Distil Share News (DIS)

LONDON (Alliance News) - Serco shareholders are facing another two years of sliding sales and profit margins before the company starts to turnaround, after the company Monday issued another profit warning, revealed the scale of the provisions and writedowns it will have to book, and proposed an equity rights issue to shore up its balance sheet once more.

Shares in the troubled outsourcing company dropped by about 30% after it cut its guidance for 2014 - its third profit warning this year - and for 2015, said it plans to tap shareholders for another GBP500 million in the first quarter of 2015, expects to book provisions and writedowns of GBP1.5 billion, and will talk with its lenders about amending its debt covenants due to the further deterioration in its balance sheet.

The company said its nadir could come in 2016, with revenue falling as low as GBP3 billion to GBP3.5 billion and margins as low as 2% to 3%.

It has scrapped dividend payments for the time being, and will only reconsider the dividend policy once its trading outlook and cash generation improves.

New Chief Executive Rupert Soames said the company will also sell businesses, including most of its private sector business process outsourcing operations, as it will specialise in outsourcing work for governments internationally going forward.

"Whilst it is a bitter pill, it is better for all concerned that we swallow it now and establish a really solid foundation on which to build Serco's future," Soames said of the initial estimate of the impairments and writedowns the company will book.

Those impairments, much higher than Serco has previously estimated, include GBP450 million for onerous contract provisions, and GBP500 million writedowns on the businesses it has earmarked for sale.

"It is important to note this might not be the end of the bad news and that any turnaround is going to be a long process," Investec analysts wrote in a note to clients. "Management are doing the right things, but this is going to be an expensive and long-term turnaround with risks still ahead."

Efforts by Quindell executives to shore up the company's ailing share price seem to be backfiring, with its shares down again Monday.

The company tried to reassure investors about a recent deal done by three of its directors who took out loans to buy shares and put some of their share holdings up as security for the deal, after the unusual deal raised new concerns about the governance of the company.

Chairman Robert Terry said the directors had done the deal to show how confident they were in meeting market expectations for the current year and in Quindell's longer-term prospects, and had put out its clarification of the loan-for-shares agreement to detail exactly how many Quindell shares had been transferred to the loan provider under the deal.

However, Quindell shares fell nearly 20% early Monday, although the loss has since been pared somewhat and the stock is now down 15.4%. The shares are down nearly 66% so far in 2014.

That prompted Terry to buy more shares Monday without a loan, and he was joined by Chief Executive Robert Fielding, who wasn't part of the recent loan agreement. Fielding also said his purchase demonstrated his confidence that Quindell would meet full year market expectations and in its longer term prospects.

That wasn't enough to stem the decline.

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Markets: UK shares have made a solid start to the week, continuing the mildly bullish mood from a positive US jobs report on Friday, with energy and mining stocks leading gains.

Futures indicate a flat to slightly higher open on Wall Street. The DJIA and S&P 500 are set to open flat and the Nasdaq Composite up 0.1%.

FTSE 100: up 0.5% at 6,597.88
FTSE 250: up 0.3% at 15,503.51
AIM ALL-SHARE: up 0.1% at 722.48
GBP-USD: up at USD1.5897
EUR-USD: up at USD1.2491
GOLD: down at USD1,167.95 an ounce
OIL (Brent): up at USD84.79 a barrel
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Other Top UK Corporate News
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Prudential said its Prudential Assurance Co Ltd subsidiary is to sell its stake in the PruHealth and PruProtect joint ventures for GBP155 million in cash to its partner in the businesses. The FTSE 100 life insurer said it will sell its 25% stake in the businesses to Discovery Group Europe Ltd, the European arm of South African insurer Discovery Ltd. Discovery already owns the other 75% of the two ventures.
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Aviva said it has closed the initial public offering for its joint venture AvivaSA Emeklilik ve Hayat AS in Turkey. Aviva said the business is expected to be listed on Borsa Istanbul from November 13. The final price on the deal is TRY47 per lot of 100 shares, towards the top end of guidance at TRY41 to TRY49, giving the business a value of TRY1.68 billion.
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Hammerson said conditions are improving in its UK retail estate, while conditions in its French market remain subdued, although stable. In a statement, the commercial property company said UK shopping centre sales are up 2.6% so far in 2014, while French sales are down 2.8%. It reported that total rent from new group lettings are up 37%, and the total area of lettings is up 21%. Long-term leases so far in 2014 have been struck at 9% above estimated rental value, it added.
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Over 5,000 investors have joined a class action-style lawsuit filed against Lloyds Banking Group, claiming they lost around GBP400 million in the government-arranged takeover of HBOS at the height of the financial crisis, the Financial Times reported Sunday. Lawyers representing the claimants say the group has increased by around a third of the number of shares owned in the company within a fortnight, the FT said.
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Cairn Energy saw its shares rise at the open after it announced it has made a second oil discovery in its exploration programme offshore Senegal. The second well, SNE-1, is in the Sangomar offshore block, with a target depth of 3,000 metres to target the Shelf Edge prospect. Intermediate logging at the well has confirmed the presence of hydrocarbons that are similar to the oil discovery made at its first well, FAN-1, it said in a statement.
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Lonmin saw its shares rise despite announcing it swung to a pretax loss after the longest strike in the platinum industry's history halted production in South Africa for five months of the year. For the year ended September 30, the company swung to a pretax loss of USD326 million, compared to a USD140 million profit in 2013. Revenue also fell to USD965 million compared to USD1.52 billion a year earlier after being hit by the strike action by the Association of Mineworkers and Construction Union and also by subdued metal prices. Lonmin's guidance for the 2015 financial year calls for a return to normal rates of production, at 750,000 ounces of saleable platinum in concentrate, with sales expected to reach 730,000 platinum ounces.
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Carillion, Costain Group and Morgan Sindall Group said they have been selected by the UK Highways Agency as three of five contractors that will deliver highway schemes with values between GBP100 million and GBP450 million. The agency is planning to invest some GBP5 billion in England's motorways and A roads over the next five years, and the collaborative framework deal it is awarding to contractors to undertake the work is the largest the agency has ever awarded.
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Just Retirement Group posted a big drop in sales in the first quarter on Monday after the group saw its individually written annuity volumes plummet following the pension reforms announced in the spring in the UK Budget. Total sales in the quarter to the end of September dropped 42% year-on-year, the FTSE 250-listed company said, with individually written annuity volumes dropping 59% in the wake of the pension reforms introduced in Chancellor George Osborne that removed the effective requirement for individuals in the UK to buy annuities to provide income in retirement. The company generated GBP25 million in defined benefit sales in the quarter, excluding a GBP75m deal announced in October with an undisclosed client.
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Great Portland Estates said it has exchanged contracts to sell its 151-year leasehold interest in 12/14 New Fetter Lane in London to TIAA Henderson Real Estate for GBP165.8 million, reflecting a yield of 4.5% and continuing its strategy of recycling capital out of assets. The 142,500 square foot office development is under construction with practical completion expected in the fourth quarter of 2015. The scheme is fully pre-let to Bird & Bird LLP for 20.25 years from practical completion. Bird & Bird's gross rent is GBP8.28 million a year which reflects GBP58.11 per square foot.
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Dignity posted a rise in revenue and underlying operating profit in the nine months to the end of September and maintained its full-year expectations as it said deaths came in line with guidance. The FTSE 250-listed funeral services company said its underlying operating profit in the 39 weeks to September 26 was GBP64 million, up 6.3% from the GBP60.2 million reported last year. Revenue in the period was up 3% to GBP196.4 million from GBP190.6 million. Dignity said the number of deaths in the third quarter was 129,000, up from the 122,000 a year earlier.
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Redrow became the latest housebuilder to say that the UK housing market has returned to a more normal seasonal pattern after its recent boom and price rises have moderated, as it also cautioned that planning permissions were being hampered by political posturing ahead of next year's general election. In a statement ahead of the company's annual general meeting Chairman Steve Morgan said Redrow's sales rate per outlet per week for its regional businesses is 0.65, compared with the "abnormally high rate" of 0.87 in the summer of 2013.
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Workspace Group said it has acquired 160 Fleet Street in London for GBP29.7 million from administrators acting for the National Asset Management Agency. It is being acquired with an overall occupancy of 48%, at a net initial yield of 3.7%, and at a capital value of GBP549 per square foot. A banking hall in the building is let to NatWest Bank until 2023.
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Aveva Group reiterated its full-year expectations, despite seeing a "disappointing" first half performance, as it saw pretax profit fall in the half year to end September on lower revenues. The engineering data and design IT system provider company upped its interim dividend to 5.5 pence per share from 5.0 pence a year before. AVEVA posted a pretax profit of GBP14.2 million, down from GBP27.3 million a year before, as revenue fell 21% to GBP85.9 million from GBP108.5 million.
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Residential property owner and manager Grainger said it has signed a deal with residential and urban regeneration specialist Sigma Capital Group that will help it create a large private rental sector portfolio in key English cities outside London. Grainger said the deal grants it the exclusive option for an initial four year term to acquire development opportunities of 100 units or more sourced by Sigma.
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AIM Movers
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Distil shares have more than doubled after it said it has gained a range of new distribution outlets and promotions for its products in the UK in the lead up to Christmas. ReThink Group is doing well after it proposed a tender offer for up to 30% of its issued share capital, and the cancellation of its trading on AIM to become a private company. Weatherly International shares have fallen after it said it will raise GBP6.9 million through a rights issue, and a share subscription by AIM-listed Polo. It has initially raised GBP900,000 by issuing 30.8 million shares at 2.925 pence per share to Polo, a sharp discount to its opening price of 3.75 pence per share on Monday.
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Top Economics And General
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Chinese inflation remained unchanged near a 5-year low in October and exports grew at a slower pace from last year, reinforcing signs of a weak economic activity. Inflation held steady at 1.6% in October, which was the lowest rate seen since January 2010. The rate also matched economists' expectations. Another report from the NBS showed that factory gate prices continued its downward trend in October. Producer prices slid 2.2% from last year after decreasing 1.8% a month ago. The producer price index has been in negative territory for 32 consecutive months. Prices were expected to decline by 2%. Month-on-month, producer prices fell 0.4% in October.
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Chinese data over the weekend also showed that export growth decelerated in October. Exports advanced 11.6% from a year ago, slower than the 15.3% increase posted in September. Nonetheless, the rate of growth exceeded a 10.7% rise forecast by economists. Likewise, imports growth slowed to 4.6% from 7% in September. Economists had expected a 5% annual increase. Consequently, the trade surplus widened sharply to USD45.4 billion from USD30.9 billion in September and was above the expected level of USD42 billion.
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The recovery in the Irish construction sector gathered pace in October helped by increased new orders and improving economic conditions, survey data from Markit Economics showed. The Ulster Bank Construction Purchasing Managers' Index rose to a seasonally adjusted 64.9 in October from 61.5 in the prior month. The reading was the second highest since the survey began in June 2000.
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US President Barack Obama landed in Beijing early Monday ahead of a summit of Asian-Pacific regional leaders in the Chinese capital. He joins Russian President Vladimir Putin, Japanese Prime Minister Shinzo Abe and Australian Premier Tony Abbott - who arrived over the weekend - and other political leaders at the Asia-Pacific Economic Cooperation (APEC) summit meeting on Monday and Tuesday. Obama was due to hold talks with Abbott and new Indonesian President Joko Widodo on the sidelines of the summit. He is also expected to hold bilateral meetings with Chinese President Xi Jinping on Wednesday. One of the key topics during the regional forum will be trade, where the US and China are expected to push for progress on competing agreements.
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Chinese President Xi Jinping called for closer cooperation and greater economic integration at a meeting of business leaders of APEC Sunday. Xi dismissed concerns over a slowdown of growth in the second-largest economy. China's economic risks are "not that scary," he told executives of many of the world's largest companies ahead of the APEC summit. China's growth in the third quarter slid to 7.3%, its lowest level in five years.
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Obama on Sunday said the fight against Islamic State militants had entered a "new phase." US-led airstrikes have been "very effective" in halting the advances of the jihadist group while also diminishing its capacities, Obama said in an interview with CBS television. The time had come to go the offensive, the president said. "Now what we need is ground troops, Iraqi ground troops, that can start pushing them back," said Obama, who on Friday announced the deployment of another 1,500 US troops to Iraq.
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Ukraine on Sunday accused Russia of sending more troops and heavy weapons across the border into separatist-controlled areas in the country's east, and warned that Moscow was seeking a pretext to station peacekeepers there. The National Security Council said in Kiev that it believes that two convoys of heavy weapons and tanks observed by the Organization for Security and Co-operation in Europe (OSCE)came from Russia.
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The government of the north-eastern Spanish region of Catalonia declared its non-binding referendum on independence from Spain a success. The central government in Madrid however labelled the poll a "political propaganda action." According to the latest figures provided by the Catalonia government, 2.25 million people participated in the vote on Sunday. Of those, 80.7% voted to separate entirely from Spain.
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Afternoon Watchlist (all times in GMT)

22:10 US Fed Boston President Rosengren Speech
23:50 Japan Bank lending
23:50 Japan Trade Balance - BOP Basis
23:50 Japan Current Account
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Tuesday's Key UK Corporate Events

Morgan Advanced Materials - Interim Management Statement
Energy Assets Group - Half Year Results
Fenner - Full Year Results
Blinkx - Half Year Results
Primary Health Properties - Interim Management Statement
BTG - Half Year Results
Land Securities Group - Half Year Results
Oxford Instruments - Half Year Results
Speedy Hire - Half Year Results
Sportech - Interim Management Statement
TalkTalk Telecom Group - Half Year Results
Trifast - Half Year Results
Vodafone Group - Half Year Results
Liontrust Asset Management - Half Year Results
Taylor Wimpey - Interim Management Statement
Centaur Media - Interim Management Statement
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Tuesday's Key Economic Events (all times in GMT)

All Day France Armistice Day
00:01 UK BRC Retail Sales Monitor - All
05:00 Japan Consumer Confidence Index
06:00 Japan Machine Tool Orders
12:30 US NFIB Business Optimism Index
23:50 Japan Money Supply
23:50 Japan Tertiary Industry Index
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