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ALEX BRUMMER: Rolls-Royce

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alex brummer rolls royce

Early on in the pandemic, the Chancellor Rishi Sunak was adamant that there would be no bail-outs for firms which had other options.

Virgin Atlantic and other supplicants seeking funds were told to exhaust all possibilities, including rich proprietors.

The wealthy backer for Britain’s top-ranked engineering and aerospace firms BAE and Rolls-Royce is HMG. It was inconceivable that any British government could allow Rolls-Royce to tip into insolvency.

Long-haul: Civilian aerospace is not going to repair itself while the pandemic persists, so immediate hopes of ramping up flying hours are out of the question

Long-haul: Civilian aerospace is not going to repair itself while the pandemic persists, so immediate hopes of ramping up flying hours are out of the question

But when the share price touched 104p on October 2, it looked like panic stations. The landing strip now seems a great deal clearer. 

Rolls-Royce was finally able to engage in self-help through a deeply discounted but underwritten rights issue to existing investors, and a new corporate bond, after the Government stepped in with loan guarantees.

Civilian aerospace is not going to repair itself while the pandemic persists, so immediate hopes of ramping up flying hours are out of the question. Rolls-Royce has maintained that the key to bolstering it through difficult times is to get behind new projects.

The unleashing of the PwC report on Britain’s next generation Tempest fighter, to be developed in conjunction with Sweden and Italy, is a big step forward for the aerospace sector. 

PwC estimates it could generate £25.3billion in value and create 20,000 jobs. Britain has already committed £2billion to getting Tempest done and that is a lifeline to both BAE and Rolls. 

The defence of Britain and the arms industry is one of the few certainties in an uncertain world.

The second prop in the Rolls-Royce armoury is the discovery in Whitehall of the Small Modular Reactor which became particularly relevant after Hitachi abandoned its nuclear commitment at Wylfa on Anglesey. 

The prospect of £2billion being put behind a programme – touted by Rolls for several years – has reassured investors.

There was market evidence of this with the disclosure of a doubling to £2billion of its fund-raising bond offer, helped by a juicy coupon of 4.6 per cent. 

Two years ago when Rolls had a decent credit rating, it paid just 0.875 per cent! It may also be comforting to know that if anything should go wrong, the Bank of England has the firepower to step in as a back stop buyer of corporate paper.

Down the hatch

What a grim moment for the beerage. No sooner than the brewers managed to return to some kind of normality after lockdown, along come new restrictions.

The threat is particularly hard for Britain’s army of small and craft brewers, many of which were excluded from the direct support of the hospitality sector. Some five million pints were simply poured away.

Not that conditions are much better for the bigger quoted enterprises. Marston’s is letting go of 2,150 workers currently on furlough. 

The latest government guidance is scant reward for the extensive sanitation and social distancing measures taken by them and other pub chains.

Heineken is hit by a double whammy. It has spent £27million making its Star pubs Covid- compliant only to find that many will have to close their doors. 

It also is being fined £2million by the Pubs Code Adjudicator for ‘serious’ breaches of the rules. 

The measure was designed to protect landlords from rapacious brewers prevailing upon them to buy their own product rather than shop the market. 

Heineken’s defence is that the code is poorly drawn and no numerical targets have been provided, which means the adjudicator makes up the penalties as it goes along.

Maybe. But a job description for tenants written by a Heineken compliance officer includes a stipulation that the pubs code is interpreted for the commercial benefit of Heineken. 

That does not sound very neutral. Such breaches will not inspire sympathy for bigger brewers when they are most vulnerable.

Property IED

The assault on Westfield owner Unibail-Rodamco by French telecoms billionaire Xavier Niel is a straw in the wind.

The shopping centre group is loaded up with £22billion of debt dating from when it bought the upmarket Australian mall owner in 2018.

As we know from UK shopping park owners Hammerson, Intu, Land Securities et al, retail property values have been slashed by the pandemic.

The value of development properties will also be punished by further lockdowns.

As with past recessions, the ultimate bills for over-lending to property could end up with the banks. Scary.

This post first appeared on dailymail.co.uk

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No deal Brexit would hike prices of electric cars by £2,800 on average

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no deal brexit would hike prices of electric cars by 2800 on average

Electric vehicles, which are already priced at a premium compared to petrol and diesel cars, would become £2,800 more expensive on average next year if a deal can’t be found with the European Union, a trade body has warned.

A rise would be unavoidable as a result of 10 per cent tariffs being placed on all vehicles imported to the UK from the EU if the Government doesn’t hash-out a deal with Brussels before the end of the transition period.

Increased vehicle costs would ultimately price many potential buyers out of switching to low-emissions cars and burst the recent boom in demand for plug-in models, the Society of Motor Manufacturers and Traders claims.

However, a separate report has suggested any increase in prices as a result of a Brexit no-deal would be in-line with those felt on petrol and diesel models in less than half a decade after calculating that there will be price parity as early as 2024.

Is an EV price hike coming in 2021? The Society of Motor Manufacturers and Traders said failure to secure a trade-free deal with the EU will see the price of imported battery cars rise

Is an EV price hike coming in 2021? The Society of Motor Manufacturers and Traders said failure to secure a trade-free deal with the EU will see the price of imported battery cars rise

Is an EV price hike coming in 2021? The Society of Motor Manufacturers and Traders said failure to secure a trade-free deal with the EU will see the price of imported battery cars rise

The SMMT has previously said the average cost of new cars shipped from EU nations to the UK would become £1,900 pricier from 1 January if trade-free tariffs are not agreed. 

However, it has now said the impact would be far greater for buyers of electric cars, which are currently more expensive than an equivalent motor with an internal combustion engine if the UK and EU can’t find a common ground as talks recommence this week.

The trade body has urged both sides to ‘re-engage with vigour’ in the Brexit negotiation process, not only for the automotive sector but for ‘hopes of a green recovery from the coronavirus crisis’.

Government officials said on Monday that time was very short to ‘bridge the significant remaining gaps on key issues’ in talks with the European Union, as EU chief negotiator Michel Barnier heads to London to continue negotiations. 

The organisation said a no deal would be the worst possible outcome for the sector, car buyers and the UK’s ambitions to become a world leader in transport decarbonisation. 

‘The immediate imposition of blanket tariffs under World Trade Organisation rules would add billions to the cost of trade and, crucially, to the cost of building and buying electric vehicles,’ it warned.

The 10 per cent WTO tariff would add at least £4.5billion to the annual cost of fully assembled cars traded between the UK and the EU, with an average hike of £1,900 per EU-built vehicle sold in the UK.

However, new analysis shows that for fully electric cars fitted with expensive battery technology, the cost increase is even higher, at £2,800, effectively increasing the price gap between them and conventionally-powered vehicles. 

Currently, a new Volkswagen Golf with a petrol engine costs from £20,280.

The cheapest ID.3 – VW’s new comparatively-sized electric family hatchback – costs from £29,990.

The entry level VW Golf currently costs from £20,280

The entry level VW Golf currently costs from £20,280

The similarly-sized VW ID.3 electric hatchback is £29,990 - almost £10k more expensive

The similarly-sized VW ID.3 electric hatchback is £29,990 - almost £10k more expensive

The entry level VW Golf (left) currently costs from £20,280 while the cheapest ID.3 electric hatchback is almost £10,000 pricier, even when buyers use the £3,000 Plug-in Car Grant

Similarly, Jaguar Land Rover – the UK’s biggest car maker – charges £64,495 for its battery-powered I-Pace SUV, while a comparable F-Pace with a petrol powerplant starts at just under £45,000.

A £2,800 price increase would also make the £3,000 plug-in car grant available to buyers of pure electric vehicles almost null and void.

Car manufacturers have widely said they have no intention to absorb the increased cost of tariffs to bring EU-built vehicles to the UK, instead passing the higher charges directly to customers in their showrooms.

But by making electric vehicles even more expensive, it could create a roadblock for the recent boom in demand for EVs seen in 2020, the SMMT warned.

By the end of September, demand for pure electric cars has risen 165 per cent year-on-year with some 66,611 registered in the first nine months of 2020 – which is almost double that of full-year EV sales in 2019.

Battery electric vehicle demand is up 165% so far in 2020. However, the SMMT said increased vehicle prices could kill the surge in demand

Battery electric vehicle demand is up 165% so far in 2020. However, the SMMT said increased vehicle prices could kill the surge in demand

Battery electric vehicle demand is up 165% so far in 2020. However, the SMMT said increased vehicle prices could kill the surge in demand

Moreover, a tariff would also add some £2,000 on to the average cost of UK-built battery electric cars exported to the EU, making our own products less competitive and the UK far less attractive as a manufacturing investment destination. 

Second-hand EV values are already on the rise

Britons are embracing electric cars more than ever before, with the 165 per cent urge in registrations also increasing demand on the second-hand market.

As a result, the average price of a used electric cars rose by over a third (34 per cent) in September 2020 compared to the same month last year, according to Motorway.co.uk. 

Tesla has had the biggest price increase compared to September 2019, up 11 per cent, equating to an average of £4,746 more per vehicle. 

In fact, the average price of a used Tesla increased by 3 per cent in September from the previous month.

Other manufacturers have also posted increases, says the car selling  website. 

Plug-in BMW’s have risen by 3 per cent, Hyundai’s up 10 per cent Nissan Leafs rising by 4 per cent and Renault’s Zoe up 6 per cent. 

This would hit Nissan hardest, which produces the electric Leaf at its UK base in Sunderland. 

The overall impact of tariffs would ‘further hamper the UK’s ambition to be a global leader in zero emission vehicle development, production and deployment, severely damaging industrial competitiveness’, the body said.

And with ministers setting a deadline of 2035 for new petrol and diesel cars to be banned from sale and the UK to become carbon neutral by 2050, restricted the appetite for electric vehicles today could have serious implications for these targets. 

Mike Hawes, SMMT chief executive, said: ‘Just as the automotive industry is accelerating the introduction of the latest electrified vehicles, it faces the double whammy of a coronavirus second wave and the possibility of leaving the EU without a deal. 

‘As these figures show, ‘no deal’ tariffs will put the brakes on the UK’s green recovery, hampering progress towards net zero and threatening the future of the UK industry.

‘To secure a truly sustainable future, we need our government to underpin industry’s investment in electric vehicle technology by pursuing an ambitious trade deal that is free from tariffs, recognises the importance of batteries in future vehicle production and ensures consumers have choice in accessing the latest zero emission models. 

‘We urge all parties to re-engage in talks and reach agreement without delay.’ 

Investment bank UBS says electric and internal combustion engines cars will cost the same in 2024 as batteries become cheaper

Investment bank UBS says electric and internal combustion engines cars will cost the same in 2024 as batteries become cheaper

Investment bank UBS says electric and internal combustion engines cars will cost the same in 2024 as batteries become cheaper

‘EVs will cost the same to produce as petrol and diesel cars by 2024’, says new report

While the SMMT says the addition of WTO tariffs will see electric car prices accelerate more significantly than petrol and diesel vehicles on average, a new report claims this might only be the case for another three years.

Investment bank UBS says electric cars will cost the same to make as conventional motors as early as 2024 due to falling battery costs.

Based on analysis of batteries from the seven largest manufacturers, it says the extra cost to manufacture powerful lithium ion batteries versus their fossil fuel equivalents will shrink to just $1,900 (£1,470) per car by 2022.

Two years after that date, it calculates there will be complete parity with internal combustion vehicles – bringing to an end the last decade of EVs being at a significant premium. 

Tim Bush, an analyst at the bank, told The Guardian that there will not be ‘many reasons left to buy an internal combustion engine car after 2025’ and car makers that try to hang on to sales of petrol and diesel powered cars ‘risk being left behind by rivals such as Tesla and Volkswagen’. 

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Metals Exploration climbs 168% on the stock market after relisting

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metals exploration climbs 168 on the stock market after relisting

Shares in mineral resources firm Metals Exploration shot up today following its relisting on the AIM exchange.

They rose 168.3 per cent by the mid-afternoon on its first day back on the London Stock Exchange in seven months after negotiations over its debt obligations were settled.

The company, which owns the Runruno Gold Project in the Philippines and has property tycoon Nick Candy as its largest shareholder, hopes the new debt terms will secure its long-term viability.

Property tycoon Nick Candy is the largest shareholder in London-listed Minerals Exploration

Property tycoon Nick Candy is the largest shareholder in London-listed Minerals Exploration

Property tycoon Nick Candy is the largest shareholder in London-listed Minerals Exploration

It also believes the rising price of gold as a result of the coronavirus could create significant equity for the business. 

A spokesperson for Mr Candy said the restructuring had ‘created stability’ for Metals Exploration in a way that gives it ‘flexibility’ while ‘significantly reducing the possibility of a default.’

They added: ‘Gold is widely perceived as recession-proof which can be evidenced in the current record pricing…which coupled with the global pandemic and the upcoming US election, makes gold one of the desired assets in times of economic uncertainty.’

The element’s value has risen by a quarter in the last year, and the Runruno site can produce over 65,000 tonnes of gold per year, giving the firm great potential to financially benefit.

The business has struggled with its finances in recent years though as the Philippine government under Rodrigo Duterte has cracked down on mining in the country to help rehabilitate the environment.  

He appointed Gina Lopez as his environment secretary, and prior to her death in 2019, she ordered the closure of 23 mines and the cancellation of 75 mining contracts that she claimed threatened watersheds.  

Candy’s brother Christian bought a large stake in the London-listed miner in 2010 as the pair sought to diversify their business away from luxury property. 

The pair helped design One Hyde Park, a modernist residential and retail development in Knightsbridge where flats can sell for tens of millions of pounds.  

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Metals Exploration climbs over 160% on the stock market after relisting

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metals exploration climbs over 160 on the stock market after relisting

Shares in mineral resources firm Metals Exploration shot up today following its relisting on the AIM exchange.

They rose 168.8 per cent by the mid-afternoon on its first day back on the London Stock Exchange in seven months after negotiations over its debt obligations were settled.

The company, which owns the Runruno Gold Project in the Philippines and has property tycoon Nick Candy as its largest shareholder, hopes the new debt terms will secure its long-term viability.

Property tycoon Nick Candy is the largest shareholder in London-listed Minerals Exploration

Property tycoon Nick Candy is the largest shareholder in London-listed Minerals Exploration

Property tycoon Nick Candy is the largest shareholder in London-listed Minerals Exploration

It also believes the rising price of gold as a result of the coronavirus could create significant equity for the business. 

A spokesperson for Mr Candy said the restructuring had ‘created stability’ for Metals Exploration in a way that gives it ‘flexibility and significantly reducing the possibility of a default.’

They added: ‘Gold is widely perceived as recession-proof which can be evidenced in the current record pricing…which coupled with the global pandemic and the upcoming US election, makes gold one of the desired assets in times of economic uncertainty.’

The element’s value has risen by a quarter in the last year, and the Runruno site can produce over 65,000 tonnes of gold per year, giving the firm great potential to financially benefit.

The business has struggled with its finances in recent years though as the Filipino government under Rodrigo Duterte has cracked down on mining in the country to help rehabilitate the environment.  

He appointed Gina Lopez as his environment secretary, and prior to her death in 2019, she ordered the closure of 23 mines and the cancellation of 75 mining contracts that she claimed threatened watersheds.  

Candy’s brother Christian bought a large stake in the London-listed miner in 2010 as the pair sought to diversify their business away from luxury property. 

The pair helped design One Hyde Park, a modernist residential and retail development in Knightsbridge where flats can sell for tens of millions of pounds.  

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