM
Which we can pitch to Jean-Marc on your behalf
PM
If you want to look thru the Unilever year end statement it is here
PM
Pretty much in line with expectations – but we can dig into the detail.
PM
And we should mention that the shares have taken a knock. Off 3.3% at pixel time
PM
Story with two sides I guess – dealing with tricky flat markets in the west and seeing some outstanding growth in the emerging world.
PM
• Underlying sales growth ahead of our markets at 6.5% with price up 4.8% and volume growth 1.6%. Emerging markets delivered 11.5% underlying sales growth.
• Turnover up 5.0% at €46.5 billion despite a negative currency impact of (2.5)%. Acquisitions and disposals delivered a positive contribution of 1.2%.
• Advertising and promotions spend at €6.2 billion, up €150 million including acquisitions.
• Underlying operating margin down by 10bps with a reduction in overheads offsetting much of the pressure on gross margins from higher commodity costs.
• Core earnings per share up 4% at €1.41 and free cash flow of €3.1 billion.
Fourth quarter highlights
• Underlying sales growth at 6.6% with 6.5% price growth and volume growth of 0.1%. Volume growth was approximately 1% adjusting for the impact of sales brought forward to quarter 3 prior to a successful SAP upgrade in North America.
• Underlying sales growth ahead of our markets at 6.5% with price up 4.8% and volume growth 1.6%. Emerging markets delivered 11.5% underlying sales growth.
• Turnover up 5.0% at €46.5 billion despite a negative currency impact of (2.5)%. Acquisitions and disposals delivered a positive contribution of 1.2%.
• Advertising and promotions spend at €6.2 billion, up €150 million including acquisitions.
• Underlying operating margin down by 10bps with a reduction in overheads offsetting much of the pressure on gross margins from higher commodity costs.
• Core earnings per share up 4% at €1.41 and free cash flow of €3.1 billion.
Fourth quarter highlights
• Underlying sales growth at 6.6% with 6.5% price growth and volume growth of 0.1%. Volume growth was approximately 1% adjusting for the impact of sales brought forward to quarter 3 prior to a successful SAP upgrade in North America.
PM
So Jean-Marc, why don’t we first give you the floor to give us your overall thoughts.
PM
What would you like to stress here?
PM
Emerging markets, i guess….
JH
Good topline growth
JH
good balance of volume and price across the year
JH
good discipline on overheads and working capital
JH
and emerging markets, personal care-strong highlights
PM
one question on EM
PM
Unilever has made much of its established position in the emerging world. Where in the EM space do you feel under-represented? Which has been the toughest market to crack?
PM
Russia? East Europe?
JH
Spot on. These are two geographic areas where we have been historically unrepresented. Fortunately, our EM is very broad,and very deep
JH
particularly enthusiastic about progress made in China
JH
esp given it is a market where we havent invested consistantly in the past
JH
now, gaining share in most categories
PM
okay….
PM
We had one tricky advance question on this front
PM
How do you foresee Unilever’s geographical split in 2017 vs 2012?
JH
given the growth differential between emerging markets and developed markets
JH
the 54% will only continue to grow
PM
Hmm
PM
And Rain over on the right is wondering what sort of marketing firepower you need to break into a new EM market.
JH
when I joined UL 2 yrs ago, we were less than 50%
PM
So, 2017 — 35/65% ?
JH
good brands, understand the local consumer, and the right portfolio given the stage of development of the market
JH
directionally this is where we are going, but dont feel comfortable giving a timeline
PM
Fair enough
PM
Questions on the right about China
PM
Pricing pressures there?
JH
interesting pt Ill be there next week, a matter I will focus on. What I am happy about in our business is the double digit volume growth achieved in Q4
PM
Okay
PM
How about closer to home…
PM
Suggestions that volume growth a tad sluggish
PM
That youve managed to push thru some price increases to compensate
PM
But that might get increasingly tough…
JH
Indeed volumes in Developed markets are muted. Having said that, market shares are good, increasing, specifically in personal care and ice cream
JH
take a look at: magnum launch in USA
PM
Go on
JH
enough said….
PM
A different q
PM
Q: Has Unilever established a back-up plan in case the Eurozone breaks-up? What % chance of that happening in your view?
PM
And another related….
PM
Lawyers increasingly mention that their corporate clients are organising their cross-border businesses and assets into ‘shadow currencies’ to prepare for a eurozone exit or break-up.
What’s your contingency planning in this area?
JH
chance of happening is remote, but our responsibility is to be prepared
PM
We can’t draw you into a % prediction?
JH
but it does mean–much more agility is required, and a proximity to the business is required
JH
no
PM
JH
remember I do soup and soap
PM
We know you haven’t got long with us here…
PM
Thoughts on inflation
PM
Commodity prices may have come off the top, but food inflation in particular is expected to pick up again this year. How do you deal with that?
PM
Input inflation i’m thinking
PM
What are your expectations?
JH
a mixture of savings mix, and pricing already implemented in the market
PM
Ok
PM
One final Q Jean-marc
PM
The rabble on the right would not forgive me if I didn’t raise this
PM
The apostrophe issue. Your treatment of Wall’s (or should it be Walls) is not consistent. Which should it be? And is this a sign that Unilever’s international brand architecture has become confused?
JH
actually this is an important ?
PM
To your customers, yes
PM
Pedants
JH
we need 100% consistancy in our brands and logos
JH
inconsistancy can affect our brand equity
PM
Right — we will be sure to send on any errors we spot
PM
Thanks v much for joining us Jean Marc!
JH
hey guys I gotta go!
PM
Seeya.
JH
thanks for today.
PM
Thank you.
JH
bye everyone
11:25AM
PM
Okay — lots more to discuss now
PM
What do you reckon Bryce — straight back into XTA
PM
Glencore?
PM
(Swedes! please point made)
BE
Yeah – I’ve spent the past 10 minutes or so trying to find a Unilever Tube advert that had “it’s” rather than “its” ….
PM
(Anthrax — yellow bordering on red)
BE
Couple of years old though. Perhaps former management.
BE
Anyway, let’s turn back to the day’s biggest stitch-up.
BE
In every sense.
PM
Xstrata currenly up 10%
PM
12.33
PM
GLencore 5.4% higher
PM
at 455
BE
(The autoprice thingmybob’s not working. Tick “Bug 14″ off your AV Bug Bingo cards.)
BE
So …..
BE
To say this one’s been telegraphed is an understatement.
BE
And I’ll be interested to see a timeline of when talks began
BE
And who thought what needed said when, and why, and in relation to what.
BE
Because this has been on the cards since the IPO
BE
And has been asked about constantly.
BE
Weekly.
BE
Daily.
BE
Forgive me for being cynical, but it all looks a bit stage-managed.
BE
Anyway, to retrace the news.
BE
All-share offer being worked on.
BE
Glencore has to make an offer by 1st March 2012 or withdraw.
PM
Unless the Panel grants them an extension of course
BE
Fair point.
PM
But this deal is, no?
BE
Yup.
PM
Talk of firmer news by early next week
PM
And the arbs are flooding into it
BE
Glencore has 34% of XTA so only needs some 17% more to clear the deal.
BE
Caz, Goldman, Deutsche and Nomura have their snouts in the trough on this one.
BE
And, as you say, the chances of failure are pretty slim.
BE
This isn’t like Xstrata’s last attempt at a nil-premium
BE
Anglo in 2009.
PM
Ah yes, good point
BE
Here are numbers involved
BE
Via StanChart
BE
We estimate 2% EPS accretion for the first year assuming it is an all share deal; but significantly value accretive longer term, in our view, given the newco’s dominating market shares and complimenting geographical presence.
BE
Going to be the fourth-biggest miner in the world, incidentally.
BE
The newco’s market share will be 17%, 13% and 6% for zinc, seaborne thermal coal and copper, respectively, for 2012.
BE
The combined entity will be the world’s largest thermal coal exporter, its largest zinc producer and third largest copper producer. Glencore currently owns 34% of Xstrata and is the sole selling agent for the latter’s nickel, cobalt and ferronickel. The combination will strengthen Glencore’s presence in the copper, thermal coal and zinc trading businesses. We believe the combination would definitely be value accretive in the longer term considering the bigger trading presence is likely to be complimented by synergies on the upstream mining businesses.
BE
And here’s why no-one should expect a cash kicker.
BE
We believe it would be difficult to arrive at an acceptable premium for Xstrata’s shareholders. Average premium for the last 2 years for mining acquisitions has been 30% and Xstrata is currently trading at 29% below its 12-months peak.
BE
Glencore’s balance sheet cannot fund a 100% cash acquisition of XTA (assuming 30% premium), in our view. We estimate gearing could be as high as 185% and debt/equity ratio would be 3.4x after the deal for the combined entity.
BE
…….. which is an interesting point. Do Xstrata shareholders want a tonne of debt?
BE
I guess they don’t really have much choice.
PM
Hmm
BE
Glencore’s current share price £4.3 is well below the IPO price of £5.3; hence we believe it is unlikely for Glencore to issue further shares to fund the acquisition (inclusive of acquisition premium) – which will likely be dilutive
BE
Credit Suisse slightly more positive on potential synergies
BE
And, sorry Rain, it’s that “accretive” word again.
BE
I share your dislike, but there’s no synonym.
BE
In summary we expect any deal to be friendly and all (or mostly) equity. On valuation issues/takeover premiums these could be removed by a ‘merger of equals structure’ in our view. The current share prices are very close to the relative levels at the time of the IPO and we would see this as a starting point for price negotiations, in our view.
BE
Deal benefits and synergies: a combination would create an attractive high growth and differentiated major. The main area of potential synergy we see is through the marketing business, particularly in coal, copper and zinc. In total, we estimate post tax synergies of $246m-$704m, or 3-7% of combined 2012E net income. There is limited operational overlap between Glencore and XTA industrial assets but there is the opportunity for project pipeline optimisation/some asset sales.
BE
Deal obstacles: valuation issues (marketing valuation vs. Mining assets); XTA shareholders may demand a control premium; country risk profile of GLEN. GLEN cannot vote on deal therefore the decision will rest with XTA shareholders. We do not expect any major competition issues given current market share levels across the major commodities (combined all below 25%).
BE
………….. and to the sector.
BE
The first idea to come into everyone’s mind ….
BE
Is that, since the XTA/GLEN merger seems to be happening precisely according to the playbook
BE
… that they’ll follow to stage 2 and buy Anglo.
BE
Anglo American currently up 2.7%
PM
Natch
BE
Yeah. M&A logic by dominoes.
BE
Secondly ……
BE
There’s some question over what this may mean for Lonmin
BE
(Currently up 1.7%)
BE
To remind, Xstrata owns 25% of Lonmin
PM
Ah had forgotten
BE
And there’s some doubt about whether Glencore would want it.
BE
Here’s SocGen.
BE
Glencore is planning to spin off its Kazakh gold assets potentially via an IPO, suggesting it probably shares the widely held view (we find) that when precious metals businesses are part of a diversified mining company, they tend to lose their “precious metals premium” and more value can be unlocked by spinning off such assets as separately listed companies. If our hypothesis about
Glencore’s thought process is correct, a combined Glencore/Xstrata would be a lot more likely to spin off/sell its 25% stake in Lonmin than acquire the whole company. This in turn would reduce any bid premium inherent in Lonmin stock price.
Glencore’s thought process is correct, a combined Glencore/Xstrata would be a lot more likely to spin off/sell its 25% stake in Lonmin than acquire the whole company. This in turn would reduce any bid premium inherent in Lonmin stock price.
BE
And, lastly, our old friends ENRC.
BE
Currenly flat.
BE
And underperforming the sector rather strikingly.
BE
Glencore was suggested last year as a likely bidder for ENRC
BE
Forcing it into a rather tightly worded statement
BE
That it wasn’t “actively considering” a takeover.
PM
ENRC down a penny at the mo — 716
BE
SocGen thinks the XTA/GLEN deal would kick this into the long grass for a while.
BE
If a merger
between Xstrata and Glencore does materialise, it may reduce the likelihood of a merger between Glencore and ENRC for two reasons: 1) Glencore may prefer not to pursue another large deal soon after an Xstrata merger; 2) ENRC and Xstrata are the largest and the second largest chrome producers in the world; if Glencore merges with Xstrata (as opposed to just owning a 35% stake as is the case currently), it will likely increase anti-trust hurdles. Today’s announcement, therefore, may be a negative for ENRC.
between Xstrata and Glencore does materialise, it may reduce the likelihood of a merger between Glencore and ENRC for two reasons: 1) Glencore may prefer not to pursue another large deal soon after an Xstrata merger; 2) ENRC and Xstrata are the largest and the second largest chrome producers in the world; if Glencore merges with Xstrata (as opposed to just owning a 35% stake as is the case currently), it will likely increase anti-trust hurdles. Today’s announcement, therefore, may be a negative for ENRC.
PM
Definitely the casee
BE
And that’s me done on readthrough for the moment.
PM
But look, i have some RAW on ENRC
RAW is market chatter – information that has not been formally tested through traditional journalistic channels (PRs etc). The story might be complete rubbish, but if we believe there is some substance to it we will say so. Either way, Reader Beware.
BE
Oh good.
PM
Not necessarily price moving raw
PM
but raw nevertheless
PM
They’re planning to announce a new chairman tomorrow
PM
I’m told it will be Mehmet Dalman
PM
Former Deutsche Morgan grenfell banker
PM
He’s currently senior noon exec
BE
And currently of Toscafund, if I’m not mistaken.
PM
Will get the bump up to chairman
PM
We think 
BE
He’s also on the board of Cardiff City.
BE
Perhaps he can sort them out some Kazahkstan loan signings.
PM
Lets move on
11:46AM
PM
Brief bit of Facebook
BE
If we must.
PM
Was mentioned earlier on the right — how do they get away with only flaoting 5%\
PM
US investors just seem to buy these schemes
PM
Share support schemes
PM
The 25% free float rule in London is FTSE 100 related
PM
Not actual listing requirement
PM
But in the US there just isn’t any push back against small floats, non-voting stock schemes etc etc
PM
Or these stupid units that the likes of Blackstone issue
BE
Just been emailed by Professor Bhalla at Cass Business School
BE
Who thinks it’s a positive.
PM
What’s positive?
BE
Mark Zuckerberg and his allies “retain an iron grip on the company”
BE
Look.
BE
“Research shows that when founder-led firms go for IPO listing they often carry ‘founder premium’, especially when the founder opts for maintaining control rather than diluting it.
BE
I can suggest a few Russian entities that may challenge that research.
BE
“This means that by maintaining control Zuckerberg sends a clear signal to stakeholders, investors and customers that the company will retain a consistent strategic focus.
BE
“Zuckerberg is following in the footsteps of charismatic founders such as Jobs, Gates, Brin and Page who, by retaining control, were able to direct their vision without much interference from other majority shareholders.
PM
Founder premium = technical bloc on short selling
BE
“As the firm continues to evolve from being a network player to one which can make in-roads into diverse segments, such as mobility and enterprise, Zuckerberg’s control over the firm will continue to generate interest and send reputation signals which are likely to generate greater shareholder wealth than would otherwise be the case.”
BE
No free float = no borrow.
PM
People already making the observation taht this will go from being the most public private company to the most private public one
BE
Indeed. We’re back to the dot-comedy saw about scarcity premiums.
BE
What’s that Liz Lemon yoga thing in the States? That’s nuts as well.
PM
10bn nuts
PM
Read that post
PM
And John Hempton on the subject
PM
Enough on facebook for now
11:51AM
PM
We ahvent got much time
PM
And ive got a lunch also for 12.30
BE
Lucky you. Anywhere nice?
PM
coq dargent
BE
So. Nowhere nice.
PM
it’s okay
BE
Hm.
PM
Nice views on sunny day
BE
Anyway, let’s thump on with the results summaries.
BE
Shell disappoints.
BE
B shares down 2.3%
BE
Because downstream sucks
BE
Even more than downstream was expected to suck
BE
Following the mind-meld among analysts last month.
BE
Here’s Merrill.
BE
Weak Downstream drives 5% miss in 4Q11 results Shell reported 4Q11 adj NI of US$4.8bn, 5% below our/consensus estimate of US$5.2bn. The miss was driven by an extremely weak Downstream segment, which saw losses of US$278m against our expectation of US$142m profit. The drag in refining could not be offset by a reasonably decent performance in the Chems business. Upstream performance was broadly in-line with expectations with production of 3.305mmboe/d (-5.5% YoY) and a segmental contribution of US$5.1bn. 4Q11 dividend of US$0.42/sh was in-line with expectations. * Outlook – expenditure and growth take precedence over shareholder returns As part of the strategy update Shell management has provided a long term outlook for the company and clearly the priority is to continue to chase growth and cashflow improvements. Capex (net of disposals) is pegged at US$30bn for 2012 (+15% over 2011) with the bulk of the increase going into exploration projects. Whilst management indicates their aim to continue to grow the dividend, the US$0.43/sh (+2.4% YoY) looks very light against consensus expectations. Whilst 4Q11 results are clearly light even after lowered expectations, we believe that the improvement in refining conditions seen YTD means that we are likely to see little change to consensus numbers for 2012.
BE
AstraZeneca also disappoints.
BE
Numbers look fine.
BE
It’s the outlook that’s spooked.
BE
Shares down 4.3%.
BE
(@TK: you try life on this side without straying into the occasional tired phrase.)
BE
Since we’re hurrying, here’s WestLB with the sum.
BE
AZN’s FY-11 results were roughly in line with expectations, however, the
company is in for a tough ride: it is guiding for lower than expected core EPS
in FY-12 of $6.00-$6.30 (versus our estimate of $6.40). Further, AZN expects a
CC revenue decline for 2012 in the low double-digit range (we had been more
bullish, estimating a 7.4% decline). In terms of key product revenues for FY-
11, there were few surprises, although Seroquel sales were stronger than
expected (due to pricing increases in the US), Arimidex sales were weaker
than expected (due to strong generic competition), and Brilinta sales were still
low (FY-11 sales were half the Bloomberg consensus sales estimate, as of 2
February 2012). Meanwhile, the company provided further information on its
new restructuring programme, which includes 7,300 job cuts and plans to
increase external R&D collaborations and simplify S,G&A operations. On the
upside, AZN has announced a $4.5bn net share buyback in 2012, which beats
our $2bn estimate. Additionally, the FY dividend is up 10% to $2.80.
company is in for a tough ride: it is guiding for lower than expected core EPS
in FY-12 of $6.00-$6.30 (versus our estimate of $6.40). Further, AZN expects a
CC revenue decline for 2012 in the low double-digit range (we had been more
bullish, estimating a 7.4% decline). In terms of key product revenues for FY-
11, there were few surprises, although Seroquel sales were stronger than
expected (due to pricing increases in the US), Arimidex sales were weaker
than expected (due to strong generic competition), and Brilinta sales were still
low (FY-11 sales were half the Bloomberg consensus sales estimate, as of 2
February 2012). Meanwhile, the company provided further information on its
new restructuring programme, which includes 7,300 job cuts and plans to
increase external R&D collaborations and simplify S,G&A operations. On the
upside, AZN has announced a $4.5bn net share buyback in 2012, which beats
our $2bn estimate. Additionally, the FY dividend is up 10% to $2.80.
BE
FY-11 results were roughly in line with expectations. FY-11 revenues were
0.2% below our expectations, but 0.2% above Bloomberg consensus estimates
(as of 23 January 2012). Meanwhile, FY-12 core EPS was 1.2% below our
expectations but 0.4% above consensus – AZN attributes this to the net share
repurchases of $5.6bn in 2011 and the lower tax rate in 2011 than 2010 (19% in
2011 versus 26.4% in 2010).
0.2% below our expectations, but 0.2% above Bloomberg consensus estimates
(as of 23 January 2012). Meanwhile, FY-12 core EPS was 1.2% below our
expectations but 0.4% above consensus – AZN attributes this to the net share
repurchases of $5.6bn in 2011 and the lower tax rate in 2011 than 2010 (19% in
2011 versus 26.4% in 2010).
BE
AZN warns the coming years will be tough; plans to cut jobs. AZN indicated
that it plans to cut 7,300 jobs (the second phase of the company’s restructuring
programme includes 9,000 job cuts) and has warned that there will be lower
profits due to the challenging near-term environment. The company is now
guiding that revenues will likely be in the lower half of the guided $28-34bn range
from 2010-14. AZN expects a CC revenue decline for 2012 in the low double-digit
range (we had been more bullish, estimating a 7.4% decline). The company is
now guiding for core EPS of $6.00-$6.30 (we had estimated $6.40).
that it plans to cut 7,300 jobs (the second phase of the company’s restructuring
programme includes 9,000 job cuts) and has warned that there will be lower
profits due to the challenging near-term environment. The company is now
guiding that revenues will likely be in the lower half of the guided $28-34bn range
from 2010-14. AZN expects a CC revenue decline for 2012 in the low double-digit
range (we had been more bullish, estimating a 7.4% decline). The company is
now guiding for core EPS of $6.00-$6.30 (we had estimated $6.40).
BE
New restructuring programme announced. AZN has also announced a new
restructuring programme today, designed to deliver $1.6bn savings by the end of
2014, but which will cost $2.1bn. Core elements of the plan include 1) simplifying
the global commercial organization in S,G&A, cutting the number of sales and
marketing regions, and involving 3,750 jobs cut in S,G&A; 2) cutting 2,200 R&D
positions, increasing exposure to external collaborations and decreasing in-house
staff (e.g., in the CNS area), as well as closing two R&D sites; and 3) cutting 1,350
operations positions.
restructuring programme today, designed to deliver $1.6bn savings by the end of
2014, but which will cost $2.1bn. Core elements of the plan include 1) simplifying
the global commercial organization in S,G&A, cutting the number of sales and
marketing regions, and involving 3,750 jobs cut in S,G&A; 2) cutting 2,200 R&D
positions, increasing exposure to external collaborations and decreasing in-house
staff (e.g., in the CNS area), as well as closing two R&D sites; and 3) cutting 1,350
operations positions.
BE
Seroquel surprises to the upside, Arimidex weaker than expected, and Brilinta
sales still low. In terms of the key drugs, the sales of most were in line with our
expectations. However, Seroquel was stronger than expected (in the US it was up
20% in Q4-11), which AZN attributed to pricing increases and some inventory
movement. We flag that in March, we expect Seroquel IR to go off patent in the
US, further hitting sales growth for the company in FY12. Meanwhile, Arimidex
experienced a stronger than expected sales decline due to generic competition.
AZN indicated that generics now account for 97% of anastrozole US
prescriptions. Meanwhile, AZN has indicated that Brilinta has now been launched
in 37 countries; however, our belief that there will be a slow ramp in sales is
supported by the low FY-11 sales of $21m (vs. $42m Bloomberg consensus as of 2
February 2012).
sales still low. In terms of the key drugs, the sales of most were in line with our
expectations. However, Seroquel was stronger than expected (in the US it was up
20% in Q4-11), which AZN attributed to pricing increases and some inventory
movement. We flag that in March, we expect Seroquel IR to go off patent in the
US, further hitting sales growth for the company in FY12. Meanwhile, Arimidex
experienced a stronger than expected sales decline due to generic competition.
AZN indicated that generics now account for 97% of anastrozole US
prescriptions. Meanwhile, AZN has indicated that Brilinta has now been launched
in 37 countries; however, our belief that there will be a slow ramp in sales is
supported by the low FY-11 sales of $21m (vs. $42m Bloomberg consensus as of 2
February 2012).
11:56AM
BE
(The day you step over this side, Milky, is the day I apply to KFC.)
(@Milky: yellow.)
BE
And is there anything else before we shuffle off?
PM
On Sharp — we should say we have nothing fresh — plunge in TV sales apparently
PM
Surprise loss — stock down 16% in Tokyo overnight
PM
But there was also some trading glitch in Tokyo…
BE
Commodity market with pernicious price deflation.
BE
LSD panels are a horrible market to be in.
BE
I’m a little surprised Sharp still exists, to be frank.
BE
Back domestically….
BE
Shanks is on a rip.
BE
Up 12 percent at 112p or thereabouts.
BE
Geoff in the Mail revives the PE story this morning.
PM
You never know…
BE
The Daily Mail highlights ‘mutter from the gutter’ that a private equity player, possibly Carlyle, has bid Schroders for its 17% stake in Shanks and is ready to launch a full-scale offer at up to 140p/shr. Reminds readers that in Mar 2010, long running takeover talks with Carlyle collapsed after it reduced its indicative offer price to 120p from 135p/shr, or £535.5mn, proposed in Oct 2009.
BE
Though we’ve also had an RNS this morning
BE
That the new CEO, who came in in November
BE
Ex army pilot, if memory serves
BE
Has been gifted 887,000 options exercisable to 2015
BE
Which may look a tad funny if you were sitting on a bid.
BE
Would also note that the former CEO
BE
Left in October
BE
Because he wanted a job closer to his home in Cheshire
BE
Which would also be a tad funny if you were sitting on a bid.
BE
Still, who knows.
PM
12:02PM
PM
trading statements pouring out in the states — literally too fast to read any
PM
Dow, Merck etcetc
BE
(@TK: used to work with R Vines. A seasoned trencherman. If he rates Cd’A then I may have to review my opinion.)
BE
Yeah – it’s another mega earnings Thursday.
PM
Right
PM
There’s too much to talk about
PM
but we’ve got to go
PM
We’ll be talking about Glencore Xtrata for weeks now doubt
PM
Note the point the ambition on the right to make Glencore pay a premium
PM
But they haven’t got enough cash
BE
That is the issue.
BE
If Xstrata shareholders want anything other than a reverse takeover then they may end up with nothing.
BE
Anyway, as you say, we will revisit this endlessly in the weeks to come.
BE
Oh, just for the sake of search engine optimisation ….
BE
GKP
BE
Up 5%.
BE
Presentation in New York overnight, apparently.
PM
BE
Positive. But then, it would be wouldn’t it?
BE
And the Wall’s Street Journal runs a big piece on Exxon in Kurdistan
BE
The WSJ runs piece on Exxon’s entrance into Kurdistan and says it is moving ahead with its exploration and production deal with the KRG, despite opposition from Baghdad. Cites a Kurdistan official as saying the company is now preparing for seismic studies and securing office space and accommodation for its staff in the Kurdish region’s capital Erbil. Adds that Kurds are pointing to the Exxon Mobil deal to convince other major oil companies such as Total to sign on for other concessions.
BE
Read at your leisure, and fantasise your own theory about an ~£18 bid.
BE
And, with that, we’re done.
BE
Thanks all for your comments.
BE
And thanks for behaving during the first half of the show.
PM
yes
PM
Gotta run
PM
Seeya!