This week’s news includes; PriceWaterhouseCooper’s multi-billion pound lawsuit, Uber’s launch of self-driving taxis, Amazon’s UK job creation and Asda’s poor sales performance.
Opinion articles of the week:
It is not correct to say that tax evasion is illegal and tax avoidance is legal. To find out why, click here.
We’re heading for a tech IPO liftoff, and there’s one simple reason why. Click here for more information.
Oil prices rose this week but analysts believe that this rally will not end well. Click here for more.
Analysts argue that the sugar tax will result in job losses and higher prices. Click here for more.
1. UNEMPLOYMENT & INFLATION FIGURES
Unemployment continued to fall in the run-up to Britain’s vote to leave the European Union and there was a record number of people in work.
The employment rate reached a record high of 74.5%, with 31.8 million people in work in the three months to June – 172,000 more than the previous quarter. A total of 1.64 million people are unemployed – a fall of 52,000 over the quarter and 207,000 down compared with a year ago, giving a jobless rate of 4.9%.
The jobless total is now at its lowest for eight years, while the unemployment rate is at its lowest since the summer of 2005, according to the Office for National Statistics (ONS). (Business Reporter)
Rising fuel prices helped to push the UK’s inflation rate higher last month. The annual inflation rate as measured by the Consumer Prices Index (CPI) rose to 0.6% in July from 0.5% in June, the ONS said. The Retail Prices Index (RPI) measure of inflation rose to 1.9% in July from 1.6% in June. (BBC News)
2. PWC SUED FOR $5.5 BILLION
PricewaterhouseCoopers failed to spot for seven years a multibillion dollar fraud that led to the demise of Taylor Bean & Whitaker Mortgage Corp.
At issue is PwC’s work for Colonial Bank, which bought mortgages that Taylor Bean originated. Had PwC adequately vetted documents that Taylor Bean gave to the bank, it would have spotted a multi-year fraud by executives at both firms far earlier and put an end to it, the trustee claims. Instead, federal regulators uncovered it in 2009 and Taylor Bean and Colonial went bankrupt. The bankruptcy trustee sued in 2013 seeking $5.6bn (£4.3bn) in damages.
There have been several suits stemming from the financial crisis in which bankruptcy trustees sorting through the remains of firms that collapsed due to fraud have gone after auditors, saying they failed in their roles as watchdogs. Taylor Bean’s accountant, Deloitte, settled similar allegations by the trustee three years ago for an undisclosed amount.
This isn’t the first time PwC has been accused of negligence. Last year, the firm agreed to pay $65m to settle similar claims tied to the collapse of MF Global.
PwC maintains it complied with auditing standards in the Taylor Bean case and accused the mortgage issuer of being responsible for its own losses.”
Taylor Bean, once the 12th-biggest US mortgage lender, collapsed after federal regulators uncovered a $3bn scheme involving fake mortgage assets. Six Taylor Bean executives were convicted and jailed for their roles in the fraud, including former chairman Lee Farkas, who was sentenced to 30 years in prison. (The Independent)
3. MINING COMPANY BHP SUFFERS $6.4 BILLION LOSS
BHP Billiton reported a record $6.4bn annual loss on Tuesday, hammered by a bad bet on shale, a dam disaster in Brazil and a commodities slump, but said it expects its free cash flow to more than double this year.
Even excluding $7.7bn in writedowns and charges, underlying profit slumped 81 per cent to $1.2bn for the year to June 2016 from $6.4bn a year ago, hit by weak iron ore, copper, coal, oil and gas prices.
The underlying profit was the weakest since the merger of BHP and Billiton in 2001, but better than analysts’ expectations of around $1.1bn.
BHP follows rival Rio Tinto Group in posting lower profits after prices, including of its top earner iron ore, plunged to about half their 2011 peak on oversupply and slower growth in China, the biggest commodities buyer. (The Independent)
4. UBER LEGAL CHALLENGES
Taxi-hailing app Uber has launched a legal bid to stop Transport for London forcing its drivers to take a written English test.
From 1 October, anyone from a non-English-speaking country who applies for a private hire driver licence or to renew an existing licence in London will have to prove that they have passed an exam in English.
Uber has submitted an application for a judicial review in the high court in London to block TfL’s plans, but the transport authority said it would defend its proposals in court.
The San Francisco-based firm has railed against the requirement, saying that although drivers should be able to speak English, requiring them to pass a written exam would put many out of business. Uber also objects to plans to force taxi firms to operate a London call centre and requiring drivers to have commercial insurance for vehicles even when they are not being used as private hire cars. (The Guardian)
Uber have instructed law firm Hogan Lovells to launch the judicial review. (The Lawyer)
A settlement between the taxi-hailing app Uber and some of its drivers has been rejected by a US judge. The $100m (£75m) deal had been agreed after legal action on behalf of around 385,000 Uber drivers, who claimed that they should be classed as employees and entitled to expenses.
However, a San Francisco judge has ruled that the settlement was “not fair, adequate or reasonable”.
Under the agreement, Uber had agreed to pay the drivers, based in California and Massachusetts, $84m initially. They would then receive another $16m if the company decided to go public and its valuation increased one-and-a-half times from its December 2015 valuation within the first year.
Crucially for Uber, it meant the drivers were still classified as contractors and not employees.
The company has introduced policy changes as a result of the case – agreeing to create and fund a driver’s association in both states, as well as providing them with more information about why a driver may have been “deactivated”, as well as piloting an appeals process. (BBC News)
5. UBER LAUNCHES SELF DRIVING CAR
The ride-sharing firm Uber will, for the first time, allow users to hail self-driving cars within a fortnight, the company has confirmed.
Uber said the launch would take place in Pittsburgh, Pennsylvania. It added that it was teaming up with Volvo.
The firm first revealed plans to replace human drivers two years ago. More than one million people drive vehicles linked to its app, but are not directly employed by the company.
“In Pittsburgh, customers will request cars the normal way, via Uber’s app, and will be paired with a driverless car at random. Trips will be free for the time being, rather than the standard local rate.”
She added that Volvo had already sent a small number of sensor-equipped XC90 sports utility vehicles (SUVs) to Uber, which would be used in the initial trials. The carmaker intends to have delivered 100 such cars to its partner by the end of the year. (BBC News)
6. AMAZON TO ADD 1,500 UK JOBS
Amazon plans to open a new delivery warehouse in Essex next year, creating 1,500 permanent jobs. It will be the company’s 13th fulfilment centre in the UK, where Amazon employs a total of 15,500 people. The warehouse is scheduled to open in Tilbury in the spring and will increase delivery capacity.
The Tilbury warehouse will be equipped with Amazon’s robotics technology, aimed at facilitating greater product selection and speeding up delivery. Product shelves move to the worker selecting items for delivery, and not the other way round, making the process quicker.
This month the online retailer announced it would open a new centre in Doncaster next summer with the creation of 500 permanent jobs. The jobs at Doncaster and Tilbury are in addition to the 3,500 permanent roles being created by Amazon in the UK in 2016. These include head office roles, customer services jobs, warehouse pickers, and employees at the company’s research and development centres. It is creating jobs at a faster-than-planned rate this year as it rolls out its one-hour delivery operation and extends its web services.
Amazon said it was encouraged by the response to its food delivery service, Amazon Fresh, which launched in the UK last month, but has not commented on any expansion plans. (The Guardian)
7. CISCO TO CUT 5,500 JOBS
Cisco Systems is reportedly planning to lay off up to 5,500 employees, in what would be the largest job cull in the company’s history. The California-based technology giant, which is shifting its focus from hardware to software, employs more than 70,000 people worldwide. Cisco has an estimated 5,000 staff in 14 towns and cities across the UK, but it is not known how many British employees will be affected by the cuts.
The company is expected to formally announce the plans to reduce its headcount by 7% in the coming weeks. An earlier report suggested the firm may cut as many as 14,000 jobs. Despite the cutbacks, recent announcements appear to show that Cisco remains committed to its UK operations, which began nearly 25 years ago.
Last summer, the network equipment manufacturer said it was going to invest more than $1bn in UK digital education and skills projects over three to five years. And last December, Cisco opened new offices in central London for 200 workers in the company’s cloud technology division – expressing an intent to grow its operations in the capital threefold by next year.
Other tech giants have also announced drastic job cuts in light of the PC industry’s decline.
Microsoft initiated one of the largest layoffs in the history of the tech sector in July 2014 when it confirmed plans to slash 18,000 jobs. Last September, HP warned that it expects to cut 33,000 jobs by 2018. And in April, Intel announced plans to slash 12,000 jobs worldwide – 11% of its workforce. (Sky News)
8. ASDA SUFFERS LARGEST SALES DROP ON RECORD
Asda has reported a drop in sales of 7.5% in the past three months, its worst quarterly performance on record.
Walmart chief executive Doug McMillon blamed the dip on food deflation and “the competitive environment”. Discount food stores such as Aldi and Lidl have been undercutting Asda and its rivals, including Tesco, Morrison and Sainsbury’s.
The supermarket chain is relying on £1.5bn of price reductions over five years to win customers back.
In June, Walmart said the UK supermarket’s chief executive, Andy Clarke, would be stepping down to be replaced by the head of Walmart’s Chinese business, Sean Clarke.
Asda began a price-cutting campaign in 2013, cutting £1bn in prices. In January, outgoing boss Andy Clarke extended the cuts to £1.5bn by 2018. In the same month, the company said it was shedding hundreds of jobs at its Leeds headquarters.
He said that Asda seemed to have been hit harder by the arrival of discounters such as Aldi and Lidl, since low prices had always been its main selling point. (BBC News)
9. WILLIAM HILL BIDDERS DROP OUT
888 Holdings and Rank have withdrawn a proposed three-way tie-up with William Hill.
888 Holdings said they had not been able to “meaningfully engage” with William Hill’s board and would no longer make an offer for the company.
Rank and 888 made two £3bn-plus approaches for William Hill, both of which were rejected.
The two companies initially offered 339p a share which William Hill turned down. They then returned with 352p, which William Hill called “highly opportunistic” and said it continued “to see no merit in engaging with the consortium.”
Rank and 888 said a combination of the three business could have resulted in £100m of cost savings a year and would have created Britain’s “largest multi-channel gambling operator”.
The withdrawal has broken a wave of consolidation in the gaming industry. Paddy Power is merging with Betfair, Ladbrokes is combining with Coral and GVC Holdings has taken over Bwin.party. (BBC News)
10. NESTLE PROFITS HIT 7 YEAR LOW
Nestle, the world’s biggest food company, said deflation and a slowdown in China led to its weakest first-half sales growth in seven years.
The maker of hundreds of household name brands including Kit-kat and Cheerios warned of Brexit-induced price hikes in the UK as the pound remains in a relative slump after the 23 June vote.
“I’m confident we hit the bottom in the second quarter,” Francois-Xavier Roger, chief financial officer, said on Thursday. Nestle is “well-positioned” to reach its full-year forecast, he said.
Revenue increased 3.5 per cent on an organic basis in the first half, missing analysts’ expectations of 3.7 per cent growth. Nestle needs growth of about 5 per cent for the Swiss company to reach its full-year target of growth near last year’s level, which was 4.2 per cent, the CFO said.
While deflation will remain in western Europe, the outlook for other markets is better as some commodity prices have been increasing lately, according to Roger. Nestle has been raising prices in Brazil and Russia ahead of planned increases in the UK. (The Independent)