This week’s news includes; Brexit high court decision, , Shell & BP’s surprise profits, Google achieves record market share in smart phone industry and Go Compare’s demerger & IPO.
Opinion articles of the week:
What Happens to the Markets if Donald Trump Wins? Click here for more.
Independence is a ‘greater threat’ to Scotland’s economy than Brexit. Click here for more.
If you think the High Court (see below) is interfering in democracy, then you don’t understand how Britain works. Click here for more.
1. BREXIT HIGH COURT DECISION
Parliament must vote on whether the UK can start the process of leaving the EU, the High Court has ruled. This means the government cannot trigger Article 50 of the Lisbon Treaty – beginning formal exit negotiations with the EU – on its own.
Theresa May says the referendum – and existing ministerial powers – mean MPs do not need to vote, but campaigners called this unconstitutional. The government is appealing, with a further hearing expected next month.
The prime minister’s spokeswoman said she would be calling President of the EU Commission Jean-Claude Juncker to say she intended to stick to her March 2017 deadline for triggering Article 50.
Amid suggestions that she might try to call an early general election, she added that Mrs May believed “there shouldn’t be an election until 2020 and that remains her view”.
A statement is to be made to MPs on Monday but the government says it has no intention of letting the judgement “derail Article 50 or the timetable we have set out”. (BBC News)
Here is the argument Gina Miller used in the High Court case. (Business Insider)
2. SOFTBANK’S ACQUISITION OF ARM TO CREATE 1,700 UK JOBS
Japan’s SoftBank will create more than 1,700 UK jobs at Cambridge-based electronic chip maker Arm following its £24bn takeover of the company. Under the terms of the deal, SoftBank will at least double the UK headcount of Arm within five years.
The Japanese lender will also, under the binding post-offer undertakings of the deal, retain Cambridge as Arm’s global headquarters and increase the number of non-UK Arm employees in this period.
As part of this process, the companies today published employee number details as at 5 September.
The London Stock Exchange announcement revealed there were 4,401 Arm employees on this date, including 1,749 in the UK. Some 76.7 per cent of these were considered technical employees, and SoftBank has pledged to retain this relative proportion over the five years.
This is believed to be the first time post-offer undertakings, as defined in the UK Takeover Code, have been used in the takeover of a British company.
Accountancy firm Grant Thornton will supervise the process to ensure the conditions are met. (City A.M)
3. BP & SHELL POST UNEXPECTED PROFITS
Royal Dutch Shell PLC and BP PLC posted better-than-expected third-quarter profits, joining other big oil companies in showing progress in efforts to adapt to a world of cheaper crude as prices rebounded from lows hit at the start of the year.
The European companies’ results underlined a sense of cautious optimism creeping into the oil industry after more than two years of falling profits or losses in a sector once known as a reliable cash machine. BP and Shell both said they expect oil supply and demand to come back into balance after being glutted long enough to sink prices by more than 50%.
Both companies said they had made progress with efforts to stabilize profits even during a third quarter when prices averaged less than $46 a barrel.
Shell returned to profit, posting the equivalent of $1.4 billion in net income for the third quarter of 2016 after reporting a net loss of $6.1 billion a year earlier. BP reported net earnings of $1.7 billion for the most recent quarter, up 35% from $1.2 billion a year earlier.
BP and Shell’s results were a positive signal in a mixed season of earnings. French oil company Total SA last week said its third-quarter profit almost doubled from a year earlier to nearly $2 billion, a gain the company’s chief executive, Patrick Pouyanné, attributed to deep cost cuts.
In the U.S., Chevron Corp. returned to the black after recording losses for three straight quarters, aided by self-help measures to cut spending and costs. Its earnings, however, were still down 35% compared with the third quarter of 2015.
Exxon Mobil Corp., the world’s largest publicly traded oil producer, registered its eighth-straight quarter of year-over-year profit decline, illustrating how the efforts to manage the price downturn remain a work in progress.
Oil prices generally were lower in the third quarter of 2016 compared with the same time in 2015, averaging $45.86 a barrel for Brent crude, the international benchmark. The prices are down more than 50% from the heights of $100 a barrel or more they traded at for much of 2011 to 2014. A global oversupply of oil has kept the market depressed.
Most big oil companies are continuing to work to bring down their costs in an uncertain price environment. Shell said next year it expects to spend $25 billion on finding and developing new oil and natural-gas projects, at the lower end of a spending range it disclosed this year to investors.
BP said it planned capital spending in 2016 of $16 billion, down from the $17 billion to $19 billion previously forecast. Exxon slashed its capital and exploration spending 45% in the third quarter from a year earlier. (Wall Street Journal)
4. GOOGLE ANDROID HITS MARKET SHARE RECORD
Google’s Android mobile operating system (OS) grabbed a record market share in the third-quarter at the expense of Apple’s iOS which posted a decline, according to new research.
Android captured 87.5 percent of global smartphone market share in the three months to the end of September, Strategy Analytics said in a report. This means that nearly nine out of 10 smartphones in the world run Google’s OS. Shipments of Android devices hit 328.6 million, up 10.3 percent year-on-year.
Meanwhile, Apple’s shipped 45.5 million iPhones, down 5.2 percent from the 48 million in the same period last year. This was confirmed in Apple’s latest earnings results, which showed the third straight quarter of declines for iPhone sales. Apple iOS market share stood at 12.1 percent in the third quarter, down from 13.6 percent the year before.
Other mobile operating systems including those made by BlackBerry, Microsoft and Samsung’s Tizen “have all but disappeared” and collectively make up just 0.3 percent of the total smartphone market.
The growth of Android has been driven by the rise of low-cost vendors in countries such as China using the OS, but it could face challenges ahead.
“Android’s leadership of the global smartphone market looks unassailable at the moment. Its low-cost services and user-friendly software remain attractive to hardware makers, operators and consumers worldwide,” Woody Oh, director at Strategy Analytics, said in the report.
“However, several challenges remain for Google. The Android platform is getting overcrowded with hundreds of manufacturers, few Android device vendors make profits, and Google’s new Pixel range is attacking its own hardware partners that made Android popular in the first place.”
Google released two devices last month – the Pixel and larger screen Pixel XL – in one of its biggest hardware pushes to date. At the time, analysts said that the search giant could risk antagonizing manufacturers reliant on its mobile OS.
The fall in Apple’s iOS shipments was expected but it’s important to remember that the flagship iPhone 7 released in September was only on sale for a short time in this quarter and analysts are expecting an uptick in sales for the three months to December. (CNBC)
5. OPEC REMAINS POSITIVE ON OUTPUT CUT AS OIL CRASHES TO $44
With markets rattled and oil prices tanking after being bombarded on a variety of fronts, Opec has attempted to bring some calm to the market regarding its optimism that it will be able to reach some kind of a deal. But will the market buy it?
Oil prices this week took a tumble on the back of several pieces of bearish news, including Iraq’s and Iran’s publicly shared resistance to any deal, an unfavourable API report that said the U.S. saw a build of 9.3 million barrels of crude, and then the death blow, with the EIA on Wednesday reporting a 14.4 million barrel inventory build. For perspective, we’ve not seen a build of that size in over three decades.
We all know this excess inventory isn’t just going to evaporate overnight. And the facts are that Opec and Russia are producing oil and record levels, all the while holding meeting after meeting to discuss the prospect of “stabilizing the market”.
This week, at least, with three punches to the gut, the market’s hope is waning, and analysts are growing increasingly skeptical that a deal will ever be reached and are doubtful that the global glut will diminish anytime soon.
Accordingly, crude oil prices are down about 8 percent this week alone—a drop that probably has many an oil-dependent nation shaking in their boots. (City A.M)
6. ONE IN THREE VOLVOS TO BE MADE IN CHINA
In a move that underlines the rise of China as an automotive global power, Hakan Samuelsson, President and CEO of Volvo Car Group has confirmed that a third of Volvo’s target global production of 800,000 units annually will be sourced from one of three Chinese plants.
Since 2010 Volvo has been owned by Zheijiang Geely Holding Group, and the two partners have worked together on engineering and investing in a wider production baase for Volvo, traditionally linked to Sweden.
Unveiling two new versions of the flagship S90 saloon, Mr Samuelsson also announced that production of the S90 will soon end in Europe and henceforth be exclusively at their factory in Daqing in China. To further balance currency risk Volvo is building a new facility in the US, in South Carolina.
The next generation of the Volvo V40 will be made in Europe and at a new factory being constructed in Luqiao, south of Shanghai.
The new versions of the S90 very much reflect the tastes of China’s elite, the growth of which is establishing China as the largest market for premium brands in the world. The S90 “Excellence” has its front passenger seat removed to make way for a range of luxury and hi tech fitments, reminiscent of first class air travel, as well as affording the rear occupant a better view. Chauffeur travel is more common and more prestigious in China than in Western markets.
More conventionally, the S90 “L” features a longer wheel base than European versions, giving extra space for the boss classes in the back. This approach is commonplace for European designs making the transition to the Chinese market: Audi and Peugeot are just two of the other marques who have adapted existing designs in this way. (The Independent)
Investors sue over accounting scandals
Tesco is facing legal action from a group of 125 large investors who claim to have lost “well in excess of £100 million” as a result of the supermarket’s accounting scandal two years ago.
Bentham Europe, the firm fronting the action, said that institutional funds have filed the lawsuit in a bid to prove that Tesco “made misleading statements to the stock market that omitted material information and which were relied on by investors when making investment decisions”.
Tesco suspended eight directors and was investigated by the Financial Conduct Authority (FCA) and the Serious Fraud Office (SFO) after it was found to have inflated profits by £236 million in 2014. The figure was later revised up to £326 million.
The SFO has charged three former Tesco executives over the accounting scandal, alleging that Carl Rogberg, Chris Bush and John Scouler – the supermarket’s former finance chief, managing director and food commercial head – failed to correct inaccurately inflated income figures for the supermarket. The trio are expected to appear in court on May 30 for a plea hearing. (Business Insider)
Tesco customer bank accounts hacked
Thousands of Tesco Bank current account customers appear to have been targeted by fraudsters, with some saying they have lost hundreds of pounds.
Customers have complained about money being withdrawn without permission, cards being blocked and long delays to get through to the bank on the phone.
The bank said its anti-fraud systems had identified “suspicious activity” on some customer accounts.
It said the customers affected were in their “thousands but less than 10,000”.
By Sunday evening, Tesco Bank said it had spoken to the majority of those customers affected and any stolen money would be refunded from Monday onwards and “within 24 business hours”. (BBC News)
8. GOCOMPARE DEMERGER & FLOTATION
The market was thanking its lucky stars this morning after Gocompare.com (Goco) completed its spin-off from insurer Esure.
Despite a nervy IPO market that has seen a raft of withdrawals in recent weeks, the Goco demerger, first announced in September, went ahead as expected. Trading at 74.25p each, the float values the total shares issued in the price comparison site at £310m. Esure shares – which at that time included the value of Goco – closed trading yesterday at 265.8p.
Following the demerger, as expected, Esure’s share price fell to 194.44p. The movement of both indicates that the two companies combined have increased in value by around one per cent this morning.
Goco, which Esure purchased just two years ago, takes on £75m of debt that will cover demerger costs and provide enough cash to pay out a dividend to esure shareholders.
GoCompare.com shares listed on the London Stock Exchange this week after Esure shareholders voted in favour of a demerger last week.
The GoCompare.com listing followed Convatec’s initial public offering (IPO) on Monday.
Two investment trusts, social housing-focused Civitas and a Bellevue Asset Management vehicle targeting healthcare, are planning floats in the coming weeks.
But the floats come after a difficult October for the London flotation market, with Pure Gym, TI Fluid Systems and Misys all pulling IPOs after failing to find sufficient investor interest
9. BROADBAND ADVERT RULE CHANGES COME INTO EFFECT
New rules forcing broadband firms to be clearer in adverts on the costs of their contracts have come into effect.
Broadband suppliers will now have to show upfront and monthly costs, without separating out line rental prices, according to the changes brought in by the Advertising Standards Authority.
The rules were originally due to be implemented in May, but firms asked for more time to comply with the changes.
The ASA said customers were now much less likely to be misled.
The move comes after research by the ASA, conducted with regulator Ofcom last year, found that most users could not correctly calculate bills based on the information given in a selection of broadband ads.
People were “likely to be confused and misled” by price claims in the adverts, the ASA found.
To comply with the new rules, broadband providers will now have to:
- Show all-inclusive, upfront and monthly costs, with no separating out of line rental prices
- Give greater prominence to the contract length and any post-discount pricing
- Give greater prominence to upfront costs (BBC News)
10. WALKERS AND BIRDS EYE SET TO RAISE PRICES AS POUND WEAKENS
Walkers and Birds Eye are set to raise the prices of some items due to the falling strength of the pound.
The pound has fallen 18% against the US dollar since June’s UK Brexit vote.
Walkers, owned by US giant PepsiCo, says “the weakened value of the pound” is affecting the import cost of some of its materials.
Birds Eye, owned by New York-listed Nomad Foods, says its products are priced in dollars, so the pound’s fall means sterling costs have risen.
Walkers and Birds Eye want to increase the price they charge retailers for their products, but it will be up to the supermarkets whether or not to pass these onto consumers.
Last month, food giant Unilever raised the wholesale price of many household products after falls in the value of sterling increased the cost of products made outside the UK. (BBC News)