News Archive

Google pays $55 million tax in Britain on 2012 sales of $5 billion

Mon Sep 30, 2013 12:04pm EDT

LONDON (Reuters) – Google, which has been grilled twice in the past year by a UK parliamentary committee over its tax practices, had a UK tax bill of 35 million pounds ($55 million) in 2012, on sales of $4.9 billion to British customers, its accounts showed.

The Internet search giant paid a tax rate of 2.6 percent on $8.1 billion in non-U.S. income in 2012, because it channeled almost all of its overseas profits to a subsidiary in Bermuda which levies no corporate income tax, the group’s accounts show.

Corporate tax avoidance has risen to the top of the international agenda in the past year with the G20 and G8 groups of leading economies promising to get to grips with the growing practice of companies diverting profits from where they are earned and into tax havens.

Google said it follows all tax rules in every country where it operates and that it does not pay much tax in Britain because its profits are not generated by its UK employees.

Google UK Ltd, and other subsidiaries across mainland Europe, pay little tax because they are designated as providers of marketing services to Google Ireland Ltd, the Dublin-based subsidiary whose name appears on invoices to most non-U.S. clients.

Google declares little profit in Ireland because the unit there sends almost all of the profit earned from the non-U.S. clients to the Bermudan affiliate, in the form of license fees for the use of Google intellectual property.

The parliamentary Public Accounts Committee (PAC) grilled Google’s Northern Europe boss, Matt Brittin, in May after a Reuters investigation showed the company had advertised dozens of jobs for salespeople, despite Brittin telling the committee last year that the company does not pay tax on its UK revenues because it does not conduct sales from British territory.

A PAC report later accused of Google of using “contrived” mechanisms to avoid tax and called on the government to change the rules on taxing multinational companies.

Google’s Executive Chairman Eric Schmidt said attempts to force technology companies to pay more tax could stymie innovation.

Google’s UK tax charge on 2012 income was only 11.6 million pounds, with 24 million being payable in relation to employee share based remuneration.

(This story has been corrected to fix sales to UK customers to $4.9 billion, not $5.5 billion, in first paragraph)

(Editing by Louise Ireland)

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Siemens’ new CEO riles labor reps with news of job cuts

Mon Sep 30, 2013 12:03pm EDT

MUNICH/FRANKFURT (Reuters) – Weekend news of 15,000 job cuts at Germany’s Siemens has put the German engineering group’s new chief executive, Joe Kaeser, on a collision course with workers’ representatives only two months after he took the helm.

“We oppose a margin-driven job-cutting program. Siemens needs a sustainable and future-oriented program that focuses on people and not just on margins,” works council chief Lothar Adler said on Monday.

Siemens, Germany’s second-biggest company by market value, aims to save 6 billion euros ($8.1 billion) to close the gap with more profitable rivals such as U.S.-based General Electric and Switzerland’s ABB.

It had so far declined to say how many jobs would go as part of the program, announced under former CEO Peter Loescher, who was ousted and replaced by Kaeser following a fierce boardroom battle two months ago.

On Sunday, a company spokesman told Reuters that Siemens would shed an overall 15,000 jobs, or about 4 percent of its overall workforce, half of which were already gone.

A third of the job cuts are in Siemens’ German home market. Of those, 2,000 are to be at the industrial products business, and 1,400 jobs each in the energy and infrastructure businesses.

Kaeser faces the challenge of whipping into shape a lumbering conglomerate with almost 370,000 workers, 78 billion euros of annual sales and products ranging from gas turbines to high-speed trains and ultrasound machines, as well as regaining investor confidence.

When he took office, he said he would continue his predecessor’s savings program, but also vowed to put Siemens back on an “even keel”, end years of continual restructuring and do away with a focus on short-sighted margin targets.

Under Loescher, Siemens announced the massive savings program and said it aimed to push up the margin on its core operating profit to at least 12 percent from 9.5 percent by 2014. It was forced to abandon that target in June as its main markets remained weaker than expected.

“This (savings) program neither reached the target of increasing Siemens’ margin in the short term nor does it appear that the goal of improving complicated processes has seriously been tackled,” deputy works council chief Birgit Steinborn said.

In the first nine months of its financial year, which ends on Monday, Siemens’ profit margin shrank to 5.7 percent due to project charges and weak demand for industrial products such as automation and drive technologies.

Kepler Cheuvreux analyst Hans-Joachim Heimbuerger affirmed his “buy” recommendation on Siemens stock and said the headcount reduction would help the company improve its operating profit per employee compared with rivals.

In its last quarter, Siemens’ operating profit per employee stood at 2,728 euros, about 13 percent below ABB and 70 percent below GE.

($1 = 0.7385 euros)

(Reporting by Jens Hack and Maria Sheahan; Editing by Kevin Liffey)

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Wall Street banks likely stung again by bad bond-trading quarter

Mon Sep 30, 2013 11:50am EDT

NEW YORK (Reuters) – Wall Street banks have had another rough quarter in bond trading thanks to the U.S. Federal Reserve, and it might get worse before it gets better.

Analysts have begun cutting third-quarter profit estimates for banks including Goldman Sachs Group Inc (GS.N) and Morgan Stanley (MS.N), citing an industry-wide fixed-income trading revenue decline of 20 to 30 percent compared with a year ago. The quarter’s lull has made at least some Wall Street professionals nervous that a fresh round of job cuts may be coming, a trader said.

The third quarter is typically a weak period for banks’ trading businesses, but the Fed’s decision to keep its program of bond buying intact has hurt trading revenue even more than usual and weighed on the value of the bonds that dealers keep on hand for trading, bankers and analysts said.

Traders in some of the biggest fixed-income markets – including Treasury bonds, mortgage bonds, interest-rate derivatives and foreign exchange – were burned by their wrong assumptions about when the Fed would pull back from its massive bond-buying program. Many investors had expected the Fed to start gradually winding down the program, but instead the central bank in its September 18 policy statement said that it would maintain its $85 billion monthly purchases for the time being.

The decision led investors to hit the brakes on plans to adjust their portfolios, traders and analysts said, and less activity meant less money for banks’ fixed-income trading desks.

“From what I can see, it’s mainly weaker activity levels – activity levels are just very low,” said Richard Ramsden, an analyst who covers banks for Goldman Sachs.

There are already signs of poor third-quarter results.

The investment bank Jefferies Group LLC said earlier this month that its fixed-income trading revenue plunged 88 percent in the three months ended August 31, to $33 million from $266 million a year earlier. Jefferies is not directly comparable to bigger Wall Street banks because of its size and because it reports on a fiscal calendar whose quarters are a month earlier, but the results were still surprisingly poor.

Last week, Deutsche Bank AG (DBKGn.DE) co-CEO Anshu Jain said at a conference that he expected bond-trading revenue would “decline significantly” in the third quarter due to weak volumes. Bank executives from JPMorgan Chase Co (JPM.N), Morgan Stanley and Barclays PLC (BARC.L) have also recently warned in public comments that they expected trading revenues to be soft.

JPMorgan, which is scheduled to post third-quarter results on October 11, will be the first big Wall Street bank to report. The largest U.S. bank is expected to earn $1.27 per share, compared with $1.40 per share for the same quarter last year, according to estimates compiled by Thomson Reuters I/B/E/S.

Morgan Stanley posts results on October 14 and is expected to earn $0.48 per share compared with a loss of $0.55 per share in the third quarter of 2012. Goldman Sachs will report its third-quarter earnings on October 17 and is expected to earn $2.61 per share compared with $2.85 a year ago.

Trading aside, there were few bright spots in other capital markets businesses.

Debt underwriting revenue is expected to have fallen 26 percent compared with the third quarter of 2012, according to Bernstein analyst Brad Hintz. The decline comes despite some large bond offerings, such as Verizon Communications Inc’s (VZ.N) $49 billion capital raise earlier this month, and strong leveraged loan activity. Hintz expects equity underwriting revenue to have dropped 27 percent.

Dealmaking fees are also expected to be soft, even with Verizon’s blockbuster $130 billion purchase of Vodafone Group’s (VOD.L) share of its wireless business. Hintz estimates Wall Street banks will report flat merger and acquisition revenue.

So far this year, global deal volume is up just 0.8 percent compared with a year ago, to $1.67 trillion, according to Thomson Reuters data. Excluding the Verizon-Vodafone deal, global deal volume fell 7 percent to $1.54 trillion.

“Although the Verizon deal and a flurry of September MA announcements is encouraging, these deals will not be enough to save the quarter,” said Hintz.


Although trading revenue is by its nature a volatile line item, it has become even harder for analysts to predict since the financial crisis, said Oppenheimer analyst Chris Kotowski. Three years ago, he expected trading revenue would have stabilized by now – especially as the industry consolidated – but instead it “looks more like a Ping-Pong ball bouncing down the stairs” than any kind of decipherable trend line, he said. If trading revenue has dropped in the third quarter, it will be the 10th decline in the last 14 quarters, he said.

“The funk is not over,” Kotowski said.

Wall Street trading desks do not expect an upswing in fixed-income revenue before the Fed’s December policy meeting, said one bond trader who spoke on the condition of anonymity. The industry has been in decline since the financial crisis, as new capital rules have prodded banks to sell or unwind some of their riskiest assets. Also, derivatives trades that once happened among banks are moving onto exchanges and into clearinghouses, which weighs on profit margins.

With these changes afoot, banks since 2010 have been slashing thousands of trading, sales and support jobs.

Beyond the secular pressure on the sector, markets were rattled in May when Fed Chairman Ben Bernanke hinted that tapering would come soon. Long-term interest rates spiked in late May and continued rising until the Fed’s latest announcement. The 10-year Treasury yield ended the quarter around 2.61 percent, compared to around 2.477 percent at the beginning of the quarter. But between those relatively similar values were some wild gyrations — the yield reached as high as 3 percent during the quarter.

“The Fed, through its communications, has caused some uncertainty,” said Goldman’s Ramsden. “The message has changed and people have gotten wrong-sided, so until people get comfortable with what the new world looks like and what the path looks like, it could keep impacting activity. When will that happen? Hard to say.”

Because fixed-income trading accounts for a big chunk of overall income at Wall Street banks, market disruptions can put a serious dent in profits. Interest-rate sensitive products like Treasury bonds and foreign-exchange represent 40 to 50 percent of fixed-income trading revenue, Ramsden said, making it difficult for banks to make up for weak trading there with other businesses that performed well, like high-yield debt trading.

(Reporting by Lauren Tara LaCapra, additional reporting by Peter Rudegeair; Editing by Leslie Adler)

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BP mulls long-term oil deal with Rosneft: sources

Mon Sep 30, 2013 10:30am EDT

LONDON (Reuters) – BP (BP.L) is working on becoming the first oil major with a long-term deal to buy seaborne crude from Rosneft (ROSN.MM), trade sources said, after a number of trading houses this year secured large volumes from the Kremlin energy champion.

While trading houses Glencore (GLEN.L), Vitol and Trafigura agreed to lend Rosneft $11.5 billion in exchange for oil supplies over five years, oil majors have largely stayed on the sidelines, preferring to buy Russian crude at spot tenders.

BP has already received some volumes of Russian Urals crude under the deal, which is still being finalized, three trading sources told Reuters. BP and Rosneft declined to comment.

“BP is exploring options that are available to it as a major shareholder in Rosneft. The deal will be somewhat different from what Rosneft has with trading houses,” a source familiar with details of the deal said.

BP owns a fifth of Rosneft, which became the world’s largest listed oil firm by output after acquiring BP’s venture in Russia, TNK-BP, in a deal valued at more than $50 billion.

That left Rosneft, in which the Kremlin owns a controlling stake, heavily indebted and looking for deals with the likes of Glencore to lighten the burden on its balance sheet by reducing debts to banks as the money is being borrowed by the traders.

Rosneft also hopes to obtain up to $70 billion from China in prepayment for oil, in an attempt to cut its debt further. The company has kept buying assets aggressively even after the TNK-BP purchase.

Rosneft currently sells its oil from major ports via two methods – long-term loan-for-oil schemes with traders, and short-term, six-month tenders open to traders and majors.

Long-term deals with Rosneft allowed trading houses such as Glencore and Vitol to build large positions in Urals, the most important crude grade for European refiners.

But the deals also turned expensive as they are priced against Rosneft’s six-month tenders, in which majors and traders often bid up prices to win volumes.

The first signs that BP is working on a new deal emerged when the major offered to sell a cargo of Urals in the Baltic Sea for early-October delivery, traders said.

“BP was simply not supposed to have this cargo as it didn’t win any volumes from Rosneft in the latest six-month tender. So everyone realized that something new is coming,” a trader at a rival company said.

Trading sources said BP would be allocated a total of two Urals cargoes from Rosneft in the Baltic during October. Sources declined to give exact details on how the two cargoes would fit into the new term deal.

“What it shows is that BP is not a dormant shareholder at Rosneft, but tries to explore its options,” a trader at another rival said.

Apart from their shareholding relationship, BP and Rosneft also co-own German refinery venture Ruhr Oel.

The biggest buyers of Rosneft’s oil, alongside trading houses, are majors such as Shell (RDSa.L), Eni (ENI.MI), Statoil (STL.OL) and Total (TOTF.PA), which regularly win volumes in six-month tenders.

Trading sources said other majors were unlikely to follow BP immediately.

“We are still viewing term deals as pretty expensive given that for us it would mean lending money to Rosneft and buying oil at pretty high levels,” one of the trading sources said.

(Reporting by Dmitry Zhdannikov; Editing by Dale Hudson)

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EADS, fearing exports will be poached, offers to help core buyers

SEVILLE, Spain |
Mon Sep 30, 2013 10:27am EDT

SEVILLE, Spain (Reuters) – Europe’s Airbus pledged on Monday to help address financial difficulties faced by core European buyers of its A400M airlifter, as it tries to prevent some of the countries poaching its own exports by reselling aircraft they cannot afford.

The comments from the head of Europe’s aerospace giant came as France predicted a buoyant export market for the long-awaited troop and cargo carrier, which was formally inaugurated in a rain-soaked ceremony in southern Spain on Monday.

“We are well aware that our customers face economic difficulties and we are grateful for their steadfast commitments to the A400M,” said Tom Enders, head of Airbus’s parent, EADS (EAD.PA).

“We will continue to work with our customers to find solutions that are mutually acceptable and ensure the future success of this great aircraft,” he said, without going into detail.

After a tortuous 30 years in development, the first of 170 troop and cargo planes jointly ordered by Britain, France, Germany, Spain, Belgium, Luxembourg and Turkey are a step towards self-sufficiency in military transport for Europe.

France, Germany and Spain all have major stakes in EADS.

Watched by Spain’s Crown Prince Felipe and politicians and military brass from purchasing nations, the bulky turbo-prop was paraded in a lavish ceremony at its Seville assembly plant.

Airbus has launched a campaign to export 300-400 A400Ms over the next 30 years, in addition to the 170 it already has under order from Europe. Malaysia, which has ordered four aircraft, is its only export customer so far.

“I can’t give you any figures but there is huge capacity for exports, the political and industrial winds are synchronized,” French Defence Minister Jean-Yves Le Drian told reporters.

Airbus is worried that Europe’s largest joint defence project could be its last for years to come because of spending cuts and splits over foreign and security policy.


It has also expressed concerns about plans by some of the plane’s European customers to sell on some of the A400Ms they have ordered to buyers outside the region, frustrating Airbus’s hopes of producing extra planes for export.

Analysts say Germany, Spain and most probably France want to jump in front of Airbus and re-export some of their A400M allocations to boost state budgets.

That would delay the point at which Airbus could start building more aircraft for export, but also defer the payment of export royalties to reimburse a 3.5 billion euro bailout provided by buyers in 2010 as the plane went far over budget.

According to two people familiar with the 2010 bailout plan, the first 174 planes (including Malaysia’s four) are excluded from the royalty agreement.

Enders told Reuters it was too early to say who the potential buyers were. Airbus executives say they have already visited over 20 countries, many of them in the Middle East, South America and Asia.

The A400M was conceived in the 1980s to meet a looming shortfall in military transport capacity, but the 20 billion euro project went more than 5 billion euros over budget.

Enders said Europe’s political and defence industry leaders must be far more realistic with schedules and funding for future military programs.

The plane competes against Lockheed Martin’s (LMT.N) C-130 Hercules turboprop and the larger Boeing (BA.N) C-17 cargo jet. Production of the latter aircraft was recently halted, lifting hopes for the A400M.

The first A400M was delivered to France on August 1, and Enders said there would be further deliveries to Turkey and France in the coming weeks.

“This is the right aircraft for many air forces around the world. And certainly, when you introduce the first aircraft with the first real customer, an air force, then it’s far more convincing for export campaigns than if you’re still in the development stage,” Enders said.

(Additional reporting by Tim Hepher in Paris and Adrian Croft in Brussels; Editing by Kevin Liffey)

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Wal-Mart extends equity conversion date in India’s Cedar

Mon Sep 30, 2013 9:00am EDT

MUMBAI (Reuters) – Wal-Mart Stores Inc’s (WMT.N) India unit has sought an extension of its equity conversion date in Cedar Support Services, the parent firm of Bharti Retail, its joint venture partner in India.

Wal-Mart had invested $100 million in 2010 in Cedar in exchange for “compulsorily convertible debentures” that can be exchanged for 49 percent in Cedar. The conversion deadline has been extended twice previously, most recently to September 30.

A Wal-Mart India spokeswoman told Reuters on Monday that the company had filed to extend the conversion date again.

Wal-Mart, the world’s largest retailer, has yet to apply to open its own retail stores in India despite a rule change last year allowing global retailers to own 51 percent of their Indian operations.

(Reporting by Nandita Bose; Editing by Tony Munroe)

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BMW, Hyundai and Kia recall over 180,000 cars in China

Mon Sep 30, 2013 8:54am EDT

BEIJING (Reuters) – BMW (BMWG.DE), Hyundai Motor Co (005380.KS) and Hyundai’s affiliate Kia Motors Corp (000270.KS) are recalling a total of 181,492 cars in China, the country’s quality watchdog said on Friday.

BMW’s China venture, BMW Brilliance Automotive Ltd, is recalling 75,832 of the BMW 5 Series, including 88 imported cars, to fix faulty socket adapters for tail lights, according to a statement posted on the website of the General Administration of Quality Supervision, Inspection and Quarantine.

Two months ago BMW Brilliance began recalling 143,215 5-series cars produced between 2009 and 2012 due to a problem related to their electric power steering system.

South Korea’s Hyundai is recalling 64,795 Hyundai and Kia cars for a repair to brake pedals, the watchdog said.

Kia’s separate China joint venture is also recalling 40,865 cars for the same reason, it added.

Hyundai and Kia said last week they were recalling about 660,000 vehicles in South Korea to fix a faulty brake switch, with further recalls in other countries possible.

The recall, which involves models such as Hyundai’s Genesis and Azera large-size sedans and Kia’s Forte compact, extends a problem that has already affected over 2 million cars.

(Reporting by Fang Yan and Matthew Miller; Editing by Kevin Liffey)

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GSK sells thrombosis drugs to Aspen for $1 billion

Mon Sep 30, 2013 7:45am EDT

LONDON (Reuters) – Britain’s biggest drugmaker GlaxoSmithKline (GSK.L) agreed the 700 million pounds ($1.13 billion) sale of its thrombosis drug brands and a related factory to Aspen Pharmacare (APNJ.J), as part of its strategy to focus on growth products.

The company said on Monday the divestment to South Africa’s biggest generic drug maker would earn it proceeds of 600 million pounds and 100 million pounds of the headline price related to inventory.

The disposal, which was flagged by GSK in June, involves the Arixtra and Fraxiparine brands, whose worldwide sales are in decline and would otherwise have dragged on GSK’s growth at a time when new drugs are set to reach the market.

GSK said that it would retain the rights to the thrombosis brands in China, India and Pakistan.

GSK, which owns an 18.6 percent stake in Aspen, said that the sale proceeds would be used for general corporate purposes.

Earlier in September, GSK also sold its Lucozade and Ribena drink brands for 1.35 billion pounds to Japan’s Suntory Beverage Food Ltd.

($1 = 0.6203 British pounds)

(Reporting by Sarah Young, Editing by Christine Murray and Kate Holton)

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Pharma industry should support China curbs on corruption: Sanofi CEO

Mon Sep 30, 2013 10:11am EDT

MUMBAI (Reuters) – French drugmaker Sanofi SA will not be deterred from expanding in emerging markets through acquisitions despite government crackdowns on pricing and closer scrutiny of western pharmaceutical companies’ business practices, its CEO said.

Multinational drugmakers such as Pfizer Inc, Sanofi and AstraZeneca PLC have depended on rising demand in emerging markets as sales in the developed economies slow due to a wave of patent expirations on top-selling drugs.

“Emerging markets has six billion people and I think the marketplace will be bumpy on occasions, but the need for healthcare is undeniable,” Sanofi Chief Executive Chris Viehbacher told reporters in Mumbai on Monday.

“For the longer term I continue to believe in the importance (not just) from the healthcare point of view but also from the business point of view in emerging markets,” he said.

Sanofi’s India unit was believed to be one of the bidders for the domestic drug formulations business of India’s Elder Pharmaceuticals Ltd for $400 million-$450 million, sources had told Reuters in July.

Viehbacher declined to comment on the Elder deal, but said the company would continue to look for acquisition opportunities in the emerging markets, which accounts for a third of Sanofi’s revenue, including in India.

Western drugmakers who covet a bigger share of India’s fast-growing $13 billion drugs market have been frustrated by a series of decisions on intellectual property and pricing.

India in August revoked a patent granted to GlaxoSmithKline for breast cancer drug Tykerb, a decision that followed a landmark court ruling disallowing patents for incremental innovations that was a blow to global pharmaceutical firms.

The decision was the latest in a series of rulings on intellectual property and pricing in India that have frustrated attempts by Western drugmakers to sell their medicines.

Viehbacher said instead of focusing on lowering prices of drugs, the Indian authorities should focus on improving access to quality healthcare and invest in innovation. India spends about 5 percent of its gross domestic product on healthcare.


The pharmaceutical industry should support China’s efforts to curb corruption, Viehbacher said, with a crackdown on bribery in the country’s drug sector hurting sales at a number of firms.

With China’s healthcare spending forecast to nearly triple to $1 trillion by 2020 from $357 billion in 2011, according to consulting firm McKinsey, China is a magnet for makers of medicines and medical equipment.

However, a string of investigations and visits by authorities to the China-based offices of global firms has prompted businesses to step up internal compliance and rein in sales teams.

“I think the Chinese government’s approach to reduce corruption has to be supported by all of us. As companies, all of us are absolutely proactively cooperating with the agencies who are investigating,” Viehbacher said.

Sanofi said in August that one of its 11 regional offices in China had been visited by the State Administration for Industry and Commerce (SAIC) in Shenyang, but added it was not aware of the purpose of the visit from the agency.

Industry insiders expect its China drug sales growth to slow sharply or even reverse in the third quarter after a 14 percent year-on-year rise in the three months to end-June.

(Reporting by Sumeet Chatterjee; editing by David Evans)

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