Facebook tax loophole continues
Facebook (NASDAQ: FB) have released their latest UK accounts, showing revenues of £1.65 billion on the back of strong marketing and advertising growth.
The social media firm showed huge profit growth in excess of 54% with recognized sales of £797 million. Whilst pretax profit rose more than 50% from £63 million to £97 million.
Facebook UK in a statement said that net revenue from advertisers rose 50% meaning that 12% of sales were converted into profit.
This follows the latest US Multinational Corporation to avoid paying taxes using legal loopholes.
Amazon (NASDAQ: AMZN), Starbucks (NASDAQ: SBUX) and Vodafone (LON: VOD) have all been found guilty.
The social media titan, founded my Mark Zuckerberg has had a history of using legalities to avoid paying taxes they owe.
The fragile tax system involving payment by Multinational Corporations meant that the Treasury only received £28 million in corporation tax
Steve Hatch, the Facebook Vice President for Northern Europe said “Businesses across the country use our platforms to grow and revenue from customers supported by our UK teams is now recorded here so that any taxable profit is subject to UK corporation tax”
He added ““The UK is now one of Facebook’s most important hubs for global innovation. We continue to grow and invest heavily in the UK and by the end of the year we’ll employ 3,000 people here. These high-skilled jobs are not only working on products like WhatsApp and Workplace but also help develop technology to proactively detect and remove malicious content from our platforms.”
Facebook have backed up their bold revenue figures, with investment into Europe and somewhat into the UK.
The UK division of Facebook spent £356m on research, development and engineering in the UK last year.
With Hatch saying “Businesses across the country use our platforms to grow and revenue from customers supported by our UK teams is now recorded here so that any taxable profit is subject to UK corporation tax.”
Since the rise of Multinational Tax Avoidance, the Organization for Economic Development (OECD) have looked to impose tighter regulations so firms pay their legal duties.
Standard need to be met where both UK and overseas firms have consistent tax laws.
Giles Derrington, TechUK’s policy chief said “UK-based tech firms could actually end up paying more tax than their international competitors’ with Just Eat, Rightmove, MoneySuperMarket and Match.com named as possible victims if their sales continue to grow.”
However, it seems that once again Facebook have tricked the system. The UK Tax system will need tighter controls to ensure that companies such as Starbucks, Amazon and Facebook do not get away with this.
US China negotiations gain momentum
The trade war and tense political conditions between the US and China have taken another turn. As negotiations unfolded in Washington, talks seem to have taken a positive spin.
A Chinese newspaper reported that a potential trade and currency deal would benefit both parties.
Trump described the state of negotiations “I think it’s going really well. I will say, I think it’s going really well. So we had a very, very good negotiation with China. They’ll be speaking a little bit later, but they’re basically wrapping it up”
Chinese advisors took the chance to advise Washington to accept the proposes suggested by Liu He so that both parties could agree a mutually beneficial pact.
The everlasting trade war has led to a battle of economic and political sanctions, derived from both parties lasting more than 15 months
Liu described the approach “The Chinese side came with great sincerity, willing to cooperate with the US on the trade balance, market access and investor protection,”
China evidently are keen to end this never ending saga, as any further sanctions would derail China’s near term growth prospects.
The negotiations have come timely for China, as the United States was set to increase tariffs on Chinese Imports by $250 million at a rate of 30%, an increase by 5% from October 2015.
The tariff war has had adverse effects on the global market as well as foreign exchange rates. Investor confidence has died, as well as heavy downward pressure on growth has become a product of this feud.
Myron Brilliant, head of international affairs at the US Chamber of Commerce said “Both sides have been losing, and so has the global economy. We all know we can’t afford a further escalation of the trade war”
Reports direct from Washington suggested that a mini deal could be on the table but the US President insisted that “he would not be satisfied with a partial deal to resolve his two-year effort to change China’s trade, intellectual property and industrial policy practices, which he argues cost millions of U.S. jobs.”
Ken Bernan founder of Gorilla Trades said ““Even a partial deal could be a huge boost for stocks, especially following this week’s scary headlines”
Since negotiations commenced on Thursday in Washington, equity markets have been boosted by renewed optimism for the two superpowers to strike a deal.
The Dow Jones Industrial Average (INDEXDJX: .DJI) has climbed 0.681% since Thursday along with S&P500 Index (INDEXSP: .INX) rose by 19.58 points to reach 2,938.13.
After the indicator that China was open to a limited tariff resolution with the US combined with a report that China offered to increase purchases of US Agricultural Products by 50%, this formed factors driving the stock market.
Kim Forrest, founder and chief investment officer at Bokeh Capital Management said “talks have been contentious but both sides absolutely know something needs to be done. Semiconductor stocks were up sharply Wednesday, she pointed out, on investor optimism not just about a trade truce, but also better conditions for businesses”
In the final minutes of the trading day, stocks received a late boost following a report saying that Beijing had lowered expectations for significant progress.
Notably after this statement, the iShares PHLX (NASDAQ: SOXX) and the S&P500 futures (INDEXSP: .INX) rose after trader optimism.
Stock futures received positive boosts along with this. Big tech firms such as Facebook (NASDAQ: FB) and Apple (NASDAQ: AAPL) received 1% increases in the premarket. Notably, bank stocks also gained value as JP Morgan (NYSEARCA: AMJ) and Bank of America (NYSE: BAC) also rose by 1%.
It would seem globally beneficial if both superpowers can strike up an agreement to end the war of tariffs and quotas.
However, looking at the recent rhetoric of Donald Trump it would not be a surprise if talks fell through and the US titan allowed this economic war to continue.
Hurricane Energy exceeds expectations after 6 month reports
Today, Barclays (LON: BARC) have upgraded their investment rating on Hurricane Energy Plc (LON: HUR) after outperformance and growth. Additionally Barclays cut their target price for Hurricane from 75p to 55p.
Despite a challenging period for for European Energy firms, Barclays seem optimistic after 6 month trading figures were released by upgrading Hurricane to ‘overweight’.
Hurricane Energy Plc focus on on hydrocarbon resources in naturally occurring basement reservoirs boasting a market cap of £802.46 million.
Dr Robert Trice, Chief Executive of Hurricane commented “I am delighted to announce our half year results for 2019, Hurricane’s first financials to include revenue. The Lancaster Early Production System is the first phase of development of our significant Rona Ridge assets. Achieving first oil on schedule and on budget is a remarkable achievement and a huge credit to our operating team, our partners and contractors. Since first oil, Hurricane has sold over 1.6 million barrels of oil across four cargoes and Lancaster has been producing at an average of 14,100 barrels of oil per day. The operating cash flow that the EPS is delivering provides Hurricane with greater control of our future as we seek to deliver growth in reserves and production across all of our Rona Ridge assets. Whilst the financial security gained from production is crucial, the ultimate goal of the Lancaster Early Production System is to improve our understanding of the reservoir to aid planning of future phases of development of Hurricane’s significant Rona Ridge resource. Throughout the start-up phase and following first oil, the reservoir has performed at the higher end of expectations. However, we remain cognisant that it will take at least six months of steady state production before we are able to evaluate the validity of our reservoir model.
Barclays have also changed their outlook on this sector, as they changed the status from ‘neutral’ to ‘positive’ despite Brexit clouding the UK economic vision
Barclays predictions estimate that crude prices will continue to increase to around $60 per barrel.
As quoted in the 2019 Half year results published on Hurricane Energy Plc “The Group recognized revenue for the first time relating to a single cargo of crude oil that was sold in the period. This resulted in the Group recording an operating profit of $1.2 million (H1 2018: operating loss of $4.7 million)’
Hurricane’s shares dipped at the end of May due to disappointing results at the Warwick Well, however both traders and shareholders must be pleased with the first recognized revenue as outlined.
During trading on Friday, share prices increase by 2.6% which shows positive results, positive media image and potential for traders to leap on this change.
One additional benefit of Hurricane Energy Plc is that they do not rely on rising oil prices to support investment chances or increase its share price.
This presents a positive outlook for both Hurricane Energy Plc and shareholders as profits are set to rise.
In the energy sector there have also been updates to IGAS Energy PLC (LON: IGAS) and Cabot Energy PLC (LON: CAB).
Oil prices rise after Iran Oil Tanker Explosion
In Tehran this morning, an explosion damaged an Iranian Oil Tanker traveling through the Red Sea sending oil prices higher by 2%.
The attack had the effect of shifting Brent Oil and West Texas Intermediate crude futures by more than $1 per barrel.
Iran’s state media reported that these vessel was owned by the National Iranian Oil Company.
The Sabiti which caught fire and subsequently exploded leaked oil after it was struck 60km from the port of Jeddah. A few hours after the attack, the leak has been controlled.
This attack follows a long string of political tensions between Saudi Arabia and Iran. This attack is likely to heighten both political and economic tensions.
Crude Prices jumped on this report and industry sources say that this could have effects in driving up shipping costs.
Ashok Sharma, managing director of shipbroker BRS Baxi in Singapore said “War risk insurance premiums for the Red Sea will now likely go up significantly, as will likely the freight (rates)”
China, the top buyer of Iranian oil hopes that tensions can be settled to stop any disruption to oil supply.
However, “Experts believe it was a terrorist attack,” Iran’s Students News Agency (ISNA) reported.
Trump added to his list of fragile foreign relations, by stating that Iran was responsible for this attack, something Tehran denies.
This follows a list of attacks on Iranian Oil Tankers, the previous coming on September 14th. This attack shut down 5.7 million million barrels of production daily, half of all Saudi output amounting to five percent of global supply.
The 2% price rise could suggest a period of short supply following these attacks. If these attacks are to be a common occurrence, supply disruptions may occur for the biggest exporter of crude oil globally.
Immediately following these attacks, oil benchmarks showed their biggest prince increase since September 16th. The first few hours trading showed increases up to 20%.
Stephen Innes, an Asia Pacific market strategist at AxiTrader “Spare capacity remains fragile and with supply chain vulnerability a worrying concern at virtually every Middle East oilfield, traders continue to hedge supply risk premium,”
The prices of crude oil may not be as significant as expected even after this attack. Earlier this week the US Government reported data showing rising domestic crude oil stocks, which may drive down prices.
Since the event occurred, prices have stabilized despite attacks in September and October. The International Energy Agency monitored these prices across this event giving this statement ““Oil markets in September withstood a textbook case of a large-scale supply disruption. Prices fell back as it became clear that the damage, although serious, would not cause long-lasting disruption to markets”
With an increasing supply of oil in Brazil, United States and Norway this may mean that this rise is very short term and in fact may cause long term dips.
Traders were quick to pounce on the 2% price, however as markets have calmed many of these increases are not likely to be long term.
There have also been updates to a few other commodity markets with changes to Bisichi Mining PLC (LON: BISI) and , Highland Gold Mining Ltd (LON: HGM) and updates in current affairs to Facebook (NASDAQ: FB), London Stock Exchange (LON: LSE).
Nissan move Juke Manufacturing to UK, despite Brexit uncertainty
Nissan, (TYO: 7201) one of the leading innovators in the electric car industry have just formalized plans to build the next generation Juke at their main plant in Sunderland, despite Brexit looming.
As the Brexit deadline draws closer and closer, the risk to start operations in Sunderland by the Japanese car giant shows faith in Britain’s ability to pull through a period of speculation. Despite a fluctuating currency and a tense political climate.
Nissan’s Chairman of European Operations Gianluca de Ficchy said that “Thirty-five years ago Nissan decided to create a plant in the UK to serve our European markets,”. He added “The new Juke represents a further 100 million pound investment in our Sunderland plant and is designed, engineered and manufactured in the UK for European customers,”
Nissan do not seem to be phased by the stalling talks between the UK and EU, having spent £100 million on their latest investment to shift Juke production to Sunderland.
Whilst Britain’s future in the EU seems uncertain, seniors at Nissan are not phased by the political climate. Colin Lawther, Nissan’s European manufacturing boss told legislators in 2017 “As those circumstances change – and we will not wait until the end of the process – we will continually review the decisions that we take based on anything that materially changes.”
Nissan’s stock price during trading on Friday stayed relatively constant, and peaked at 669JPY, showing a 1.86% rise.
The Japanese carmaker currently employs 30,000 jobs people in Britain and holds 6,000 employees in the main manufacturing plant, located in Sunderland.
Although Nissan have agreed for the Juke production to switch to the UK, senior members have acknowledged the risks associated.
De Ficchy said “If no deal means the sudden application of WTO [terms] we know that our business model [in Europe] won’t be sustainable in the future.”
The Nissan Sunderland plant has grown to be the biggest manufacturing plant in the UK and has produced over 10 million cars since the opening in 1986 during the Thatcher years.
The decision by Nissan to make this change was confirmed back in 2015, showing how major investment decisions are made years in advance.
Nissan have publicly admitted the risk in this move to the UK, and whilst legislators in Parliament try and push through a deal, the impacts of Brexit have had a decline on the UK car market.
Much will be have to be done in order to reassure workers that their jobs are safe.
If a No Deal Brexit does happen, then Nissan (TYO: 7201), Aston Martin (LON: AML) and Rolls Royce could face tariffs on vehicles, engines and spare components.
Additionally, the No Deal could add customs delays which stops immediate production, stall the supply line and risk the long term prospects of British Manufacturing.
Ficchy noted “if a 10% export tariff was introduced after the UK left the EU it would put its operations “in jeopardy”.
Legislators have promised to help UK manufacturers prepare for Brexit on the 31st. A media spokesperson said on behalf of the Department of Business, Energy and Sustainable Trading “We continue to work closely with the sector as they get ready for Brexit on 31 October.”
As the car industry is the UK’s biggest exporter of goods, the sustainability of manufacturing in Britain will be put to the test.
It will be seen whether firms like Nissan move their production sites to have access to EU manufacturing regulations.
Greene King approve Hong Kong takeover
Earlier this morning an £2.7 billion agreement was reached for the takeover of Greene King (LON: GNK) by Hong Kong’s richest man Li Ka-Shing.
As negotiations have moved forward, the agreement has concluded with 99.38% of shareholders in favor.
Phillip Yea, the Greene King Chairman described this takeover. “The board welcomes shareholders’ approval of CKA’s offer to acquire Greene King”
He added “As previously set out we believe CKA’s long-term vision for Greene King, supported by our established position in the pub industry, high-quality estate and resilient financial profile, is in the best interests of employees, tenants, customers and suppliers”
Nick Mackenzie, chief Executive of Greene King was optimistic about the moving commenting that CK Asset Holdings was an “experienced UK investor and shares many of Greene King’s business philosophies”.
With the history of Greene King enduring over 200 years, the takeover represents a change of both vision and strategy for the British Pub Chain and a dependency on Foreign Investment to survive.
As this deal enters its completion phase, this is the second biggest inbound deal of the year valued at £4.6 billion, inclusive of debt commitments. This seconded the £6 billion move for Alton Towers by Blackstone (NYSE: BX) and The Canada Pension Plan Investment Board.
With the international takeover of Greene King, there has been some fear about job security for 31,800 employees working in 3,100 pubs nationally.
Interestingly, since the takeover was formalized the share price of Greene King has shifted. Yesterday, its price was listed at 8,473p and today there has been a rise of 0.07%.
Greene King has been reporting strong sales figures in the second quarter of this year, with like-for-like sales of 15.3%, however share prices have been volatile.
Even with strong like-for-like sales, and 3% increases in profits at the end of last year, there have been moments of decline. In April, the sudden departure of CEO Rooney Anand caused a slip of -7.52%.
The move by the Hong Kong billionaire Li, adds another reputable firm to his list of assets including Three Mobile, Superdrug Pharmacies & many commercial assets.
There has been little reassurance to those employed by Greene King as to the status of future employment by the board of CK Asset Holdings which may cause a spark from the Trade Unions.
It will take time for the market to respond to this takeover as the negotiations move forward, but another British Asset has been taken by an Overseas Investor and adds to Li’s impressive portfolio.
In the retail sector, there have been updates to Dunelm Group Plc (LON: DNLM), Laura Ashley (LON: ALY) and Nissan (TYO: 7201).
