Rough bubble bust: who’s to blame for falling diamond prices?

Miranda Wadham
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Rough bubble bust: who’s to blame for falling diamond prices?

Diamond prices having a rough time. According to figures from Rapaport released in September, prices have fallen 29 percent over the past 12 months. The crisis in China over the summer further exacerbated the problem and it affected the entire industry – more than 5,000 polishers in India’s diamond capital of Surat have lost their jobs since June. So who is to blame for this problem?

According to Martin Rapaport, its the fault of the banks and the major mining companies for creating a rough diamond bubble and bust. According to him, “the hard-working cutters, polished dealers, jewellery manufacturers, designers and retailers who have honestly added value to diamonds have not received their fair share of diamond profits”, which has hit the industry as a whole.

“The banks were complicit in the creation of the rough price bubble because they consistently lent money to buy unprofitable rough diamonds. De Beers and the other mining companies kept raising prices whenever polished prices increased so cutters remained unprofitable and instead of a polished boom, we now have a rough bust.”

Of course, global issues have also had an impact; a decreasing Chinese demand, weak euro and ruble, as well as plummeting oil and commodity prices are all important and will change where, how and to whom diamonds sell. But Rapaport says we should not lose sight of the real issue: “the impact of the rough bubble bust and the collapse of the sightholder system, which is changing diamond pricing and distribution.”

So how do we get out of this mess? Rapaport says there is one vital emergency measure that must be taken.

“The mining companies must urgently inject profitability into the diamond trade, by immediately reducing rough prices by 30 percent to 50 percent. The greatest threat to the diamond industry is that the mining companies will continue to ignore the needs of the trade.

“We also have to communicate to the CEOs of De Beers and Anglo American that just because you can take advantage of the trade does not that mean that you should. Destroying long-term client trust relationships the essence of the De Beers brand while bankrupting the diamond trade for the sake of short- term balance sheet profits is poor leadership at its worst. Frankly, De Beers CEO, Philippe Mellier’s brand of trade expoitation and cannibalization is no longer tolerable. It is time for Mellier to go.”

Diamond retailers are taking the brunt of the bust; Tiffany & Co.’s second-quarter earnings and sales are coming in below expectations, and the company cited the strength in the U.S. dollar had knocked 7 percent off worldwide sales. Similarly, De Beers, the world-leading diamond producer, posted revenue of $3.0 billion for the first six months of 2015, down 21 percent from the $3.8 billion posted in the same period a year before. So, whether the banks, large mining companies and CEOs can work together to solve the issues in the diamond sector remains to be seen.

Miranda Wadham on 26/11/2015

Tesco agrees $12 million payout after lawsuit

Miranda Wadham
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Tesco agrees $12 million payout after lawsuit

Tesco (NASDAQ:TESO) has announced that it will pay out $12 million to settle a lawsuit by US shareholders, who claimed that the company had overstated its profit expectations for 2014.

Tesco, the UK’s largest supermarket, admitted it had overstated its profit guidance due to incorrectly booking payments from suppliers, sending US shares tumbling by 15 percent. The overstatement was estimated to be around £263 million.

In a spate of bad results for the major supermarkets, Tesco reported third quarter earnings last month with a 55 percent fall in half-year operating profits. Tesco’s US-listed shares are currently trading down 2.42 percent at 8.08 a share. (0934GMT)

Fix for Volkswagen cars simpler than expected, but still costly

Miranda Wadham
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0
Fix for Volkswagen cars simpler than expected, but still costly
Volkswagen (ETR:VOW) has announced that they will not lower the planned 6.7 billion euros for the costs of its diesel emissions scandal, despite the fact that the fix needed to make the cars compatible with EU regulations is simpler than expected. Audi, who is owned by Volkswagen, said in a statement that to fix the problem a mesh needs to be fitted near the air cleaner, which will take approximately one hour of labour. “Audi has agreed with the environmental authorities on further steps of cooperation in which the concrete measures to be taken will be specified,” Audi said in a statement. “The company has committed to continue cooperating transparently and fully. The focus will be on finding quick, uncomplicated and customer-friendly solutions.” Volkswagen have been in negotiations with banks in order to find the 20 billion euros needed to cover the costs of the scandal, in which it was found that VW had installed software to dupe gas emissions tests. Analysts expect that the total bill could top 40 billion euros. According to Chief Executive Matthias Mueller, the steps needed to fix the vehicles are “technically and financially manageable.” Volkswagen are currently trading up 2.12 percent on the news, at 129.85 pence per share. 
25/11/2015

Thomas Cook results show positivity in the travel sector

Miranda Wadham
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Thomas Cook results show positivity in the travel sector
Shares in travel company Thomas Cook (LON:TCG) soared nearly 10 percent this morning after the release of impressive full year results. Group revenue was up 1.1 percent to £7,834 million, with underlying earnings before tax up 11 percent to £310 million. The stronger balance sheet was helped by a profit increase of £9 million. Peter Fankhauser, Chief Executive of Thomas Cook commented on the results: “2015 has been a year of real progress as good trading combined with rigorous cost control to deliver our first positive profit after tax in five years. Despite turbulence in some of our destinations, the underlying business performed in line with our plans at the start of the year, demonstrating its greater resilience. “Looking across the Group, the UK continued to strengthen as a better quality holiday offering and other business improvements delivered a 42% increase in underlying operating profit. Travel companies have had a strong quarter, with airlines such as Easyjet and Ryanair also producing good results. Thomas Cook is another example of strength within the tourism sector, despite the increased security alerts throughout Europe which may well have an impact on results in the future. Thomas Cook is currently trading up 9 percent at 107.20 pence per share.   
25/11/2015

Key points: Osborne’s Spending Review

Miranda Wadham
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Key points: Osborne’s Spending Review
Chancellor George Osborne delivered a half-yearly budget update to parliament this afternoon, in which he was expected to make another serious round of tax cuts and to give an update on debt reduction as a percentage of GDP. Key points from Osborne’s speech include a u-turn on welfare cuts and a much heralded change to the ‘tampon tax’. Debt reduction On the area of debt reduction, Osborne stated: “Our Charter for Budget Responsibility commits us to reducing the debt-to-GDP ratio in each and every year of this parliament, reaching a surplus in the year 2019-20, and keeping that surplus in normal times. I can confirm that the OBR has today certified that the economic plan we present delivers on our commitment.” Debt forecasts were also lower: “Debt was forecast in July to be 83.6 percent of national income this year. Now, today, in this Autumn Statement, they forecast debt this year to be lower at 82.5 percent. It then falls every year, down to 81.7 percent next year, down to 79.9 percent in 2017-18, then down again to 77.3 percent and then 74.3 percent, reaching 71.3 percent in 2020-21.” Tampon tax After protests by women across the country, George Osborne has announced plans to scrap VAT on sanitary products. During the time it takes to scrap the tax, he says the £15m a year the tampon tax raises will go towards women’s health charities. Scrapping planned changes to tax credits – Tax credits are being phased out anyway as we introduce universal credit. What that means is that the tax credit taper rate and thresholds remain unchanged. Tax credits The biggest announcement in the review was the scrapping of plans to reduce state support and tax credits. Osborne said: “I can tell the House (of Commons) that the 12 billion pounds of welfare savings we committed to at the election, will be delivered in full, and delivered in a way that helps families as we make the transition to our new National Living Wage.” He added that the improvement in public finances meant he could deliver his overall £12 billion welfare savings without the cuts. Police budget Andy Burnham had warned that the police budget “could be cut by 10%” but Osborne announced that there will be “no cuts” in the police budget”. He added, “there will be real-terms protection for police funding.” 
Miranda Wadham on 25/11/2015

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UK Investor Magazine
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Crowdfunding: Run An Empire app combines fitness and gaming

Miranda Wadham
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0
Crowdfunding: Run An Empire app combines fitness and gaming
As the world’s obsession with health shows no signs of abating, two smart guys have created an app that combines two of the most lucrative sectors: fitness and gaming. A cross between Forge of Empires and Strava, the app hopes to bridge the gap and attract people from both — and the project is now crowdfunding on Crowdcube. The idea is simple: players compete to own the most territory in their neighbourhood by physically running around it. Creators Ben Barker and Sam Hill have taken the best bits from free-to-play gaming and fitness trackers, and brought them together to make “an addictive play experience for recreational runners and gamers alike.” They said: “we saw that the fitness app market was largely limited to counting calories and measuring miles. The growing mobile gaming market, on the other hand, suggested far more exciting opportunities to motivate and reward existing and aspiring runners.” Barker and Hill first met at Goldsmiths university in London, and have since worked together on a number of projects including clients such as Microsoft, The Houses of Parliament, Marks & Spencer and TEDx. Run An Empire is a ‘free-to-play’ game, meaning anyone can download and get involved. In terms of monetisation, the app will make money from an in-game ‘premium currency’ – a common monetisation method, used by apps such as Candy Crush. Players will be able to use ‘gems’ to buy more running time, cosmetic items and other in-game bonuses, and the idea seems popular – 40% of the 1,825 Kickstarter backers opted to purchase a cosmetic reward (starting at £12) during the introductory campaign. The creators also plan to use sponsorship and advertising to enhance revenue. What’s more, the market that the app will be entering is a lucrative one; the mobile gaming market alone is worth $30 billion, with similar game Clash of Clans bringing in around $5 million per day. Health apps are also leading the way on smartphones, with 8% of smartphone users – equivalent to 1.58 billion people – having downloaded a health-related app at some point, according to a report from HIMSS Europe. The app’s target market is niche, but large – there are about 50 million recreational runners in Europe as well as 65 million in the US. Run An Empire are looking for an investment on Crowdcube of £70,000, in exchange for 5.51 percent equity. Within 3 years, the creators project monthly revenue in excess of £1 million and a valuation in excess of £50 million, as well as hoping to be acquired by a fitness brand or games publisher within 3-5 years as other comparable apps have. For further information, visit Run An Empire’s funding page on Crowdcube. 
Miranda Wadham on 24/11/2015

Yellen defends decision to keep US rates low

Miranda Wadham
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0
Yellen defends decision to keep US rates low
Federal Reserve chair Janet Yellen has defended her decision to keep interest rates low, after consumer advocate Ralph Nader published a letter criticising her judgment. In response, Yellen argued that the low rates helped create millions of jobs by lowering borrowing costs for businesses and consumers. “We are tired of this melodrama that exploits so many people who used to rely on interest income to pay some of their essential bills. Think about the elderly among us who need to supplement their Social Security checks every month,” Nader wrote in an open letter on his blog. In her reply, Yellen said “an overly aggressive increase in rates would at most benefit savers only temporarily”, and that “many of these savers undoubtedly would have lost their jobs or pensions (or faced increased burdens from supporting unemployed children and grandchildren),” if she had not acted as she did. She used the letter to reiterate once again that, when interest rates do begin to rise, the move will be gradual, citing the Japanese economy as an example of what could happen if rates were raise too fast, too soon. The consensus amongst analysts is that believe that the Federal Reserve will raise rates by a quarter-point at its December meeting, as long as economic data between now and then remains positive. In England, Bank of England chief Mark Carney expects rates to remain where they are until at least early next year. 
24/11/2015

Rolls Royce announce further restructuring after fourth profit warning

Miranda Wadham
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0
Rolls Royce announce further restructuring after fourth profit warning
British aeronautical company Rolls-Royce (LON:RR) are set to announce further restructuring plans, after issuing its fourth profit warning in just over a year. Recently appointed chief executive Warren East gave further details of his plans to turn around the company, reassuring investors that whilst the company is going through an “unprecedented period of change”, it is “vital to [the company’s] long term success”. “Major restructuring will simplify the organisation, streamline senior management, reduce fixed costs and add greater pace and accountability to decision making,” the group said in a statement ahead of a presentation to investors. “This is fundamental to ensuring Rolls-Royce best positions itself to compete for the long-term opportunities before us,” he said. US-based activist investor ValueAct has recently doubled its stake in the company to 10 percent, making it the biggest investor by share and intensifying pressure on the company to reform its finances. East has already detailed some of his plans, which will include cost-saving targets of between £150 – £200 million per year. Shares in Rolls Royce plunged after its latest profit warning this month, which cited decreasing demand for marine engines and declines in its aero-engine business as reasons for its continued poor results.

Avago cleared to buy Broadcom in $37bn deal

Safiya Bashir
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1
Avago cleared to buy Broadcom in $37bn deal
Global manufacturer of semiconductors Avago (NASDAQ:AVGO) has been cleared by the European antitrust regulators to carry out a $37 billion takeover of Broadcom (NASDAQ:BRCM) to create the third-largest chip-maker in the world. Despite some initial concerns, The European Commission allowed the merger after Avago agreed to let other switch chipmakers have continued access to essential intellectual property on reasonable terms. Margrethe Vestager from the European Competition Commissioner said; “Thanks to very good cooperation with the companies the Commission has been able to approve this multi-billion dollar takeover within a very short space of time while preserving effective competition in this crucial high technology sector,” Following the European Commission’s approval of the company’s acquisition, Broadcom stocks are down by 0.06% to $53.50 in pre-market trading.  
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