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The following is a summary of top news stories Thursday.
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COMPANIES
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Toyota Motor reported a serious drop in profit in the first quarter of its financial year, but upped its annual revenue outlook as the Japanese carmaker looks to ‘strengthen’ its supply chain. In three months to June 30, the Toyota City-based company's first quarter, net income slumped 18% to JP¥758.25 billion, about $5.67 billion, from JP¥926.54 billion. Net attributable income also fell 18%, sliding to JP¥736.82 billion from JP¥897.83 billion. Sales revenue in the first quarter improved 7.0% to JP¥8.491 trillion from JP¥7.936 trillion, helped by the conversion of foreign sales into a lower yen. Looking ahead to the year ending March 31, 2023, Toyota is guiding for net attributable income at JP¥2.360 trillion, which would represent a 17% drop on financial 2022 but is up from previous guidance of JP¥2.260 trillion. Sales revenue is now guided to be JP¥34.500 trillion, a 9.9% rise on the year prior, and raised from the previous outlook of JP¥33.000 trillion. Toyota continues to expect a small increase in the number of vehicles sold in financial 2023.
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Glencore described its first-half financial performance as ‘exceptional’ notwithstanding a ‘very complex environment’ marked by global macroeconomic and geopolitical uncertainty. For the six months to June 30, pretax profit skyrocketed to $16.01 billion from $2.01 billion in the prior year. The Baar, Switzerland-based commodity trader and miner said revenue rose by 43% to $134.44 billion from $93.81 billion. Energy products were significant drivers for both the marketing and industrial businesses, lifting adjusted earnings before interest, taxes, depreciation and amortisation to $18.9 billion from $8.7 billion. Glencore said it will ‘top-up’ shareholder returns of $4.5 billion, comprising a $1.45 billion special distribution, or $0.11 a share, and a $3.0 billion share buyback. Total shareholder returns for 2022 amount to $8.5 billion, including the $3.4 billion base distribution and $0.6 billion buyback announced in February.
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German chemicals maker Bayer suffered a net loss in the second quarter due to an environmental lawsuit in the US, but raised its outlook for the year. Between April and June, Bayer booked a net loss of €298 million, after a €2.3 billion loss in the same period last year. The result was dragged into the red by a €694 million provision to manage legal risks in the US related to PCB, a product formerly marketed by Bayer's troubled subsidiary Monsanto. Nonetheless, Bayer CEO Werner Baumann said in a statement that the group had a ‘strong operational performance’ in the quarter. Sales in its agricultural business climbed by 17% to €6.5 billion on the back of rising prices. Sales of consumer health products rose 6.8% to €1.5 billion, while the improvement in pharmaceuticals was smaller, up 2.1% to €4.8 billion.
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Deutsche Lufthansa said its freight operations propelled the airline group to its first net profit since the start of the coronavirus pandemic. Between April and June, Lufthansa recorded a net profit of €259 million, its first positive quarter since the end of 2019. Lufthansa was ‘back in the black’, CEO Carsten Spohr said in a statement, describing the pandemic as ‘the most severe financial crisis in our history’. The group which includes Eurowings, Austrian, Swiss and Brussels Airlines made huge net losses of €6.7 billion in 2020 and €2.2 billion in 2021 as the pandemic shut down large parts of the airline industry. Lufthansa was saved from bankruptcy by a government bailout in June 2020.
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Adidas reported an increase in revenue in its second quarter but faced headwinds from supply chain issues, lockdowns in China and the suspension of Russian operations. The Herzogenaurach, Germany-based sports clothing and equipment maker reported 10% growth in second-quarter sales, to €5.60 billion from €5.08 billion a year before. However, operating profit dropped 28% to €543 million from €392 million. Net income reduced 24% to €309 million from €407 million. Adidas flagged a 1.5 percentage point decrease in its gross margin, standing at 50.3% for the quarter, due to ‘significantly’ higher supply chain costs.
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Clothing and homewares retailer Next lifted profit guidance after second-quarter sales came in ahead of forecasts, partly thanks to dry weather in the UK encouraging people to dress up and go out. Full-price sales for the second quarter that ended July 30 rose 4.5% year-on-year, slowing from a 22% climb in the first quarter, but still topping expectations. Compared to pre-Covid times, second-quarter full-price sales were 26% higher. Next said full price sales were £50 million ahead of guidance. Next lifted annual pretax profit guidance by £10 million to a new outlook of £860 million, which would be a 4.5% rise from £823.1 million in financial 2022.
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Hikma Pharmaceuticals lowered guidance. It said revenue in the first half of 2022 inched down 0.2% year-on-year to $1.21 billion from $1.22 billion. Pretax profit fell by a third to $215 million from $319 million. Hikma's outlook cut came in its Generics arm. It now guides for annual revenue there between $650 million and $675 million, down from the previous $710 million to $750 million range. The unit's core operating margin will land between 15% and 16%, down from 20%. Hikma blamed this on the ‘persistent challenges of the US generics market’.
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Mediclinic backed a consortium's takeover offer, which values the hospital chain's share capital at £3.7 billion. On an enterprise value basis, including debt, it values it at £6.1 billion. SAS Shipping Agencies Services and Remgro will pay 504p per Mediclinic share. The consortium made the latest proposal in July. Mediclinic at the time said it would be ‘minded’ to recommend a bid of that sum to its shareholders. Mediclinic in July said it had received three further takeover offers from the consortium, after it rejected the its first offer in June. Mediclinic shares closed at 486p on Wednesday, giving it a market capitalisation of £3.58 billion.
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ING Group reported a strong rise in revenue in the second quarter as the bank enjoyed a bounce in lending thanks to the addition of new customers, but saw a drop in profit on a rise in loan-loss provisions. In the three months to June 30, the Dutch financial services firm's pretax profit slumped 16% to €1.74 billion from €2.07 billion. Net profit fell 19% to €1.18 billion from €1.46 billion. Knocking back profit was a €202 million loan-loss provision booked in the quarter, swung from a €91 million release in the year prior. ING noted, despite the rise in risk costs, its book quality ‘remains strong’. Total income improved 3.7% to €4.68 billion from €4.52 billion. Net interest income also rose 3.7%, increasing to €3.47 billion from €3.34 billion, while net fee & commission income increased 3.9% to €888 million from €855 million.
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Credit Agricole reported revenue growth in the second quarter of 2022. Revenue for the second quarter of 2022 rose 8.8% to €6.33 billion from €5.82 billion a year before, the Montrouge, France-based bank said, citing ‘robust’ activity across all business lines. ‘Revenue growth in the second quarter of 2022 is consistent with the steady growth of Credit Agricole SA's quarterly revenues over the past five years, thanks to the diversity of the business mix,’ it said. Pretax profit edged up to €2.77 billion from €2.72 billion, as cost of risk improved and gross operating income rose. Meanwhile, net income slipped to €2.20 billion from €2.33 billion due to a higher tax bill.
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Shares in Phoenix Group Holdings rose on the prospect of a step-up in shareholder returns, as it announced a £248 million acquisition. The London-based insurance services provider said it will acquire life insurer SLF of Canada UK, or Sun Life UK, for £248 million. It will purchase the unit from Sun Life Financial Inc. The acquisition, which will be fully funded from existing cash resources, is expected to deliver around £470 million of incremental long-term revenue. Around 30% of this is expected within the first three years, Phoenix added. At the end of December, Sun Life had around 480,000 in-force policies and approximately £10 billion assets under administration, of which £2.5 billion are annuities that will remain reinsured under Sun Life. The deal supports a ‘2.5% inorganic dividend increase’, effective from its final 2022 payout, Phoenix said.
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Soft drinks bottler Coca-Cola Europacific said it now expects yearly pro-forma comparative revenue growth in the 11% to 13% range, lifted from previous 8% to 10% guidance. Operating profit is to climb by between 9% and 11%, and not 6% and 9% as previously guided. CEO Damian Gammell said: ‘Given our strong first-half, we are raising revenue, operating profit and free cash flow guidance for FY22. This demonstrates the strength of our business and ability to deliver continued shareholder value.’ In the six months to July 1, revenue jumped 40% to €8.28 billion from €5.92 billion. Pretax profit almost doubled, jumping to €898 million from €455 million.
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MARKETS
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Stock markets were mostly higher in Asia and Europe on Thursday, though Wall Street was called for a flat open. A show of force by China worrisomely close to Taiwan was holding back financial risk taking. Providing further reason to sit on the market sidelines were a Bank of England interest rate decision due at 1100 GMT and the US jobs report, due on Friday.
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CAC 40: up 0.3% at 6,491.98
DAX 40: up 0.7% at 13,681.74
FTSE 100: down 0.2% at 7,427.65
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Hang Seng: closed up 2.1% at 20,174.04
Nikkei 225: closed up 0.7% at 27,932.20
S&P/ASX 200: closed marginally lower, down 1.00 point at 6,974.90
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DJIA: called marginally lower, down 14.00 points
S&P 500: called marginally lower, down 1.75 points
Nasdaq Composite: called down 8.50 points, 0.1%
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EUR: up at $1.0188 ($1.0125)
GBP: up at $1.2164 ($1.2110)
USD: flat at JP¥134.32 (JP¥134.30)
Gold: up at $1,776.64 per ounce ($1,757.20)
Oil (Brent): down at $96.71 a barrel ($98.50)
(currency and commodities changes since previous London equities close)
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ECONOMICS AND GENERAL
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Taiwan's Defence Ministry confirmed that China's People's Liberation Army fired ‘several Tongfeng-class guided missiles’ into waters north-east and south-west of the island on Thursday afternoon. A ministry spokesperson said shortly that Taiwan's armed forces had tracked the firings in real time after they were detected at 1:56 pm local time and had activated related defence systems. The ministry condemned ‘this irrational action that is undermining regional peace.’ The confirmation by the Defence Ministry appeared to be one of the first indications that China had actually commenced ‘live-fire’ air and sea military drills as previously announced by the PLA's Eastern Theatre Command of ‘joint training drills’ in six areas surrounding Taiwan. This followed a visit to the island by Speaker of the US House of Representatives Nancy Pelosi.
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Russian energy giant Gazprom said the delivery of a turbine needed to keep gas flowing to Europe via the Nord Stream 1 pipeline was ‘impossible’ due to sanctions on Moscow. ‘Sanctions regimes in Canada, in the EU and in Britain, as well as the inconsistencies in the current situation concerning the contractual obligations of [turbine maker] Siemens make the delivery impossible,’ Gazprom said in a statement. The statement risks further increasing concern in European countries who suspect Moscow is looking for an excuse to delay the turbine's return to Russia and further reduce its gas deliveries.
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Standing next to the turbine at the centre of the dispute, German Chancellor Olaf Scholz raised the possibility of keeping nuclear plants going. The continent's biggest economy has been scrambling for energy sources to fill a gap left by a reduction in gas supplies from Moscow. Scholz said that extending the lifetime of Germany's three remaining nuclear power plants ‘can make sense’. The power stations, which are set to be taken off the grid at the end of the year, were ‘relevant exclusively for electricity production, and only for a small part of it’, Scholz said. In total, the nuclear fleet accounts for around 6% of Germany's electricity output. The government has said it will await the outcome of a new ‘stress test’ of the national electric grid before determining whether to stick with the long-planned phase-out.
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Despite the resumption of grain exports from Ukraine's Black Sea ports under a UN and Turkish-brokered deal between Russia and Ukraine, the EU intends to continue its efforts to create alternative freight routes for Ukrainian grain exports. Despite the re-opening of maritime routes, an immediate return to pre-war levels of Ukrainian exports remains challenging and alternative export routes are still crucial, an EU Commission official told dpa. European Commissioner for Transport Adina Valean stressed that there was ‘room for improvement,’ in the alternative routes being worked on, citing a lack of freight wagons, barge operators and storage facilities for Ukrainian produce.
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The US Senate ratified the entry of Sweden and Finland into NATO, strongly backing the expansion of the transatlantic alliance in the face of Russia's invasion of Ukraine. The Senate voted 95 to 1 in favor of the two Nordic countries' accession, making the US the 23rd of the 30 NATO countries to formally endorse it so far, after Italy approved it earlier Wednesday and France on Tuesday. The sole opponent was Republican Josh Hawley, who argued that the US has to focus on protecting its homeland but also that Washington should concentrate on the challenge from China rather than Europe. One senator, Republican Rand Paul, voted ‘present’ rather than endorsing or opposing the motion. Senate leader Chuck Schumer said it was a signal of Western unity after Moscow launched a war on Ukraine on February 24.
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The eurozone's construction sector suffered its worst contraction since February 2021, a survey showed, with new orders declining once again in July. The S&P Global eurozone construction purchasing managers' index weakened to 45.7 points in July, from 47.0 in June. The figure slid further below the 50.0 mark, which separates growth from contraction, suggesting the sector declined at a faster pace in July. It was a third-successive fall in the PMI, which sunk to its lowest level since February 2021.
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Germany's construction PMI fell to 43.7 points in July from 45.9 in June, also hitting its weakest level since February 2021. The decline in France's construction economy slowed. The PMI rose to 48.6 in July from 46.4 in June. In Italy, the PMI fell to 46.2 points in July from 50.4 in June.
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German factory orders sank in June. On an annual basis, orders plunged 9.0% in June, deteriorating from May's 3.2% decline. The market, according to FXStreet, had anticipated a 6.0% drop. Month-on-month, new orders fell 0.4%, extending May's 0.2% decline. This was slightly better than feared, with analysts braced for a 0.8% fall. Destatis noted: ‘Enterprises still have difficulties completing their orders as supply chains are interrupted because of the war in Ukraine and distortions persist that have been caused by the Covid-19 crisis.’
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The UK construction sector slipped into decline for the first time in one-and-a-half years in July, with the monthly PMI survey showing volumes of residential and civil engineering work weakened. The index tumbled to 48.9 points in July from 52.6 in June. It was the first time the PMI fell below the neutral threshold since January 2021.
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The surprise vote in Republican-heavy Kansas to repudiate a push for abortion bans fired shockwaves through the US political landscape ahead of November's midterm elections, with President Joe Biden's Democrats now seeing a glimmer of hope that they may avoid their predicted drubbing. Ever since the Supreme Court overturned the nationwide right to terminate a pregnancy in June, US conservatives have been nervously asking whether their triumphant push to severely restrict access to the procedure a decades-long dream has gone too far in the run-up to the midterms. In Kansas, they got an answer. The state is a Republican stronghold, but in Tuesday's referendum, a bid to remove abortion rights from the Kansas constitution was rejected by 59 to 41%, with unusually heavy turnout. Given this was the first time Americans had an opportunity to vote on the issue since the conservative-dominated Supreme Court ruled to overturn the half-century-old Roe v. Wade decision enshrining abortion rights, Democrats are celebrating the result and say a major backlash is only beginning.
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