Category: Economy and Policy

PRAGUE, Feb 6 (Reuters) – Central European Media Enterprises (CME) on Wednesday reported a better-than-expected rise in fourth-quarter core profit and a drop in the broadcaster’s net leverage ratio.

Operating income before depreciation and amortisation (OIBDA) rose by 23 percent in constant rates to $90.7 million, beating market estimates of $85 million.

Revenue rose 3.2 percent to $228.3 million, boosted by rising TV ad spending.

“We believe growth in TV ad revenues in 2019 will be supplemented by a higher proportion of income from other sources,” co-Chief Executive Christoph Mainusch said.

CME, which operates television stations in five central and eastern European countries, said that it repaid $312 million in debt and related payables in 2018, lowering its net leverage ratio to 3.5-times from 5.4-times at the start of 2018.

The falling leverage ratio helps cut CME’s borrowing costs, as agreed in financing deals with its majority shareholder AT&T, which became the main owner after acquiring Time Warner.

Its average cost of borrowing declined by 250 basis points to 3.5 percent in 2018, CME said.

MOSCOW (Reuters) – Russia’s anti-monopoly service (FAS) said on Wednesday that various forms of cooperation were still possible with oilfield services giant Schlumberger despite the company’s bid for Eurasia Drilling Company falling apart.

Schlumberger said on Tuesday it would continue to look for ways to work in Russia’s onshore drilling market, a day after FAS announced that the firm had withdrawn its bid for a stake in EDC.

“The acquisition of a 49 percent stake is far from the only way (for cooperation)…other forms of cooperation are possible, the optimization of Schlumberger’s activity on the Russian market,” Andrei Tsyganov, FAS deputy head, told reporters.

He said Schlumberger’s bid had fallen apart because of U.S. sanctions.

TEL AVIV, Feb 6 (Reuters) – Israel Chemicals (ICL) on Wednesday reported lower fourth-quarter net profit even as revenue increased, weighed down by higher financing and tax expenses.

ICL earned an adjusted net profit of $124 million, compared with $135 million a year earlier. Sales rose 4 percent to $1.41 billion but excluding divestments, sales increased by 8 percent.

Higher prices for its products more than compensated for the negative impact of the depreciation of the euro and Chinese yuan against the dollar, ICL said.

The company declared a quarterly dividend of 4.8 cents a share, down from 5.1 cents in the third quarter. (Reporting by Tova Cohen Editing by Steven Scheer)

LONDON, Feb 6 (Reuters) – Britain’s opposition Labour Party would create a dedicated technology regulator to prevent market abuse and look at breaking up monopolies like Facebook.

Labour’s deputy leader, Tom Watson, will lay out the plans in a speech on Wednesday, which also include giving social media firms a broad legal duty of care to protect users. (Reporting by Alistair Smout; editing by Guy Faulconbridge)

* Toyota turns negative after it cuts annual net profit outlook

* Market little moved from State of the Union address

* Shiseido soars after Estée Lauder’s brisk quarterly results

* Sega Sammy dives after expecting annual net loss

By Ayai Tomisawa

TOKYO, Feb 6 (Reuters) – Japan’s Nikkei edged up on Wednesday with markets barely reacting to U.S. President Donald Trump’s State of the Union address, while attention remained on corporate earnings.

Toyota Motor Corp slipped into negative territory after the automaker cut its annual net profit outlook during afternoon trade. The stock ended 0.7 percent lower.

The Nikkei share average rose 0.1 percent to 20,874.06.

In an 82-minute speech that began at 0200 GMT, Trump said he wanted a U.S. immigration system that was “safe, lawful, modern and secure” as he continued to seek funding for a border wall rejected by Democrats.

The market had focused on whether there would be specific comments on U.S.-China trade deals. From China to Venezuela to Afghanistan, Trump devoted a large section of his speech to foreign policy, saying a trade deal was possible with China if Beijing agrees to “real structural change.”

“Since his reference to the trade dispute lacked details, investors found it difficult to take positions,” said Yoshinori Shigemi, a global market strategist at JPMorgan Asset Management. “They traded passively as they wanted to see how U.S. shares will react to the speech later in the day.

Shiseido Co, Japan’s biggest cosmetics maker, surged 4.6 percent and added a hefty 11 positive points to the Nikkei, after cosmetics maker Estée Lauder Cos Inc reported strong quarterly results, driven by robust growth in China.

Since Shiseido has a big exposure to the Chinese market, the U.S. cosmetics maker’s earnings bode well for Shiseido, traders said. Other cosmetics makers followed suit, with Kose soaring 3.5 percent and Fancl Corp gaining 2.4 percent.

On the other hand, NTT Data stumbled 9.2 percent and took off 22 points from the Nikkei after it said it would launch a tender offer for Netyear Group for 850 yen per share. Netyear jumped 19 percent to a daily limit high of 496 yen.

Suzuki Motor shed 4.3 percent after its operating profit for the October-December quarter dropped 33 percent.

Sega Sammy Holdings dived 12 percent after the company said it expected a net loss of 1.5 billion yen for the year ending March, compared with a previous forecast of 12 billion yen ($109.34 million) in net profit.

The broader Topix declined 0.1 percent to 1,582.13. ($1 = 109.7500 yen) (Editing by Jacqueline Wong)

WOLFSBURG, Germany (Reuters) – If Volkswagen realizes its ambition of becoming the global leader in electric cars, it will be thanks to a radical and risky bet born out of the biggest calamity in its history.

The German giant has staked its future, to the tune of 80 billion euros ($91 billion), on being able to profitably mass-produce electric vehicles – a feat no carmaker has come close to achieving.

So far mainstream automakers’ electric plans have had one main goal: to protect profits gleaned from high-margin conventional cars by adding enough zero-emission vehicles to their fleet to meet clean-air rules.

Customers have meanwhile largely shunned electric vehicles because they are too expensive, can be inconvenient to charge and lack range.

The biggest strategy shift in Volkswagen’s 80 years has its roots in a weekend crisis meeting at the Rothehof guesthouse in Wolfsburg on October 10, 2015, senior executives told Reuters.

At the meeting hosted by then VW brand chief Herbert Diess, nine top managers gathered on a cloudy Saturday afternoon to discuss the way forward after regulators blew the whistle on the company’s emissions cheating, a scandal that cost it more than 27 billion euros in fines and tainted its name.

“It was an intense discussion, so was the realization that this could be an opportunity, if we jump far enough,” said Juergen Stackmann, VW brand’s board member for sales.

“It was an initial planning session to do more than just play with the idea of electric cars,” he told Reuters. “We asked ourselves: what is our vision for the future of the brand? Everything that you see today is connected to this.”

Just three days after the Rothehof meeting of the VW brand’s management board, Volkswagen announced plans to develop an electric vehicle platform, codenamed MEB, paving the way for mass production of an affordable electric car.

For months after the Volkswagen scandal blew up in 2015, rival carmakers treated diesel-cheating as a “VW issue”, according to industry experts. But regulators have since uncovered excessive emissions across the sector and unleashed a clampdown that undermines the business case for combustion engines, forcing a sector-wide rethink.

Now the “villain” of dieselgate is likely to become the largest producer of electric cars in the world in coming years, analysts say, putting it in pole position to flood the market – should the demand materialize.

“Decisions to convert the Emden factory (in Lower Saxony) to build electric cars, would never have happened without this Saturday meeting,” said Stackmann, one of five senior VW executives who spoke to Reuters.

However the full scale of VW’s ambitions were only revealed two months ago when it took the industry by surprise by pledging to spend 80 billion euros to develop electric vehicles and buy batteries, dwarfing the investment of rivals.

It plans to raise annual production of electric cars to 3 million by 2025, from 40,000 in 2018.

STRATEGIC PERILS

It’s a risky bet.

With regulators and lawmakers, rather than customers, dictating what kind of vehicles can hit the road, analysts at Deloitte say the industry could produce 14 million electric cars for which there is no consumer demand.

It’s also an all-or-nothing bet in the long run.

VW, whose ID electric car will hit showrooms in 2020, has set a deadline for ending mass production of combustion engines. The final generation of gasoline and diesel engines will be developed by 2026.

Arndt Ellinghorst, analyst at Evercore ISI, said betting on electric vehicles (EVs) could be risky because customers did not want to own cars dependent on street-charging facilities.

“What if people are still not ready to own EVs? Will adoption be the same in the U.S., Europe and China?” he said.

But he added that EU and Chinese emissions regulations made electric vehicle adoption inevitable and that being an early industry mover in that direction offered a “positive risk-reward”.

Another by-product of dieselgate that quickened VW’s electric drive, according to the senior executives, was a purge of the company’s old guard, who became the focus of public and political anger.

This empowered Diess, a newcomer who had joined as VW brand boss shortly before U.S. regulators exposed the carmaker’s emission test cheating.

Diess, who joined from BMW where he helped pioneer a ground-breaking electric vehicle, has since been appointed CEO of Volkswagen Group, a multi-brand empire that includes Audi, Porsche, Bentley, Seat, Skoda, Lamborghini and Ducati.

Carmakers have failed to mass-produce electric cars profitably largely because of the prohibitive cost of battery packs which make up between 30 percent and 50 percent of the cost of an electric vehicle.

A 500 km-range battery costs around $20,000, compared with a gasoline engine that costs around $5,000. Add to that another $2,000 for the electric motor and inverter, and the gap is even wider.

Even electric start-up Tesla’s cheapest car, the Model 3, is on sale in Germany at 55,400 euros, priced just below a base model Porsche Macan, a compact SUV. In the United States, Model 3 prices start at $35,950.

VW believes its scale will give it an edge to build an electric vehicle costing no more than its current Golf model, about 20,000 euros, using its procurement clout as the world’s largest car and truck maker to drive down the cost.

“We are Volkswagen, a brand for the people. For electric cars we need economies of scale. And VW, more than any other carmaker, can take advantage of this,” a senior Volkswagen executive told Reuters, declining to be named.

The carmaker’s electric-vehicle budget outstrips that of its closest competitor, Germany’s Daimler, which has committed $42 billion. General Motors, the No.1 U.S. automaker, has said it plans to spend a combined $8 billion on electric and self-driving vehicles.

Renault-Nissan-Mitsubishi said in late 2017 they would spend 10 billion euros by 2022 on developing electric and autonomous cars.

“On a 2025 view, we expect Volkswagen to be the number one electric vehicles producer globally,” UBS analyst Patrick Hummel said. “Tesla is likely to remain a niche player.”

STRICTER TESTING

VW’s test cheating using engine management software – “defeat devices” – resulted in the introduction of tougher pollution tests which revealed in 2016 and 2017 that emissions readings across the industry were up to 20 percent higher under real-world driving conditions compared with lab conditions.

This has raised the bar on the auto sector’s efforts to cut emissions of carbon dioxide, blamed for causing global warming.

EU lawmakers in December agreed a cut in carbon dioxide emissions from cars of 37.5 percent by 2030 compared with 2021 levels. This was after the European Union forced a 40 percent cut in emissions between 2007 and 2021.

“This goal is no longer reachable using combustion engines alone,” Volkmar Denner, chief executive of Bosch, the world’s biggest auto supplier, said about the 2030 proposals.

Every gram of excessive carbon dioxide pollution will be penalized with a 95 euros fine from this year onwards.

Strategy firm PA Consulting forecasts VW will face a 1.4-billion-euro penalty for overstepping average limits in Europe by 2021, while Ford and Fiat-Chrysler face fines of 430 million euros and 700 million euros respectively.

Daimler, BMW, PSA, Mazda and Hyundai will miss their 2021 average emissions targets, PA Consulting forecasts. Toyota, Renault-Nissan-Mitsubishi, Volvo, Honda and Jaguar Land Rover are on track to meet their goals.

PA Consulting’s forecasts were extrapolated using 2017 registration data for each powertrain type and consumer buying trends, but do not include more recent sales trends.

Ford, VW and BMW said they would meet their targets because of a push to sell more hybrid and electric cars in 2018. Daimler said it aimed to meet the targets, PSA said it would respect the targets while Fiat-Chrysler declined to comment. Mazda had no immediate comment, while Hyundai did not respond to a request for comment.

Carmakers have struggled to lower their average fleet emissions because of a shift in customer taste toward heavier, bigger SUVs (sports utility vehicles), which make it harder to maintain the same levels of acceleration and comfort without increasing fuel consumption and pollution.

SUVs are now the most popular vehicle category in Europe, commanding a market share of 34.6 percent, according to JATO Dynamics. Even Porsche, which makes lightweight sportscars, relies on sports utility vehicles for 61 percent of sales.

As the industry-wide scale of excessive emissions prompted Brussels to push through tougher laws late last year, VW executives concluded that purely electric cars were the most efficient way to meet carbon dioxide goals across its fleet.

This was the point of no return, according to executives, when the company made the final electric investment decisions and committed to staying the course it had plotted after dieselgate.

“After evaluating alternatives, we opted for electromobility,” chief operating officer Ralf Brandstaetter told Reuters about VW’s deliberations in November.

CAPE TOWN (Reuters) – The response to the horrendous dam collapse at a mine owned by Brazil’s Vale has focused on iron ore prices and how a disaster that will likely claim more than 300 lives occurred, and what must be done to make sure this doesn’t happen again.

These are valid concerns, but the risk of focusing on the immediate issues is that the much larger problems of the mining industry are once again glossed over. Namely that miners aren’t trusted and suffer from a serious image problem.

It may seem somewhat trivial to talk about image in the face of such a human tragedy, but mining’s poor image across a range of stakeholders is the major issue for the industry.

If mining has a poor safety and community image, it becomes “uninvestable”, to use the words of a senior global banker, talking at the 121 Mining Investment event in Cape Town this week, held under Chatham House rules.

If investors don’t want to commit funds to the industry because of fear over damage to their own image from poor mining practices, then the industry will be starved of capital.

Lack of capital means it becomes harder and harder to get new mines built or exploration drilling undertaken. There is also the risk of a cascade of negative outcomes for mining.

If major banks and pension funds make it clear they are withdrawing from investing in mining companies, it’s likely share prices will suffer, leading other investors to withdraw funds, even if they don’t have quite the same moral qualms.

It goes further than just losing sources of capital, with mining companies already struggling to attract younger workers.

A common theme at the Investing in African Mining Indaba, a second event in Cape Town this week and one of the biggest such conferences worldwide, was a lament from company executives that members of the millennial generation – roughly in their early 20s to mid-30s – show little interest in mining, preferring more trendy industries, such as technology and digital solutions.

The fact that mining is increasingly turning to digital applications and that mines of the future will bear little resemblance to current operations is not resonating with younger workers, largely because of the industry’s image, rather than its substance.

RESOURCE NATIONALISM

Mining companies also have a global image problem, with many increasingly nationalistic governments wanting to extract more value from their mineral resources.

Mining companies push back against higher royalties, or other forms of contribution such as underwriting new infrastructure, largely because they boost costs and cut profits.

But by becoming unpopular in countries where they operate, longer term costs may be ultimately higher for mining companies.

Mining runs the risk of suffering what happened to the oil industry, where international majors went from a dominant position to one where state companies produce the bulk of crude.

The mining industry appears to be increasingly aware of its image problem, with speakers at both the 121 Mining and Mining Indaba events referring repeatedly to the concept of their “license to operate”, a term that includes working with local communities, governments and consumers of their products.

Miners are keen to brand themselves as part of the green energy revolution, since mining provides the metals and energy needed to make the renewable technologies that aim to replace the burning of fossil fuels.

But the problem for miners is convincing an increasingly skeptical public of how necessary their industry is.

Part of this is that the greener part of mining is still struggling to disassociate itself from the dirty part. In other words, lithium, cobalt and copper miners still get lumped alongside coal miners.

Iron ore miners now are at risk of moving into the space occupied by coal, as public distrust and distaste will be ramped up after the tailings dam collapse at Vale’s Corrego do Feijao mine.

The industry needs to do more than just recognize its image problems, it needs chief executives to make presenting and promoting a better picture their top priority, not just something they pay lip service to before handing off to junior, under-resourced public relations teams.

TOKYO/SYDNEY (Reuters) – Asian shares were subdued on Wednesday after U.S. President Donald Trump’s State of the Union address failed to give markets fresh trading catalysts, while the Australian dollar nosedived after the central bank opened the door to a possible rate cut.

Spread-betters expect London’s FTSE and Frankfurt’s DAX to respectively drop 0.2 percent and 0.1 percent when they open, while seeing a slightly larger fall for Paris’s CAC.

MSCI’s broadest index of Asia-Pacific shares outside Japan was barely changed with China and several other markets in the region still closed for the Lunar New Year holiday. The range in which the index traded was limited to just 0.80 points, the narrowest since Dec. 25 last year.

Australian shares gained 0.3 percent, rising for the third session, while Japan’s Nikkei closed up 0.1 percent. E-Mini futures for the S&P 500 last were a tad higher.

The Australian dollar shed nearly 1.3 percent to hit a one week low of $0.71435, putting it on course for its biggest intraday drop in more than five months.

The sharp selloff in the Aussie came after Reserve Bank of Australia (RBA) Governor Philip Lowe said the bank remained optimistic about the local economic outlook but acknowledged rates might fall if unemployment were to rise and inflation stay too low.

“Over the past year, the next-move-is-up scenarios were more likely than the next-move-is-down scenarios. Today, the probabilities appear to be more evenly balanced,” he said in a speech in Sydney.

Chris Weston, Melbourne-based head of research at foreign exchange brokerage Pepperstone, said the comments show the RBA will react when it needs to though the bar to cutting rates continued to be quite high.

“I think he (Lowe) has opened the door to a degree. A lot of people in the market do see the fragility that’s coming through in quite a lot of parts of the Australian economy,” he said.

U.S. STATE OF THE UNION

Trump vowed in his State of the Union speech on Tuesday to build a border wall that is a source of a deep partisan divide and said Democratic attempts at “ridiculous partisan investigations” could damage U.S. prosperity.

Trump used part of his address to offer a spirit of compromise, particularly in areas such as lowering the price of prescription drugs and funding a $1 trillion upgrade in U.S. roads, bridges and other infrastructure.

Some investors were hoping Trump would offer evidence of real, concrete progress in the U.S.-China trade negotiations, said Nick Twidale, chief operating officer at Rakuten Securities in Sydney.

“The market had much more hopes that he would come up with something more concrete. We didn’t really get it,” Twidale said.

“We got a lot of positive rhetoric — a lot of backslapping, or self-backslapping if you like. Because of that, we just had a really subdued reaction.”

Senior U.S. and Chinese officials are poised to start another round of trade talks in Beijing next week to push for a deal on American intellectual property and avert a March 2 increase in U.S. tariffs on Chinese goods, two people familiar with the plans said on Tuesday.

Dow Jones reported earlier that the talks next week would be led by U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steve Mnuchin, citing an unidentified senior administration official.

Wall Street had already racked up gains courtesy of strong corporate results from Europe and the U.S., including a blockbuster from Estée Lauder Cos Inc. [.N]

The Dow ended Tuesday up 0.68 percent, while the S&P 500 gained 0.47 percent and the Nasdaq 0.74 percent.

Treasury bonds also bounced, helped by data showing a surprisingly soft U.S. service sector index of 56.7, with new orders falling to a one-year low.

A LENGTHY PAUSE

The Federal Reserve should leave interest rates where they are until the U.S. economic outlook is clearer, Dallas Fed President Robert Kaplan said on Tuesday, a process that could take several more months.

The dollar held up well thanks in part to a retreat in sterling, which hit a two-week low at $1.2923 in early trade after poor survey data and uncertainty about Brexit talks pushed it below a key market level. Sterling has come off about 2 percent from its 2019 high of $1.3218. [GBP/]

Against a basket of currencies, the dollar was firm at 96.110 and well above last week’s low of 95.162. It fell 0.2 percent on the yen to 109.76.

The euro slipped to $1.1394 after a survey showed on Tuesday that euro zone businesses expanded at their slowest pace since mid-2013 at the start of the year.

In commodity markets, the Wall Street Journal reported Saudi Arabia and its Persian Gulf allies were proposing a formal partnership with a 10-nation group led by Russia to try to manage the global oil market, an alliance that could transform the cartel.

U.S. crude futures edged up 7 cents to $53.73. Brent was also up 7 cents at $62.05.

Spot gold was a shade lower at $1,314.30 per ounce, about 0.9 percent short of its recent peak at $1,326.30.

Feb 6 (Reuters) – The following are the top stories in the Wall Street Journal. Reuters has not verified these stories and does not vouch for their accuracy.

– Apple Inc said on Tuesday that its retail chief Angela Ahrendts is leaving the company and will be succeeded by longtime operations executive Deirdre O’Brien, a move that comes as the company wrestles with flagging iPhone sales. on.wsj.com/2SbRHFf

– Saks Fifth Avenue on Tuesday unveiled at its Fifth Avenue flagship store a remodeled ground floor that includes a handbag emporium featuring 50 brands. on.wsj.com/2Si6JcQ

– Baylor Scott & White Health in Dallas and Memorial Hermann Health System in Houston called off their planned merger on Tuesday, the latest combination to get scuttled in the rapidly-consolidating sector. on.wsj.com/2ScaCji

– China Global Television Network has registered as a foreign agent under orders from the Justice Department, a public filing shows, as the Trump administration takes a harder line on Chinese government-led activities in the U.S. on.wsj.com/2SeHN5S

– Goldman Sachs Group Inc is planning to cut back its commodities-trading arm, once a huge moneymaker and training ground for a generation of executives including former chief Lloyd Blankfein. on.wsj.com/2ScwVWe

– Blackstone Group LP, the world’s largest private-equity firm, has pulled back on a plan to invest billions of dollars across Africa, the latest U.S. investor to temper its ambitions on the continent. on.wsj.com/2SfATNN

TOKYO (Reuters) – Japan’s SoftBank Group Corp reported a 60 percent rise in quarterly operating profit on Wednesday, buoyed by rising valuations of its technology investments.

SoftBank’s operating profit in the October-December quarter was 438.3 billion yen ($3.99 billion) versus 274 billion yen a year earlier. The year-earlier figure used previous accounting standards.

The result compares with a 225 billion yen average estimate of three analysts polled by Refinitiv that gives a higher weighting to top-rated analysts.

The technology and telecoms conglomerate did not release a forecast for the current business year, saying there were too many uncertain factors.