Volkswagen, Eurozone, Google: Business news in brief, Wednesday 24 August 2016

Car-maker ends supplier dispute; Brexit has yet to hit Eurozone businesses; Google backs virtual reality films

A gamer wearing Google Glass observes the Playstation VR virtual reality headset - Google is investing heavily in VR films (Rex)

Volkswagen settles supplier disputes after marathon talks

Volkswagen's has been locked in a dispute with suppliers who demanded damages after VW cancelled contracts (AP)

Volkswagen and two of its parts suppliers on Tuesday resolved a contract dispute that had hit output at more than half of the carmaker's German plants and threatened to undermine its recovery from a diesel emissions scandal.

After more than 20 hours of negotiations that went on through the night, VW said it had settled its differences with CarTrim, which makes seats, and ES Automobilguss, which produces cast iron parts needed to make gearboxes, but gave no further details. The suppliers confirmed an agreement had been reached.

The conflict had threatened VW's profitability following last year's diesel emissions test cheating scandal and also risked hurting hundreds of other VW suppliers.

The suppliers were seeking compensation for lost revenue they said ran into tens of millions of euros after VW cancelled a contract.The dispute affected about 28,000 workers at six of VW's 10 German factories on Monday when the automaker halted production of the top-selling Golf and Passat models, as well as assembly of engines, gearboxes and emissions systems.

VW said on Tuesday that the suppliers had agreed to start delivering parts again and that the affected plants would gradually resume production.

Faced with billions of euros of costs from its emissions scandal, VW had previously indicated it would seek price cuts from its suppliers.

Analysts at UBS estimated that a one-week production halt at VW's Wolfsburg headquarters would result in about €100m (£85.99m) in lost gross profit, and could have knock-on effects on other suppliers.

Pressure had been growing on both sides to resolve the dispute, with Germany's economy ministry warning of the broader impact on jobs.

Five hundred companies that supply parts for the Golf were being forced to build up inventories because the carmaker was not buying, according to the German Association of Supply Chain Management, Procurement and Logistics.

Reuters

Eurozone PMI hits seven-month high as Brexit shows no impact

(Getty)

Eurozone private business activity was stable in August, albeit at a muted level, but factories face a tougher September as new order growth stumbled, a survey showed on Tuesday.

Muddying the outlook for the coming months is Brexit, although so far the economic repercussions seem to have been confined to Britain, not its main trading partner.

“Policymakers will be quite encouraged that it is moving in a positive direction. It looks cautiously optimistic for the region in the face of the Brexit threat,” said Chris Williamson, Markit's chief economist.

Markit's flash composite Purchasing Managers' Index edged up to a seven-month high of 53.3 from July's 53.2, where any reading above 50 indicates growth. A poll of economists had predicted a slight dip to 53.1.

Mr Williamson said the PMI pointed to GDP expanding 0.3 per cent this quarter, matching a Reuters poll earlier this month that showed the eurozone economic outlook stable but lackluster, about half the speed at the start of the year.

Pressure remains on the European Central Bank to announce more easing as it has so far been unsuccessful in getting inflation anywhere close to its 2 per cent target ceiling.

But there is little confidence amongst economists about just how much firepower the ECB has left.

Of some concern, having only trimmed their prices in July, firms returned to deeper discounting this month. The output price index fell to 49.5 from 49.8.

Discounting helped drive a PMI covering the bloc's dominant service industry up to 53.1 from 52.9, also confounding expectations for a dip to 52.8. The manufacturing PMI was predicted to have held steady at July's 52.0 but fell to 51.8.

Reuters

Google backs virtual reality films for new Daydream service

Google's new virtual reality Daydream technolgy was unveiled in May 2016 (Reuters)

Google is investing hundreds of thousands of dollars apiece in virtual-reality films and programs, part of a plan to line up exclusive content for the debut of its new Daydream service in the coming weeks, according to people familiar with the matter.

Google will help promote projects from Hulu and fund the production of 360-degree videos with YouTube stars, said the people, who asked not to be identified. Google has also partnered with video-game producers and sports leagues to boost its biggest virtual-reality initiative.

“It’s apparent they’ve spent a lot of money internally,” said Finn Staber, co-founder of TheWaveVR, a virtual-reality startup developing a music app for Daydream.

The company is relying on apps, shorts and games to promote Daydream, a hybrid store and software service that Google hopes will be the dominant way people engage in virtual reality.

An update to Android software that will support Daydream launched on Monday. The idea is to encourage the growth of the technology and ensure Google maintains a central role in helping people find things to watch.

Google is entering what has quickly become a crowded marketplace, with products from Facebook, Sony, Samsung and HTC. Whereas Sony’s Morpheus headset is tethered to its PlayStation video-game console, Google is focused on mobile-based VR, whereby consumers snap their phones into a visor or headset.

“Google’s Daydream will help advance mobile virtual reality,” said Oren Rosenbaum, a digital media agent at United Talent Agency who spearheads its VR effort. “Mobile virtual reality is what’s going to get the most people to strap things on their head.”

While competitors are targeting users willing to spend hundreds of dollars for top-notch VR equipment, mobile will reach mass audiences, Staber said.

“It’s revolutionary,” Staber said, adding he and his partners had been collaborating with Google’s VR team over the past few months.

Bloomberg

National Grid takes £18m hit on emergency blackout plan

Drax said it will mothball 'Black Start' services (Getty)

The energy watchdog has ordered that National Grid must take an £18m hit over a contract with power company Drax for the provision of emergency power supply during blackouts.

National Grid, which controls much of the country’s gas and electricity transmission system, decided to pay Drax and SSE the £113m to keep open two plants which had been used to ensure power supply in the event of a blackout.

Drax and SSE’s Fiddler's Ferry plant had announced they would mothball plants relied upon to offer so-called “Black Start” services.

National Grid had sought to recover the £113m cost, but Ofgem ruled National Grid should have foreseen the closure of Drax’s coal plant as it was not profitable during summer months.

The agreement with Drax had been due to expire in March 2016 so would have required renegotiation anyway, even if the plant had not been mothballed.

Ofgem therefore only approved recovery of £95m - the full cost of the Fiddler's Ferry contract, and 70 per cent of the Drax contract.

National Grid said it is “disappointed with Ofgem's decision regarding the Drax contract as it believes the costs could not have been reasonably foreseen”.

Rank Group moves on from William Hill rejection with revenue and profit growth

Rank Group which owns casinos in the UK has shrugged off the effects of Brexit (Rex Features)

Casino operator Rank Group said on Tuesday Britain's decision to leave the European Union would have little or no direct impact on its performance, days after it dropped its joint bid to buy bookie William Hill.

Rank, the operator of Grosvenor casinos and Mecca bingo hall, said it was mainly a UK-focused business with limited exposure to non-sterling earnings. However, the company said any impact of Brexit could be driven by lower UK growth rates or loss of consumer confidence and spending power.

The British company said trading in the seven weeks to15 August had been positive and in line with management expectations. Rank reported a 2 per cent fall in operating profit before exceptional items at £82.4m for the year ending 30 June, hurt by higher digital operating costs and a weak fourth quarter at its Grosvenor casinos venues.

Rank said the introduction of the National Living Wage had added £1.4m to operating costs for the year.

The company said it would pay a final dividend of 4.70p per share, pushing its full-year dividend up 16 per cent to 6.50p.

Rank and online gaming firm 888 Holdings abandoned their efforts to snap up William Hill via a cash-and-stock deal to create Britain's largest multi-channel gambling operator by revenue. But William Hill did not show any interest in engaging with the consortium and spurned two takeover proposals.

Rank and 888 had estimated that the three-way deal would result in savings of £100m a year from lower third-party fees and reduced IT spending.

Reuters

ShareSoc urges investors to reject ‘excessive’ £400m Berkeley bonuses

Tory party donor, Tony Pidgley, with former Chancellor George Osborne (Reuters)

ShareSoc has labelled house builder Berkeley’s £400m bonus pot “excessive”, and urged shreholders to vote against the plans at the company’s forthcoming AGM.

The £21m pay check to be awarded to Tony Pidgley, Berkeley executive chairman, is “unnecessary”, according to the society which represents the interests of individual shareholders.

Pidgley, who founded Berkeley in 1976, stands to make a further £100m from the company in the coming years and also scooped £23m in 2014.

Cliff Weight, ShareSoc spokesman said: “Rather than giving a balanced report to shareholders, the report reads more like a marketing brochure emphasising the positives and omitting the negatives,

Mr Weight pointed out that Pidgley owns £160m-worth of shares and has options over a further £100m, has an annual bonus potential of 300 per cent of his salary and receives pension cash allowance of 17 per cent of salary, despite being 69.

Asda offloads loss-making photo booths

All Asda employees working in the photo section will now work for the Photo-Me (Google Maps)

Asda has offloaded its loss-making photo booths business to Photo-Me International for £3.35m.The division has 191 in-store photo processing centres and 172 self-service kiosk sites which are located within Asda’s supermarkets.

Photo-Me has also agreed to buy the inventory available at each photo centre at the date of completion, as well as central consignment stock, estimated at £2m. The total value of the deal is capped at £6m.

All Asda employees working in the photo section will now work for the Photo-Me, the world’s biggest photobooth operator.

The struggling supermarket chain’s photo business has posted eight consecutive quarters of declining sales and lost £3.4m last year.

“This is an interesting opportunity to significantly expand our UK business in a strong set of locations and increase our market share in the digital photo-printing market, which we believe has growth potential in the digital age,” chief executive at Photo-Me Serge Crasnianski said.

Sharp to review TV licensing deals to boost global presence

Japanese electronics maker Sharp Corp said on Tuesday it will review its TV brand licensing deals overseas in an effort to boost its global presence under the aegis of Taiwan's Foxconn.

“We have decided to review our current brand licensing business in Europe and Americas, and are currently examining various possibilities,” Sharp said in a statement.

The comment follows a report by the Yomiuri newspaper that Sharp will dispatch officials next month for negotiations to buy back its TV business in the United States and Europe.

Sharp effectively exited the money-losing TV business in those markets and licensed its brand to China's Hisense Group in the Americas and to Universal Media Corp Slovakia in Europe.

The withdrawal from the money-losing TV business abroad helped Sharp trim its losses in April-June.

But Sharp now believes that it can make profits out of the TV business by taking advantage of Foxconn's procurement power in the supply chain and its vast network of clients, the Yomiuri said.

Bloomberg

Baltic Exchange board backs SGX bid for London firm

Founded in 1744 the Baltic Exchange now produces benchmark indexes for global shipping rates (Reuters)

The Baltic Exchange board has unanimously backed a takeover bid from Singapore Exchange Ltd, a deal that will give SGX access to a trading platform for the multibillion-dollar freight derivatives market.

The exchanges have agreed on the terms of the SGX offer, they said in a joint statement on Monday, with Baltic shareholders entitled to £160.41 per share plus £19.30 per share as a final dividend, giving the business a total valuation of about £87m.

“The proposed acquisition will accelerate the growth and development of the Baltic Exchange beyond what it could achieve on its own,” Baltic Exchange chairman Guy Campbell said.

Founded in 1744 as a forum for chartering vessels, the Baltic Exchange now produces benchmark indexes for global shipping rates. SGX's offer comes as freight costs wallow at record lows after a slump in commodity markets coincided with an increase in the number of vessels.

Reuters

Wonga shake-up continues with appointment of new chief

Payday loan companies such as Wonga have been criticised for high interest rates (AFP/Getty Images) (AFP/Getty)

Wonga, the UK’s most prominent payday lender, is to appoint former Travelex executive to its top UK job.

Tommy Jordan will replace Tara Kneafsey as the chief executive of its largest division, following her recent promotion to run the overall group.

Mr Jordan, is currently commercial director, having joined last year from Travelex, the foreign exchange merchant.

Wonga has lost £120m in the last two years after a string of scandals and redundancy costs. The payday loans industry has been decimated by rules capping the amount lenders can charge for borrowing.

The company has unveiled a 90-day loan which it says allows customers greater flexibility in their repayments.