Week in review, October 15

A round up of some of the week’s most significant corporate events and news stories.

Samsung kills off Note 7 as effort to fix fault backfires

A burned Galaxy Note 7 smartphone which caught fire

Samsung Electronics took the unprecedented decision to kill off its Galaxy Note 7 line after a plan to replace the safety issues that had caused the phablets to overheat and in some cases catch fire backfired spectacularly, writes Nic Fildes in London.

The South Korean company halted some parts of the production process at the start of the week but moved to retire the handset only a day later after deciding that the potential reputational damage of the safety incidents could lead to a contagion of its other product lines.

That sent Samsung shares into a tailspin as the stock dropped 8 per cent, its biggest fall since 2008, as investors fretted over the financial impact of the withdrawal of the once-popular handset. Analysts estimated that the cost of the recall could be $2.3bn while Samsung would lose out on sales of up to $17bn.

That was followed by confirmation that Samsung expects its operating profit to decline Won3.5tn ($3bn) over the next six months, taking the total cost of the safety debacle to more than $5bn.

It has also come under pressure to reveal exactly what went wrong with the Note 7 given it replaced the original defective devices with new phones that also caught fire. The initial explanation that the battery was to blame has raised serious question marks over whether Samsung had failed to investigate the reasons for the malfunction and was too quick to blame an external supplier.

The company also scrabbled to ensure that previously loyal Samsung Note fans did not defect to rival products by offering incentives. Yet few expect that it will be able to stem some of the market share losses that could threaten its position as the largest phonemaker in the world with Google and Huawei on the attack.

“Domestic consumers may stick to Samsung phones but many overseas customers won’t,” said Greg Roh, an analyst at HMC Securities. “Many Samsung customers will probably shift to Apple’s iPhone 7 while Chinese customers will probably opt for local phones.”

● Related John Gapper column: Samsung was too speedy for its own good
● Lex note: first cut is the deepest

Amazon to hire 20% more staff ahead of holiday season

Amazon announced this week that it would boost its US seasonal hiring by 20 per cent in the coming months, as it anticipates a record-setting holiday shopping season — including for some of its own-brand gadgets, writes Leslie Hook in San Francisco.

Amazon echo

The Seattle-based retail and tech group has been heavily promoting its voice-enabled speaker device, the Echo. On Wednesday, it announced a new music streaming service that is similar to Spotify and Apple Music, but costs only $4 a month if accessed through an Echo device.

Amazon has said little about its music ambitions, but analysts say the new streaming service throws down the gauntlet for Spotify, ahead of the Swedish music company’s planned IPO. Amazon’s streaming service is more expensive for people who do not own an Echo, however, costing $10 per month.

Previously, Amazon Music offered individual songs and albums for sale, and a limited selection of free music for Prime members.

Separately, Amazon’s tech arm announced a partnership this week with VMware. Amazon Web Services, the cloud computing service, made a deal that makes AWS more compatible with tradition corporate IT.

It also emerged that Amazon is experimenting with bricks-and-mortar storefronts that will allow customers to shop online, then drive to pick up their goods. The first such store is nearing completion in the Seattle area, while permits have been filed for two more pick-up hubs in the Bay Area.

Amazon will report its third-quarter results on October 27.

BP abandons exploration in Australian marine park

© EPA

BP abandoned a controversial multibillion-dollar plan to drill for oil and gas in the deep waters of an Australian marine park, writes Jamie Smyth in Sydney.

Citing low oil prices, the British energy company said the project in the Great Australian Bight marine park — a pristine stretch of ocean off the coast of South Australia — would not be able to compete for capital investment with other opportunities in its global portfolio.

“We have looked long and hard at our exploration plans for the Great Australian Bight but, in the current external environment, we will only pursue frontier exploration opportunities if they are competitive and aligned to our strategic goals,” said Claire Fitzpatrick, BP’s managing director for exploration and production, Australia.

The global oil and gas industry has slashed spending on deep water exploration because of lower oil prices and the challenges of making a profit from riskier and more complex projects. Royal Dutch Shell and Statoil last year ditched plans to drill in the Arctic.

BP is still trying to recover from the “Deepwater Horizon” oil spill disaster — the 2010 blowout at a BP-operated well in the Gulf of Mexico that resulted in the deaths of 11 people and cost the company $62bn.

The decision to quit the Great Australian Bight project was welcomed by environmentalists, who opposed drilling because of fears of a similarly damaging oil spill disaster. The Wilderness Society urged other oil and gas companies to follow BP’s lead and quit exploring in the Great Australian Bight.

Bentley chosen to replace McGregor-Smith at Mitie

Ruby McGregor-Smith

Struggling UK outsourcer Mitie this week named Phil Bentley as its next chief executive, replacing longtime boss Ruby McGregor-Smith, write FT reporters.

Mitie said on Monday that Mr Bentley, who was chief executive of Cable & Wireless Communications until its £3.5bn takeover by Liberty Global earlier this year, would join the company as a director in November and take over the top job in December.

Roger Matthews, Mitie chairman, said Mr Bentley had “proven chief executive experience with an excellent track record of significantly enhancing shareholder value in services businesses”.

Before running Cable & Wireless, Mr Bentley, 57, was chief executive of British Gas, the UK energy supplier, for seven years. He also held senior management and finance roles at British Gas’s owner, Centrica, and Diageo, the world’s largest distiller.

Mitie said Ms McGregor-Smith, who became the first Asian woman to run a FTSE 250 company when she took the helm of Mitie in April 2007, had asked the group’s board to begin the search for a successor “late last year”.

Her departure comes at a tough time for Mitie, which saw millions of pounds wiped off its stock market value last month after issuing a profit warning.

The outsourcing group, whose sprawling operations range from pest control and cleaning to government detention centres and care services, blamed Brexit-related uncertainty, government spending cuts and a rise in labour costs for the revised forecasts, saying its half-year operating profit for the period to the end of September was likely to be “very significantly lower” and “materially” short of expectations.

Ms McGregor-Smith, 53, has been involved with Mitie for more than a decade, having first taken up a director role in 2002.

“The big message of the day is this is a personal decision,” Ms McGregor-Smith said. “A decade is enough to run a listed stock. It’s a tough gig.”

● Related Lombard note: Miami Phil faces Mitie challenges

Russia lender trims London plans following Brexit vote

© Reuters

There are many ways to say goodbye in Russian. Herbert Moos, deputy chairman and chief financial officer of VTB Bank, found a new one when he said the Russian lender had decided to move its investment banking hub out of London because of the UK’s vote to leave the EU, writes Martin Arnold in London.

“We did have bigger plans for the London office, but after Brexit we are scaling them down and building them up elsewhere,” Mr Moos told the Financial Times.

“Our board will decide where by the end of the year.”

Mr Moos said: “We are looking at several factors to decide where we switch our European headquarters to, including regulation, fiscal policy and the talent pool. Frankfurt, Paris and Vienna are all being considered”

He added that London would “remain an important presence for us, just not our European hub”.

Several big banks warned before June’s EU referendum that they could move thousands of jobs out of the UK in the event of Brexit.

While there has been little sign of jobs shifting yet, US bankers have said they will trigger their Brexit responses soon.

“How do we and when do we start making decisions … knowing the plan is ready to go … it could be in the first quarter of 2017,” said James Bardrick, head of UK for Citigroup.

Rob Rooney, head of Morgan Stanley International, said: “If we are outside the EU and we don’t have what would be a stable and long-term commitment to access the single market, then a lot of the things we do today in London we’d have to do inside the EU 27.”

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