Top 10 Stories of Last Week! 23/07/2018

This week’s news includes; Social Media stock struggles, Trump’s tariffs taking its toll on business, KitKat Trademark trouble and Quorn invests in vegan R&D

Below are our top 10 stories that you need to know about. Be sure to check our twitter page and Facebook page for regular posts of important headlines. Get all the important stories and insights straight into your inbox by subscribing to our mailing list here.

Opinion articles of the week:

  • The Independent “Why you’ll soon be paying for everything with your finger and face”
  • Bloomberg Why Instagram is so important to Facebook
  • Legal Cheek Owens v Owens: Has the time finally come for a ‘no-fault divorce’ system?

1. SOCIAL MEDIA STOCK STRUGGLES

Both Facebook and Twitter saw a fifth of their value lost in under 24 hours last week as user growth concerns linger.

Facebook

Facebook recorded the biggest single day decline in US stock market history last week. Facebook has enjoyed rapid and consistent user growth since its IPO in 2012. Last week however, it revealed that user growth had fallen short of estimates. This news led to as much as a 23% fall in Facebook’s share price, wiping $119.4 billion off the company’s value. Mark Zuckerberg lost $16.8 billion of personal wealth in this time.

Increased spending further exacerbated the stock market rout. Facebook highlighted that spending would be higher than profit growth over the next 18 months so overall profits will be greatly reduced. After the Cambridge Analytica scandal, Facebook has been trying to reinvent its image. Facebook has invested billions in fighting fake news and monitoring the content on its platform. This includes increasing its employee numbers by 47% in the past year alone.

With all this adaptation come significant costs. Financial forecasts for the tech giant are relatively weak for the next 18 months. Facebook is still however, making huge profits. It posted a 31% increase in profits to $5.1 billion in the first 3 months of 2018. With this level profit growth, Facebook is hardly in crisis at the moment. User growth however, is relatively flat. Investors are concerned that this period of remarkable growth in users and financials is coming to an end. If so, Facebook will have better monetize their existing users rather than focusing on adding new users.

Twitter

Twitter also saw an 18% decline in its value after posting declining monthly active users. This was the 2nd worst trading day in Twitter’s history. Monthly active users fell by 1 million to 336 million users, falling short of estimates. The company says it is focused on improving the platform rather than user growth and this spooked investors. It deleted over 70 million fake accounts between May and June and is working on improving privacy protection. Despite the falling user growth, Twitter’s revenue grew up 24% throughout the year to $711 million. (Yahoo)

2. TRUMP’S TARIFFS TAKING ITS TOLL ON BUSINESS

Only a few months have passed since the beginning of the US-China trade war but its beginning to have an adverse effect on businesses.

Last week, the US announced it would be issuing $12 billion worth of subsidies to farmers. Countries have imposed retaliatory tariffs on US produce and it is hitting farmers hard. 20% of income for the agricultural sector comes from exports and prices are falling. Since April, US soybean prices have fallen 15% due to lack of demand from China, a major importer. (BBC News)

Home goods manufacturer Whirpool has revealed a steep decline in earnings due to increased costs of steel. The company posted revenue of $5.14 billion, over $150 million short of estimates. The markets responded negatively and this led to Whirpool’s worst trading day since Black Monday in 1987, with shares falling 14.5%. The company had been in favour of stricter controls due to the dumping of Chinese metals. The impact of tariffs however, is starting to hurt business.

Whirpool and other manufacturers have been heavily impacted by the tariffs as it has increased their raw material costs. Suppliers now pass the tariff costs onto the manufacturers. Ultimately, either the company absorbs the costs or simply passes them on to consumers. (CNBC)

These consequences were expected by many and the tariffs are considered counterintuitive. Any extra revenue generated from these tariffs are likely to be immediately redistributed to US industries reeling from the tariffs. From a political perspective, the tariffs do send a strong message condemning the current state of international trade. From an economic perspective however, the costs of these tariffs are likely to be exceeded by the gains.

3. KITKAT TRADEMARK TROUBLE

If it looks like a KitKat, smells like a KitKat, tastes like a KitKat…it may not be a KitKat.

Nestle has lost a crucial trademark case preventing it from legally protecting its 4 finger bar design. The European Court of Justice annulled the Europeans trademark courts judgement that was in favour of Nestle. The ECJ ruled that the shape was not recognisable in all EU member states so it could not be trademarked under EU law. It has now urged the European trademark court to reconsider its decision to award the trademark.

Nestle argued that the standard for trademark was impossible to reach in practice but its design was reasonably familiar in most member states.
In 2002, Nestle applied to trademark its bar design. The legal battle has continued between Nestle and its competitors ever since. Mondelez and Cadbury have both launched legal challenges and the courts have swayed from side to side. If the European trademark court follows the ECJ’s ruling, Nestle loses the case…for now. Nestle can appeal but must bring forward stronger evidence that the trademark is recognisable in all member states. (The Guardian)

4. PUBLIC SECTOR PAY RISE

Public sector workers are set to receive the biggest pay rise in nearly 10 years. The government has announced a 2% rise for all public sector employees. This increase is still however 0.4% below inflation which means it is still a pay cut in real terms. Roughly one million workers are set to benefit from the increment including soldiers, teachers and doctors.

With this increase however, the devil is in the detail. The government claims that this money will come from departmental underspends. In reality, it means further cuts/savings need to be made by the individual departments despite many public services already being heavily overstretched.

In spite of this, the move puts an end to years of stagnant wage growth for the public sector.
Since 2010, workers whose wages were above £21,000 had their wages capped. This was one of the much criticised measures of austerity. While this 2% increase won’t have a huge material, benefit for our public sector workers, it may mark the beginning of better times to come.  (BBC News)

5. BULLRING OWNER SELLS £1 BILLION OF PROPERTIES

Hammerson has announced that it will sell £1.1 billion worth of its retail parks to focus on “flagship retail destinations”. The company is seeking to reduce its exposure to struggling department stores after increasing pressure from investors. In Hammerson outlets, department store space will be cut by roughly 25% and retail fashion will be cut by 20%. The company recognise the crisis in the retail sector and doesn’t want to find itself out of pocket if the crisis worsens. Hammerson’s rental income is already down by 3% in the first half of 2018. House of Fraser, one of the UK’s largest department stores has announced it will be closing nearly half of all stores.

Hammerson has been seeking to expand but two failed mergers this year alone has shareholder concerns increasing. Earlier this year, Hammerson rejected a £5 billion takeover bid from Klepierre and abandoned its own £3.4 billion acquisition bid for Intu. Despite this, the company posted a 0.5% rise in profits in the first six months of 2018.

The Guardian explores some of the changes Hammerson is making to adapt to the challenging retail environment.

6. QUORN INVESTS IN VEGAN R&D

Quorn has announced that it will be investing £7 million into research and development. The company is seeking to keep up with competition in light of the recent surge in veganism.

Quorn produces vegetarian products but most of its food contains some egg. It is now looking to develop alternative wholly plant based products. Quorn will hire over 100 new staff at its R&D facility in North Yorkshire.

In spite of the fall in the value of the pound after the Brexit vote, Quorn is on the rise. UK sales rose by 12% to £112 million. The company is aiming to reach revenue of $1 billion by 2027 and new vegan products could certainly help them get there. (The Guardian)

7. GENDER STEREOTYPING ADVERTS BANNED UNDER NEW RULES

From next year, strict new advertising rules will be introduced banning gender stereotyping adverts. The rules follow guidance from The Advertising Standard Authority (ASA) which highlights the potential harm caused by gender stereotyping in advertising.

The new rules take a tougher link on ads perpetuating stereotypical gender roles. Ads that suggest activities are not suitable for one sex because they are typically associated with the other are likely to be barred under the rules. This will not prevent ads from showing women doing housekeeping activities or men doing DIY tasks. Adverts considered to body-shame will also be barred.

Advocates argue that stereotyping in adverts perpetuate negative typical gender roles and can subconsciously restrict individuals from engaging in certain activities.  The new rules will seek to block these ads. The guidelines will be finalised later this year by the Committee of Advertising Practice.

8. MONEY LAUNDERING AND CYBER CRIME

Money laundering reports involving law firms are up 67%. There have been 60 cases in the first 3 months of the SRA, compared to 36 two years ago.

The Solicitor Regulation Authority (SRA) has received reports of cyber crime are up 50% and there have been £47.5 million in losses due to fraudulent investment schemes. Email modification fraud accounted for 70% of all reported cyber crimes.

Fraud and cyber crime is a serious threat to even the largest law firms. Cyber criminals have stolen £20 million worth of client money over the past two years alone. Even DLA Piper’s systems were disrupted by a malware attack in 2017.  (City A.M)

9. BARCLAYS CREATES GLASGOW TECH HUB

Barclays has announced that it will be creating a new tech hub in Glasgow. The new campus will create 2,500 new jobs and will make Barclays one of Glasgow’s largest employers. The hub will be key in its strategic objectives and will host operations, functions and technology teams.

Scottish Enterprise has provided £12.75m of funding for the project. The funding agreement requires at least 42% of new jobs to be high value. Over 341 jobs must be for disabled or disadvantaged workers. (The Guardian)

10. STONEGATE PUB ACQUISITION

Stonegate Pub Company has acquired Be At One cocktail bars for £50 million. This marks another big acquisition in its ever expanding portfolio.

Stonegate Pub Company has a strong appetite for mergers. After it decided against a floatation, it set its sights on consolidation. The company manages 700 sites across the UK. It owns, the Slug and Lettuce, Walkabout and Yates brands. The company tried to acquire Revolution bars last year but the target refused to sell.

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