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In this week’s update, we discuss the Paradise Papers, Uber’s employment rights case, Saudi Aramco’s planned IPO, Burberry’s change of direction and the cost of Christmas advertising.
The Paradise Papers
Much of the political and financial press has focused on the Paradise Papers in the last seven days, as millions of leaked documents highlighted the financial hideaways of high-profile figures and organisations, including the Crown Estate. The 13.4 million leaked records came from offshore law firm Appleby and were given to German Newspaper Sueddeutsche Zeitung, who shared them with the International Consortium of the Investigative Journalists around a year ago. Much of the revealed information shows how individuals are using “shell companies” in tax-havens, like Bermuda, to reduce the amount of tax they pay. On what has been revealed, there’s no evidence of criminal activity, but it exposes tax avoidance schemes and the UK’s lack of ability to ensure the wealthy pay their fair share of taxations. Here’s a few key revelations:
- Duchy of Lancaster - a £519 million portfolio of assets managed on behalf of the Queen had invested £10 million in two offshore funds.
- Endowments for the University of Oxford and University of Cambridge are alleged to have invested in offshore funds - these funds invest significantly in the oil industry
- Donald Trump’s aide and Commerce chief Wilbur Ross has been found to have interests in Navigator Holdings - a company which transports gas for Russian energy firm Sibur - a company Putin has strong links with
- Conservative donor Lord Ashcroft reportedly kept hundreds of millions of pounds in Bermuda-based accounts, while serving in the House of Lords. It appears he maintained his non-domicile status throughout this time, which many argue gives wealthy individuals certain tax advantages
- It has been alleged Alisher Usmanov - part owner of Arsenal FC - gifted money to business partner Farhad Moshiri, which he later invested in Everton FC, calling into question whether the former actually owns a stake in more than one club.
Questions to ask yourself… When it comes to bodies like the Queen’s Estate, does the political embarrassment of being linked to these tax schemes outweigh the potential financial benefit? Should the UK government be clamping down on the tax reduction techniques highlighted in the Paradise Papers?
If you’re interested in finding out more, there’s a two part Panorama documentary currently on BBC iPlayer.
Uber’s employment rights case
Uber has lost a landmark employment rights case after it appealed against a tribunal ruling that it should treat its drivers as “workers”, rather than self employed “partners”. This adds further woes to the car hailing app, who is currently fighting the regulator Transport for London to keep its licence in London. The ruling is crucial to the firm because if Uber was to treat their 40,000 drivers as “workers”, they would be entitled to minimum wage and holiday pay - this would mean paying higher taxes through national insurance contributions and VAT. It would likely lead to Uber scheduling drivers’ shifts, rather than allowing them to “log on” to work when they want, reducing flexibility for their drivers.
This case has wider implications for the so-called gig economy and labour rights for similar organisations. Pimlico Plumbers lost a similar court case earlier this year over the status of its workers, but Uber’s case is the highest-profile to date. The original employment tribunal case was brought forward by two former drivers, who successfully argued they should have workers’ rights, but winning this latest appeal is unlikely to bring the issue to an end. Uber can still appeal the ruling and it’s likely to go to the Supreme Court next year.
Questions to ask yourself… Is this ruling an attack on the free market and flexible working? Which other businesses could be impacted by this ruling?
Companies to watch
Saudi energy giant and the most valuable company in the world Saudi Aramco are expected to push ahead with plans for an IPO in 2018, but the location of their international offering is yet to be decided. The oil firm is planning to float 5% of the company to raise money for expansion into different markets in what could be the biggest IPO in history - Crown Prince of Saudi Arabia Mohammed bin Salman suggested it could be worth more than $2 trillion. The stock will be floated in Saudi Arabia, but there will also be an international offering, which a number of the leading economies are keen to host.
Donald Trump has highlighted his desire to have the oil giant float in New York, but London has also been courting the firm in the past week. The UK government has agreed to a $2 billion (£1.5 billion) loan guarantee if they were to float on the London Stock Exchange. This is a crucial time for London to show that it’s open for business, hence their willingness to win this business.
Digital lip-syncing app Musical.ly is to be acquired by Chinese tech company Bytedance in a deal which could be worth up to $1 billion. The app aimed at teenagers allows users to take 15 second videos of themselves lip-syncing to songs. It was launched in China in 2013, and significantly has gained a large user base in North America and Europe. Since its launch it has gained over 200 million uses and deals with some major record labels.
Musical.ly’s new owner Bytedance is one of China’s most notable startups and is best known for its flagship product Jinri Toutiao (meaning Today’s Headlines), which is a news and video aggregator said to have 120 million daily active users.
Last week, iconic fashion brand Burberry announced plans to move further upmarket and close some stores across the US and Europe to “sharpen” its brand. The markets didn’t react well to the change of direction and their share price dropped 10%, despite reporting strong half-year profits. The brand saw like-for-like sales up 4% and a 26% rise in profits to £128 million for the six month period. However, turning Burberry into a super-luxury brand (like Gucci or Dior) will take substantial investment and almost certainly harm profits in the short term. They will need to invest in their stores, while the plan to stop selling their products in some department stores will reduce their reach. If they successfully make this transformation, profit margins will be significantly increased across their product range, so there is potential for long term gains with the strategy.
Shares in Snapchat’s owner Snap Inc. plunged again as the firm announced lower-than-expected revenues and user growth. They reported a loss of more than $400 million in the last quarter, but what made investors nervous was the active user growth - this was up only 3% to 178 million over the three month period. Snapchat made revenues of almost $208 million in the quarter, which were below market expectations and represents a $1.17 revenue per customer - Facebook is over four times this. Snap’s spectacles are also proving less popular than expected, with the firm reporting a $40 million loss due to excess stock.
Snap’s share prices fell 17% on this latest announcement, falling below $13 per share. In March the firm went public, offering shares at $17.
Questions to ask yourself… Is Snapchat on the way to failing? How important is the Saudi Aramco IPO to London’s economy? Will Burberry’s change of strategy pay off in the long term?
Record high Christmas ad spend
Many of you would have seen a number of Christmas TV ads from the UK’s largest retailers last week, as firms spend a record £6 billion on Christmas advertising campaigns. According to the Advertising Association, intense market competition has led to spending on ads rise by 40% in just seven years. The highly anticipated John Lewis advertising campaign is costing the firm £7 million this year, directed by French director and Oscar winner Michel Gondry. But does this spend really pay off? Figures from the Office of National Statistics suggest spend at retailers has increased. Plus, this year inflation is rising more than wages, so it’s more than competitive than ever to attract customer spend.
Question to ask yourself… Do Christmas TV ads affect your spend?
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