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In this week's Commercial Awareness Update we discuss whether Greece has recovered from recession, the changes in pensions, Lyft's IPO & Huawei's legal action
Has Greece recovered?
There was some positive news for the Greek economy last week as they announced they have the all-clear to issue a 10-year bond for the first time in almost a decade. Since the financial crisis of 2007/8, Greece was hit by recession and was bailed out on three separate occasions by a combination of the Eurozone and International Monetary Fund (IMF). Many in the country believe the government’s decision to agree to the terms of the bailout and the austerity that ensued was negative for the economy and the country.
The issue in the coming weeks is on the back of rating agency, Moody’s, raising the country’s rating by two notches - a sign that they more stable and are less likely to default on loans. The Greek government will sell bonds (debt) to investors to raise money, which they pay interest on and repay at the end of the period. Last month, the Greek government issued a five-year bond at the value of €2.5 billion, which was popular with investors. This demand led to the value of the bond rising in the weeks after its issue - the higher someone pays for the bond, the less return they make on the bond (the yield).
The new 10-year bond offering aims to raise a further €2 billion for the government – they have not been aiming to issued bonds like this in years. Their financial situation has improved significantly in recent months, as the government has built up a cash buffer of €27 billion euros. This allows them to pay loan repayments into the future, guaranteeing their liquidity.
Changes in pensions
Pensions in the UK are set to change next month, impacting the take-home income of up to 10 million workers. It’s to do with the auto-enrollment into pensions which, since its introduction in 2012, millions are signed up to. From 6th April, pension contributions for everyone who has opted in will rise from 5% to 8% of their salary. The minimum for employers to contribute is now 3% of salary, up from 2%; but this means the employer will be required to make up the remaining 5%, not just the 3% they were previously paying.
As the life expectancy rises, the government is very keen to ensure people are saving throughout their working life and are less reliant on the state when they do finish working. However, these changes will impact workers take home earnings today. This will be somewhat negated by proposed tax cuts for most earners, with the increase in the personal allowance (income that isn’t taxed) rising to £12,500 in the next tax year. Despite this, many commentators believe the hike in contributions could lead to employees questioning whether they should be part of the pension scheme and possibly drop out. It’s a balance between ensuring people are saving enough for their future and don’t feel the squeeze of reduced earning today - it will be interesting to see the reaction in the coming months.
Companies to watch
Ride hailing company, Lyft, has filed to go public in an offering which could value the firm at $25bn. In its prospectus last Friday, Lyft published their financial details for the first time, showing despite revenue rising to $2.2bn in 2019, their losses peaked at $911.3m. Lfyt is a mobile app which was designed to allow regular drivers, without a professional driver’s licence, to host carpools on their separate commutes. The car company, which is arch-rivals with Uber, is currently valued at $15bn – seven years after it was initially founded. The details in Lyft’s prospectus show that in 2016 they generated sales of $343.3m, growing to $1.1bn in 2017 and doubling to $2.2bn the following year. However, despite a huge display in growth, losses have also widened from $682.8m in 2016, to $688.3m the following year with $911.3m in the last 12 months. Both Uber and Lyft filed for an IPO in December, but Lyft is the first company to make their financial documents public. Lyft and Uber remain similar in several ways – both companies are losing money and are funnelling funds into autonomous driving, which may end up displacing their own drivers, and both will need to raise capital in order to keep operating.
Technology giant, Huawei, intends to push back against the US government this week by filing a lawsuit against the law that bans US federal agencies from buying Huawei products. Huawei is one of China’s largest companies and is a key player in the introduction of 5G wireless networks. However, the US Government has stated that Huawei’s products could be used by the Chinese Government for spying. This is a claim that Huawei has repeatedly denied. Nonetheless, Washington has been leading an international campaign to ban the Chinese company from US allies in their 5G networks – countries including Australia and New Zealand have aced upon this. Huawei will claim that the US has violated the constitution by singling out a single group for punishment without trial. However, this is not the only legal action that Huawei has been caught up in lately. The Chief Financial Officer, Meng Wanzhou, claimed that she was detained, searched and interrogated by Canadian authorities on behalf of the US government, before they informed her she was under arrest, which she is claiming is a serious violation of her rights.
Engineering giant, Rolls-Royce, last year reported a loss of £2.9bn - a substantial drop, after a profit of £3.89bn in the previous year. The company’s shares were one of the big fallers on the FTSE 100, down more than 4% at one stage. There were a variety of reasons for this, including long-running mechanical problems and a charge of £186m after Airbus stated it was stopping the production of its A380 superjumbo aircraft. However, the underlying profit, which strips out any exception items, jumped to £633m – up 71% from £317m in 2017. The Chief Executive, Warren East, asserted that “underlying financial results are ahead of expectations”. However, Rolls-Royce shares fell an additional 2% on Monday morning after announcing it had scaled back attempts to join a programme to build a new Turkish fighter jet.
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