Israel Military Moves Into Rafah-Border, UBS Returns to Profit

Israel Military Moves Into Rafah-Border, UBS Returns to Profit | Daybreak: Europe 05/07/2024

Good morning. This is Bloomberg Daybreak Europe. I’m Tom Mackenzie in London. These are the stories that set your agenda. UBS reports a big earnings beat in revenue, net income and profits. The swiss lender saying it expects the merger with Credit Suisse to be completed at the end of May. We will bring you an interview with the UBS, Sergio Motta, in an hour’s time. Stocks in Asia followed the US higher on hopes the Fed will cut rates this year. The yen weakens against the dollar after Japan’s ethics chief says intervention isn’t needed if markets are orderly. Plus, Israel rejects the cease fire proposal backed by Hamas. Hours after the militant group agreed to the plan, Israel vowing to push ahead with military operations in Rafah. It is, of course, another big week on the earnings front. UBS coming through that decent beat in terms of net income, in terms of revenue and profit. As we said, continuing to look, of course, in terms of the earnings call and the interview that we have with the CEO with any comments on those capital plans. We know, of course, that the government, the Swiss government’s plans around capital allocations and the requirements there are essential for this lender. But coming through with a big beat in terms of net revenue, we will start there. Net revenue for the first quarter for UBS coming in at 12.7 billion USD, decently above the estimates of 11.8 billion in terms of net income, almost triple the estimates in the first quarter, 1.8 billion just shy of 1.8 billion USD versus the estimates of just shy of 600 million USD. The investment banking business came through with the beat. Asset management was a modest mess in terms of pre-tax for asset management, but return on tangible equity for UBS in the first quarter was triple what was expected 9% an increase of 9% versus the estimates of 3% pre-tax profit. Again, a very healthy beat coming through from UBS, 2.4 billion USD versus the estimates of just shy of 1.2 billion. And again, they expect the merger of UBS and Credit Suisse to complete on May the 31st. We will bring you a conversation with such a massive UBS CEO in just under an hour. That’s 7 a.m. UK time on markets today. So stay tuned for that on the earnings front. But over in Italy, UniCredit coming in top line. This is a red hat from this Italian lender which by the way the stock is up 48% year to date. The red head first quarter net income coming in with a beat for UniCredit, €2.56 billion versus the estimates of €2.1 billion. So again, a decent beat coming through from UniCredit. We look for lines on net interest income and they raise 2.56 billion is the top line in terms of net income, net interest income and I. Also coming in with ab3 point five 8 billion above the estimates of 3.51 billion. So a modest beat in terms of net interest income. They are seeing as well in terms of the first quarter net fees and commission income coming in above the estimates as well, just above 2 billion. And again, in terms of first quarter revenue healthily above the estimates, 6.4 billion, the estimates had been for just shy of €6 billion. And again, when we listened in on the call for UniCredit, the outlook for net interest income will be key. But again, this is a market, this is a bank, I should say, that is up 48% year to date. Goldman Sachs expects €9 billion of net profit for this lender in 2024 alone. A solid beat coming through from UniCredit. Let’s check in on these markets. And of course, the earnings story will play into the market moves as we close in on that 8 a.m. UK time open for these markets and it was an optimistic day, a day of gains as well in the US yesterday with the Nasdaq 100 and the S&P both adding upside of a little over 1% on expectations. The Fed can go possibly two times in terms of the cuts coming through on the back of the softer jobs data, of course. And so you had some of the big mega-cap tech names like in video and Tesla performing strongly in the US session. European futures pointed to gains of 3/10 of a percent here in the UK. The Footsie 100 looking to add 89 points. A full one percentage point. Copper is interesting. We continue to keep an eye on the commodities mix. Goldman Sachs raising their outlook for the pricing around that metal. S&P futures, by the way, currently flat after the gains of yesterday. NASDAQ futures in similar territory. Let’s flip the board that and look cross asset briefly in terms of what we’re seeing across the Treasury curve, just a one basis point move for 81 on the two year course, yields have been coming in the lower on the back of the softer jobs data and expectations again around the repricing, the evolution of the Fed expectations, possibly two cuts this year, the Japanese yen, 154, a little bit of weight and it’s coming through down 3/10 of a percent versus the US dollar. On those comments from the Fed, from the FCC’s official that intervention is not needed if the markets are orderly. $83 a barrel. On Brent, as we continue to keep across the geopolitics of Gaza and Israel, Brent, up 2/10 of a percent and copper again above 10,000 per tonne, Goldman Sachs raising their target from 10000 to 12. By the end of this year on the supply deficit. Let’s cross over to Asia now. April Hong is standing by with a gauge on the Asian markets. April, how the market’s playing out today. They’re playing out in a divergent fashion. And if you take a look at Japan, South Korea, you’re seeing that green Nikkei, of course, playing catch up after a long weekend. But in China, the equities are sliding. Hang Seng on track to snap a ten session winning streak. That’s the spy positive news flow on the real estate front. Top tier city, Shenzhen, relaxing some of these home buying restrictions. So this is a mixed bag in Asia stocks. But flip the board because I want to take you down under where we’ve seen a very interesting picture emerging. Investors were bracing for a hawkish RBA today. It came in less hawkish than feared. We’ll, of course, find out more from the governor later this hour. But remember, this seems to be taking a leaf out of the Fed’s playbook from last week. And the takeaway appears to be that we are unlikely to see a rate hike from the RBA this year and the Australian stocks extending gains, as are the bonds. The Aussie is sliding towards 66 US cents as well. That the board. Again, I want to draw your attention to what we see on dollar yen. It’s been nudging towards 155 and this is as traders have been refocusing really on what we’re seeing from the yield gap. And that is a level that we last saw on Thursday. Of course, we’ve been working on this assumption that there were two rounds of intervention last week. We got verbal intervention from the currency, Chief Conda saying there’s no need for intervention if markets behave in an orderly fashion. But that hasn’t helped the currency. Of course, we are also keeping a close eye on earnings season in Japan. This week we’ll hear from the likes of Toyota and Tokyo Electron. We’ll find out just how the weekend is playing into their results Tom. Okay The end back in focus today Abraham in Singapore with the market take over in Asia. Thank you very much indeed. To the UBS story now posting a big beat, as we said, on the first quarter net income. The Swiss lender then saw net income come in at $1.7 billion, well ahead of the $600,000,600 million that had been expected. Another line crossing, by the way, just in the last minute or so from UBS, they cannot yet fully assess the capital effect from new Swiss rules. We know they have pushed back against these proposals coming through from the Swiss government in terms of their capital requirements that could cost them could cost them up to 20 billion USD on some calculations. Let’s bring in at this point Bloomberg’s Alessandra, especially Alessandra, at top lines. What stood out to you from these numbers from UBS? Well, it’s a welcome return to profit after two quarters of losses. So it’s a good start of the year for UBS. But at the same time, they’re cautioning that the outlook for the next two quarters isn’t going to be so strong. They are predicting a small decline. At the same time, there is this big question mark hanging over the Swiss government proposal to ask UBS to hold more capital could be around $20 billion, and it’s still not clear how much they will do. The Swiss government has said that it will publish proposals in the first half of 2025. And until that time, even if they say if even if UBS says that it has enough capital to continue its capital return plans to give back funds to shareholders, there is a big question mark hanging on the banks plans. Okay. So that cloud, it seems, will linger over UBS until what, the first time for 2025. And as you say, as you note, too, they have reiterated that they can complete and stick to those 2024 capital return plans for this year. But again, as you say, the question mark is over 2025 still, and we expect that furious lobbying effort, no doubt from UBS to continue when it comes to the integration. They’ve reiterated they hope to get that done with Credit Suisse by the end of this month. What are the hurdles going forward then, in terms of costs, in terms of integration as we look to that process? So you would be saying that this year to 2024 will be the hard year, will be the complicated year with all the costs would come in. The legal merger will allow to migrate clients into the UBS systems and then unlock more cost reductions, more synergies, more efficiency. But until that happens, we’ll have to see how much of an impact it will have. UBS has said that it in the first quarter, it has already executed 1 billion of cost reductions and it expects 1.5 billion of more cost reductions to the end of the year. They are on track, but of course they need to keep really, really pushing to keep this execution, this mammoth, complex execution of a merger on track. Okay. Bloomberg’s Alessandra Speziale joining us out of Zurich on the back of those earnings coming through from UBS. Thank you very much indeed for the contacts, the important contacts there coming through from Alessandra and what to look for. Coming up, talking of coming up, we’re going to bring you a conversation. This is one you are not going to want to miss with Sergio Monti, the UBS CEO. Of course, in just under an hour’s time. That’s 7 a.m. UK time on markets today. To geopolitics now. And Israel has rejected a ceasefire plan backed by Hamas, the country’s war cabinet, saying the proposal falls far from its necessary demands. Israel is also promising to continue military operations in Rafah after warning civilians to move out of parts of that city. For more, I’m joined by Ross Mattson, Bloomberg’s news director in the immediate region. Does this rule out, then, Ross, a ceasefire in its entirety? Where are we on those negotiations? Well, it certainly makes it much more complicated. We can see the positioning that’s going on by both Hamas and Israel here. Israel says it will send a delegation for further talks, but they’re really wrangling over minor bits of wording over particularly what this means for the longer term. Does this pave the way for a full end to the war? Is it called a sustainable calm? Is the wording they’re arguing over? And if they can’t agree on that, they can’t agree on the bigger stuff either. So we’re really at a very difficult point for the prospects of a ceasefire. Meanwhile, Israel says it will continue its plans for an offensive in Rafah regardless is it needs to do that to try and eradicate Hamas. We just got word a short time ago that troops have gone into the Rafah crossing. That’s the first time Israeli troops have gone to the Rafah crossing since the war broke out. They shut the crossing. There is no aid or people now moving through that important area. And that, of course, is a conduit for aid to go from Egypt into Gaza. So that’s the cutting off of aid into Gaza at this moment. So you can see that these are really preparations going on for Israel to start its offensive in Rafah, you know, in days, if not weeks potentially. So either way, they’re going ahead as far as they’re concerned, and that’s really putting the pressure on the US and others because they’re running out of time to convince Israel to stand down and agree to a ceasefire. What is the US role here then? Because President Biden has suggested in the past that this would be a red line, a significant military operation into Rafah without moving civilians would be a red line. Where does the US stand in terms of its pressure on the IDF and on Israel? Well, the US President Joe Biden spoke yet again yesterday with the Israeli Prime Minister Benjamin Netanyahu. That’s guy twice in a couple of days and said to him directly, if you do a big offensive in Rafah, I consider that a mistake. And they’ve been quite strong about their views on the possibility of that offensive. At the same time, they’re not stopping, you know, the supply of weapons to Israel. They’ve said Israel is a key strategic and military ally. Israel has the right to defend itself to do what it needs to against Hamas. So the question is, you know, what else can the US do? Aside from, you know, calling on Israel to show restraint when it comes to civilians in that area, they’re not going to cut off military aid to that country. And so again, the questions about the level of US influence over Israel or whether it’s using all the influence that it could. Okay, Ross Martin, thank you very much indeed. Fast moving events, of course, unfolding in that region. Ross Madison, Bloomberg’s news director in the region, giving us the latest and of course, the context as well coming up on your day ahead. 6:30 a.m.. Back to the earnings story. Infineon, of course, the Germany based chip maker, those earnings coming through. And we’re going to be speaking to the CFO of that company. The slowdown in the auto market, the China exposure, all of those issues to be discussed with the CFO of Infineon, the importance, of course, of the global semiconductor market. And at 7 a.m. UK time, the focus switches to energy and the oil major that is BP, with earnings crossing from that company at 7 a.m. UK time. And then in the US, the big one arguably stateside today, Disney those earnings crossing later today as well. Coming up, Saudi oil giant Aramco’s profits in focus ahead of first quarter results out later today. We have a preview for you next, of course, as opec+ continues to constrain supply. Plus, I’m going to speak to the CEO of German defense contractor Hensley’s about the company’s latest earnings and Europe’s defense spending plans. That exclusive interview 640 UK. Time. This is. But. Welcome back to Bloomberg Daybreak. Europe, now Saudi Arabia, Saudi Aramco, I should say, is set to release its first quarter results today. Analysts will be watching shareholder payouts and profit. The oil giant has lowered its production since the second quarter of last year in line with those opec+ cuts. Let’s get the details. And in a preview with Bloomberg’s Middle East energy editor, Anthony de Paola, who’s in Dubai for us. Anthony, what is the outlook then for profit and dividends from Aramco? Good morning, Tom. Yeah, they are looking for a slight decline in profit, probably around 10% according to what the Bloomberg intelligence estimates are. And that’s because Aramco, as you said, has had to cut production because of the Opec+ cuts, because of some additional voluntary cuts that they’ve made, trying to shore up this market and avoid a build up of stockpiles. So aramco’s down to about 9 million barrels a day of production now, and that’s with oil prices relatively stable quarter on quarter between the first quarter of this year and last year. So we haven’t seen much movement on the price to help out, help that out on the dividend. Of course, though, we are expecting that payout that has been previously announced. They’ve got that strong regular dividend plus a special dividend that’s based on the 2022 bumper profits and the earnings from last year. So that dividend is laid out. It’s going to be pretty stable this year. And then looking forward, we’ll be looking for some more guidance on how that dividend is going to develop. Aramco has said they hope that base dividend is going to be progressive, meaning growing over time and it remains to be seen then how that special dividend gets gets factored in in those future years. We’ll be looking for some guidance on that potentially as well, Tom. Okay, so that’s the return in cash to shareholders. Elements of it, when it comes to reduced production, reduced profits potentially. On that front, what does that all mean for the CapEx story for Aramco then? Yeah. CapEx is actually increasing. We’ve seen that cut of the the plan to increase Saudi aramco’s capacity production capacity to 13 million barrels a day. That plan was scrapped or delayed as Aramco would like to have it. So they’re going to stick with the 12 million barrels a day capacity right now. So that frees up some CapEx to put in to other projects. It looks like they’re going to be putting a lot into the natural gas business, their domestic natural gas production. And they’ve got some projects that were already underway towards that capacity increase. They’ll keep those projects going and that will make up for some of the natural decline of oil production. So we’re going to be looking for CapEx to kind of see where that goes. They’ve forecasted some savings over the coming years by cancelling that capacity increase project. So we’ll be looking to see where that extra CapEx goes. A lot of the analysts are looking at that to go into the dividends to support the Saudi government spending. We’ve seen the Saudi government posting another consecutive deficit. So that dividend is important for shoring up those government government funds that. Bloomberg’s Middle East energy editor Anthony de Paola, with a really nice set up of the earnings that we’re expecting in the next couple of hours coming through from Saudi Aramco. Thank you. Coming up, could Xi Jinping state visit to France help thaw trade tensions between China and the EU? We’ll get the latest from paris next. The two presidents have met. This is bloomberg. Change or regarding the Palestinian-Israeli conflict, the delay of this strategy to this day as a test of human conscience. The international community must do something. We call for an immediate, comprehensive and sustainable ceasefire in Gaza. At the same time, support Palestine to become a full member state of the United Nations. What do you say about Chinese President Xi Jinping that the Chinese leader weighed in on the Israel-Gaza conflict while on a much publicized state visit to France, his first trip to Europe in five years as he tries to try to reset ties with the EU. Let’s get more than we believe is currently going out. Who is standing by in Paris covering all of this for us currently? Has there been any progress on the geopolitical front? Tom, you had a President Xi calling here for a ceasefire in Gaza, just as we saw some new airstrikes in the Rafah region in Gaza. So clearly not an immediate success there. But Michael also called for China’s support, again, to try and influence the Russian president, Vladimir Putin, and use Beijing’s influence to try and end the war in Ukraine. She repeated that China does not take part in this conflict, was not at the origin of the conflict, but did say they are going to start another round of mediation. However, the Chinese president also warned that the EU should not start a new Cold War. We’ve the EU and the US aligning their stance against China and Russia. In fact, Merkel had also an interesting proposal which was to call for a truce during the Paris Olympics, a global cease fire, a proposal that was met with enthusiasm from President Xi, who said that China and France will try and work together to try and bring this cease fire at the end of July. After she returns from Europe in a few days. The Russian president will actually travel to China. So we’ll see whether this trip also has any influence in those discussions. Okay. So that’s the geopolitics, Carol. And what about the trade tensions then, between the EU and China? Have they been addressed, at least to some extent? Not quite. But Michael was very careful not to use the same confrontational tone as the EU Commission President, Ursula von der Leyen, who was also part of the initial trilateral meeting with President Xi in Paris in the morning. Ursula von der Leyen criticized China’s production surplus and said the EU was ready to use all tools, all trade instruments to protect itself. President Xi immediately responded, saying that China does not have any overcapacity issue. There was another official from the Chinese Ministry of Commerce was present in Paris yesterday who said that the EU Commission had been sending the wrong signals with all these probes into the Chinese market, into the Chinese medical devices. But of course, we’ve seen all these trade tensions and Macau still had a firm tone, but was using perhaps a more inclusive tone, trying to bring China back to the table of those trade negotiations and actually reminding President Xi that the EU trade policy remains independent from the United States. So trying to distance the EU from the United States. There was no major deals, business deals announced during that trip. Only a few commitments in the aviation of the cosmetics sector. But Macron did have a small victory when it comes to cognac, because, as you know, the Chinese have started as a response to the EU probe into the Chinese market. The Chinese have started a probe into the cognac sector that was directly targeting Paris. And during the press conference with President Xi last night. Merkel said that he was hopeful the Chinese measures against cognac makers wouldn’t be applied. Okay, Bloomberg Technology in Paris, thank you very much indeed. Now, Russia’s President, Vladimir Putin, has ordered the military to carry out combat drills involving tactical nuclear weapons, ramping up his confrontation with the West as he prepares for a fifth term in office. Russian leaders inauguration will take place at the Kremlin later today, extending his almost quarter century rule for a further six years. Coming up, German semiconductor maker Infineon is set to report earnings in the next few minutes. I’ll be joined by the company’s CFO, Spencer Schneider, to discuss those results. That is next. This is green that. Good morning. This is Bloomberg Daybreak Europe. I’m Tom Mackenzie in London. These are the stories that set your agenda. UPS reporting a big beat on revenue, net income and profit. The swiss lender saying it expects the merger with Credit Suisse to be completed by the end of this month. We will speak to UBS CEO Sergio Motta in our next hour. Meanwhile, Italy’s UniCredit also pays with net income for the first quarter coming in better than expected. Stocks in Asia followed the US higher on hopes the Fed will cut rates this year. The yen weakens against the dollar after Japan’s ethics chief says intervention isn’t needed if markets are orderly. Plus, Israel rejects a cease fire proposal backed by Hamas. Hours after the militant group agreed to the plan, Israel vowing to push ahead with military operations in Rafah. On the earnings front, then, a beat coming through in the banks. We now have the chip maker based in Germany, Infineon, coming through with its latest update in terms of quarterly revenue. It’s a beat on the estimates for Infineon for the second quarter. Revenues coming in at €3.63 billion, modestly above the estimates of 3.6 billion. We’ll break down some of the segments. The margin result coming through for the second quarter for this semiconductor maker coming in at 19.5%, slightly above the estimates in terms of segment margins, slightly above the estimates of just shy of 18%. So on the margin front, slightly more positive, they see the full year revenue coming in at 14.7 billion to 15 and a half billion euros. The estimates have been for 15.71 billion. So the full cost for the full year coming in slightly softer than the previous estimates and other lines coming through. Total segment profit in the second quarter coming in above the estimates is €707 million versus the estimates of 635 million. We know this is a challenging environment, particularly when it comes to the auto parts of the business as well, the supplies to the EV makers. And we will now bring in the CFO of French Schneider, very pleased to say, the CFO of Infineon standing by for reaction to these results. So a modest beat on the top line spend. It is a challenging market environment. Talk to us about your reaction and how this positions the company in the quarters ahead. Yeah, Tom, good morning. Thank you for having me. You already talked about the Q2, so I will focus on Q3 and the year ahead, as you are asking. So indeed, we had to lower our yearly guidance from 16 billion to 15.1 billion. The reduction of 900 million is due to all divisions. So give or take, half of the reduction is coming from automotive where we are still growing. I repeat we are still growing this year but at a lower pace. The other half is coming from a weak market environment which continues to linger in the three C’s communication, compute and consumer and also on the industrial space. So it’s a combination of these and segments where we either have a weak market environment or where we have an inventory digestion, which still needs to happen at the end of the at the at the edge of the distributors and the customers. Once this is worked through, we can definitely go back to our structural growth drivers. Okay. And that’s key, isn’t it? Once this is. Once this is worked through and you do talk about those two challenges and as you’ve said for and this is the red hat across the Bloomberg terminal right now, it is that change the adjustment lower in terms of the full year revenue that you outline for us with the segment result margin outlook coming in below. In terms of the forecasts for you in the business and you talk about those two key challenges, then when then what is the timing for when you see the sales slump in the broader picture in terms of demand for semiconductors, when you see that sales slump turning around and bottoming out? Tom, I think we need to look at it market by market and division by division. But broadly speaking, if you look at the development of our revenues, we started with 3.7. We dropped a little bit to 3.6 in the last quarter. Now, for this fiscal quarter, our fiscal Q3, we already expect the growth of 5% to 3.8. If you then run the numbers to come to the 15.1 midpoint, it’s a 4 billion, give or take, revenue line for our fiscal Q4. So you see the markets coming back, but it varies. In automotive, there is growth from order, from the electrification, from autonomous driving, from the microcontroller business, which is very strong, where we are very happy to report that we are now globally for the first time in the history, the number one automotive microcontroller supplier. So there’s more content per console. This is coming. And here we strongly believe into the structural driver on the consumer computing communications. There are green shoots, the smartphone business, the RF s business, of course, the air power business. This is getting back to growth rates, but for the rest, it’s still a weak and market and industrial is a late cycle which will probably see it at the end. So it’s probably towards the end of the year, maybe even beginning of next. Okay. The end of the year, the beginning of next, when you get all of these different units performing and the industrials part as well and you outline the challenges there on the on the EV segment, you said you said you’re certainly still seeing growth there and the number of chips and components increases. What does that materially turn around? Because there is concern that growth and sales are starting to slide within the EV segment. Yeah. I mean, Tom, there was a for quite some quarters, some concerns with investors who were challenging us and saying, why are you growing? Because the number of cars being produced is flat. We have shown that again and again. And even if we are now lowering the growth rate from give or take, 10% to a low to mid single digit percentage rate, there is the growth coming. So this is very strongly visible in our numbers. Secondly, yes, I acknowledge and we know it and we hear it and we see also customers reacting that especially in the Western markets, the electrification or the penetration of the electrification is decelerating. We consider that to be a transitionary effect, not a structural effect. And on top of that, for us, it’s a global market. We have leading market positions in China, where it’s growing strongly in Korea, where, for example, not only births but also hybrid cars are growing strongly. Same in Japan. So that’s why we strongly believe into that growth pattern going forward, even if there are some markets where it’s a bit slower than expected. So when you recently signed a deal with Channel Me over in China to sell them and supply them with power chips, how significant is that deal and when do you start to see revenues coming through materially from that? Yeah, it is a significant design win, not only in terms of revenues, but also in terms of our strength in the Chinese market. The deal, just for those who haven’t seen yesterday’s press release, is all about silicon carbide packages in the interaction inverter, plus a lot of other products microcontrollers Mosfets and others. So it’s a it’s a broad based design win with one of the cars, which at least creates a lot of attention in the in these days. But secondly, it just shows how strongly we are also growing in China, but also outside China. And I can give you another data point. The the design win pipeline in automotive in China has outgrown the market growth in China over the last years continuously. So there’s very nice momentum. On the China question, there is a little bit of handwringing in European capitals that China is going to be flooding the European market with some of those legacy chips. How valid are those concerns? Yeah. I mean, the the China competition is one we are taking very seriously and to to make it a little bit black or white, I would probably say if you think about low power products, Mosfets, IGP. TS in our industry to some extent and we are benefiting from that strongly on the silicon supply side, also the silicon carbide substrate deliveries here, the China competition is already at a pretty good level and they are going into these markets. On the other hand, there are these products like the microcontrollers, which is a very sticky business. There’s battery management radar systems where there’s still a huge gap between Western power players and the Chinese players. And last comment I would like to make, Tom, is there are also opportunities to grow with Chinese companies outside of China. You know that one of the leading best companies from China just recently announced that they will build a fab in Europe. So there’s also potential to supply them outside of China. Okay. Suspension either. The CFO of Infineon, thank you very much for your time on the back of those earnings for the second quarter coming with a modest beat for the company, but cutting their forecast full year on a challenging market. Thank you for your time. Other earnings crossing. This is Aramco, of course, Saudi Aramco. And it’s a it’s a mix with Saudi Aramco. Not a big surprise given, of course, that production has been curtailed since the second quarter of last year in line with those OPEC+ cuts and in the first quarter. Then for Saudi Aramco, net income coming in at 103 billion riyals. The estimates have been for just shy of 6 billion. So it’s a miss in terms of the net income for the first quarter. They are also saying in terms of the total revenue for the first quarter, that is also slightly above, in fact, the first quarter revenues coming in, but it’s the net income that’s slightly weaker. So on the profit front, a mix again for Saudi Aramco, they will pay a dividend of 31 billion USD. So that’s important, of course, for the Saudi government itself, which is of course the majority shareholder in Saudi Aramco. They will pay a $31 billion dividend growth in spending targets upstream liquids and gas. But again, it’s a miss when it comes to net income from Saudi Aramco. Coming up, German defense contractor Hansol reported a record order backlog, thanks in part to European governments boosting defense budgets in the face of that Russian aggression. All of it. And Salt’s CEO joins me for an exclusive conversation. That is next. In the defense space, this is Bloomberg. Welcome back. Now to defense contractor HANSOL has reported a near doubling of its order intake compared to the previous year, a figure in line with estimates. The company says it’s benefited from major orders of its advanced radar and sensor technology, which is used in everything from air defense systems, the euro fighter jet and Germany’s main battle tank, the leopard to very pleased to say, to talk about the defense space more broadly as well. In an exclusive conversation, Oliver Derrick, the CEO of Hensel. Oliver, thanks for joining us. And we work through the results with you. Top line. In terms of the order backlog, it is significant. It’s at a record. What are you putting in place? What measures are you putting in place specifically to address that backlog in terms of ramping up production? Well, first of all, good morning, Tom. Really appreciate to be here. Yes, indeed. Our 3 a.m. results show yet another solid performance, and it underlines that hence, our group is delivering on promises. Looking at the order backlog, I can truly state that the top priority of the management also me joining as CEO is clearly on our ability and reliability to deliver. Our team is clear that the life and limb of the soldiers out there in a deteriorating security environment depend on on us. So we have set actually three priorities. One is operational excellence. So we are scaling our production on one hand. So good example is that for the radar you’ve just mentioned, we scaled a five fold increase over the past year from annual production of three rate us to 15. So of course we are looking at our supply chain, which of course has an impact on working capital. We are building new infrastructure in Germany, all of that too to really scale. And on the other hand, we are investing, of course, in the technology, digitalisation, sense of fusion that is key to stay at the top notch. And you recently took over as CEO. What? Around a month ago, Oliver. When you look at the backlog, then coming in with that fresh pair of eyes, what does it make you think in terms of how much CapEx you’re prepared to put to play to address it? And where are the key sticking points in that supply chain issue? Well, overall, I can say in the timeframe of 22 to to to 25, we we plan to invest roughly 1 billion into really the ramp up of hem salt that is roughly 500 million in technology. So so really looking at our R&D roadmaps, it is roughly a quarter billion on on supply chain. So here is it really on long lead items really keeping our suppliers stable? The good thing is that we have quite a strong depth in our production in the value chain. So we produce our chips ourselves in, um, in the factory. So with that, I think we have a very decent control on our supply chain. And last I mentioned it, the last quarter billion goes into infrastructure. And we are, of course, facing a multitude of geopolitical risks, whether it’s Russia in Ukraine, whether it is Israel, Hamas, or whether it is indeed tensions with China. How is all of that impacting the business? Well, as you can see from our record order intake, 665 million and also the strong backlog, we see a structural long term trend really in increasing defense spending. So recently, Norway has announced that they would increase 80% over the next 12 years. Germany has spent the extraordinary budget. We see that Poland is going to 4%. So all of that is is really a long term trend where we see those investments. And I think with our technology, we we are really at we are leading in the market. So that is giving a strong growth perspective. Yeah. And you talk about that European defence spending, particularly, of course, coming through from Germany, your home country. Is that you think the prospects, all of it. Do you think the prospects of another Trump presidency in the US is another wake up call for Europe in terms of getting its act together on defence? Well, truly, this is this is one element. But but Germany keeps a strong allies and also a strong trans-Atlantic relation. So me, myself, I did my military training in the US. So with that regards, we still have close ties. But indeed, I think Europe really has to to to to invest in its independence, looking at European security and defence capabilities. And that is what we see at the moment. And he of course hansol as a national champion also with an anchor shareholder of the German government, is is clearly one player on that scene. There’s been a roundup of Russian alleged Russian and Chinese spies across Europe in the last few weeks. Have you presumably a company like yours is targeted by by espionage operations? Have you seen a tick up in espionage attempts targeting your business? Well, hence all it is is really also internally looking at the technology and everything, having a very high security standard. So so I can’t see that at the moment. However, also, as you know, one of our segments besides Radar Optronics is electromagnetic warfare, cyber. So also here, of course, we use our capacities that we sell to customers, also to internally secure our company, our, our, our IPR and everything. So with that regards, I think we also strongly position. Okay. Oliver Drake, CEO of Hen Soltes, thank you very much indeed on that record order backlog. We appreciate it. Plenty more coming up. This is Bloomberg. For me, it’s really looking at the totality of the data and not just looking at an employment report or a CPI or other piece of information. You really want to make sure we’re looking at the broad picture. We have the maximum employment and price stability goal. So we want to, from my perspective, see all the data and information speaks to all of that. And really, you know, as the data come in, hopefully we’ll be moving in the direction we want to see both on inflation and in terms of restoring balance to the economy. And then we’ll make our decisions based on on that. And that was, of course, New York Fed President John Williams on his expectations as to where the Fed goes from here on the earnings stories. Beats coming through from UniCredit, but UBS as well front and center for us dropping at 545 UK time. And it was a beat in terms of the first quarter on net income, on profit, on revenue. And of course we were looking for lines in terms of whether or not they can continue to return that capital to shareholders. Amid that discussion from the Swiss government about those capital requirements, UBS says they can continue to meet those expectations for 2024. By the way, in terms of the costs, they expect another one and a half billion US dollars with its cost savings by the end of this year. And they expect that merger of UPS and Credit Suisse to complete by the end of this month, May 31st. The line coming through in terms of the capsule effects, they can’t yet fully assess the capital effect from new Swiss rules. And our reporter on the ground in Zurich telling us that it’s going to come through the detail likely at the end of this year or the first part of 2025. In terms of those government plans, the expectation is that if they are put into full size capital requirements, it could cost UBS up to 20 billion USD. We’re going to be speaking, by the way, with the CEO, of course, of your best Sergio Amati, in just a few minutes. 7 a.m. UK time on markets today. He will of course have been quizzed and we will be quizzed on all of those issues around the capital story, whether or not there’s going to be further pushback from the CEO, I would expect it would. But again, top line is a beat from UBS. That conversation and that’s couple of minutes markets today is next as well across all of the issues filtering through the various asset classes. This is Bloomberg.

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Israel Military Moves Into Rafah-Border, UBS Returns to Profit | Daybreak: Europe 05/07/2024

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