Sony, SMEs, WhatsApp: Business news in brief, Tuesday 31 January

Movie business takes $1bn writedown; number of British firms facing significant financial distress rises; Consumer association sues Whatsapp over data policy

Sony's movie business has suffered after a series of box office flops (REUTERS/Yuriko Nakao)

Sony to take $1bn writedown on movie business

Sony said it will take a 112bn yen (£800m) writedown in its movie business after reviewing the future profitability of its operations.

The company said it would book the charge in the fiscal third quarter and is examining how that will affect its forecasts. To offset part of the loss, the company also said it would sell shares in the medical web service M3 to Goldman Sachs’s Japan unit, in a deal worth about 37bn yen.

The announcement comes two weeks after Sony said the chief executive officer of Sony Entertainment, Michael Lynton, is stepping down after a 13-year run. The studio has struggled recently, including with last year’s Ghostbusters sequel and a movie based on the Angry Birds video game. Sony warned in June the division was at a risk of posting more losses.

“There has been a suspicion in the market that Sony doesn’t have a firm grip on the movie business, but still the amount is a surprise,” said Kazunori Ito, an analyst at Morningstar Investment Services. “That said, with Lynton’s departure and this writedown, all the bad news is out and the attention can turn on their plan for the coming fiscal year.”

“The decline in the DVD and Blue-ray market was faster than we anticipated,” Takashi Iida, a Sony spokesman said by phone.

The Tokyo-based company is increasingly relying on its video games business, which generated twice as much income in the last fiscal year as film. Sony’s PlayStation 4 console is outselling Xbox One, its closest rival from Microsoft Corp., by about two-to-one, according to industry website VGChartz.

Bloomberg

More firms facing financial distress as SMEs bear brunt of struggles

The number of British firms facing significant financial distress has risen for the 13th consecutive quarter, with SMEs bearing the brunt of the pain.

Fourth-quarter data from insolvency experts Begbies Traynor shows that 276,518 businesses finished 2016 in a state of distress, an increase of 3 per cent compared with the same period last year.

The group's Red Flag Alert, which monitors financial health, also revealed that 91 per cent of the firms are SMEs. Nearly a quarter, or 23 per cent, of the country's struggling businesses were in London, where 64,764 companies finished the year in a state of financial distress, an increase of 5 per cent on the same period in 2015.

Julie Palmer, partner at Begbies Traynor, said: “The scale of SME distress at the end of 2016 just goes to highlight the fragility of UK micro businesses, many of which are underfunded, lack management experience or are flawed in concept.

“Although record numbers of new start-ups continue to join the economy each year, a large proportion don't stay in business for long, with growing numbers of aspiring entrepreneurs returning to more established businesses as soon as the opportunity arises.”

Begbies Traynor flagged that the number of UK company incorporations is growing at its highest level since the start of the financial crisis, with more than 685,000 start-ups joining the economy during 2016.

But it added that many of these start-ups are short lived “lifestyle businesses” often forced upon people by changing circumstances, such as the loss of employment.

PA

WhatsApp sued by German consumer association over data policy

A German consumer group sued Facebook’s WhatsApp in a Berlin court over clauses that allow the messaging service to collect and transfer user data between the platforms.

The suit is challenging the privacy terms WhatsApp changed in August, which allow for transferring some data to Facebook’s social network, VZBV said in a statement on Monday. Each consumer must be able to decide on his own which personal data is revealed and how it is used, the group said.

“Our experts brought the misconduct to light. Now we’ll meet in court,” VZBV said. “Be it Facebook, Google, Amazon or now WhatsApp: we target violations.”

WhatsApp’s data rules have triggered a wave of concerns from European regulators. The bloc’s Competition Commissioner Margrethe Vestager is now probing Menlo Park, California-based Facebook for possibly supplying “incorrect or misleading information” about how it planned to use customer data when it filed for approval to acquire WhatsApp. German’s antitrust regulator is also probing the data-transfer issue.

Facebook spokeswoman Tina Kulow didn’t immediately reply to an e-mail seeking comment.

Bloomberg

Shares in British engineering group WS Atkins rally on £3.2bn merger talk

Shares in British engineering and consultancy firm WS Atkins jumped almost 8 per cent on Monday after the Times newspaper reported the group had been approached by US peer CH2M over a possible $4bn (£3.19bn) merger.

Atkins has been trying to diversify away from its home market, which accounts for over half of its revenue, by growing its footprint in the United States and Asia.

The Times said that privately owned CH2M made an approach for Atkins at a senior level, although it was unclear how far talks had developed.

“It is our policy not to comment on rumour and speculation,” Atkins said in response to an inquiry by Reuters. CH2M did not immediately respond to a request for comments.

The Colorado-based company, which generated revenue of $5.4bn in 2015 according to its website, has been Atkins' partner on a number of projects, including Crossrail - London's new railway link and the current largest infrastructure project in Europe.

A merger would follow a trend toward consolidation in the engineering and construction industries globally in the past few years, including a failed attempt by UK company Carillion to merge with rival Balfour Beatty.

Reuters

Kodak celebrates Academy Award nominations for film movies

Kodak says some of Hollywood is still hanging on to film, pointing to 29 Academy Award nominations for movies captured on its 35mm and 16mm Motion Picture Film stock as proof of its success.

Kodak says “La La Land,” “Fences,” “Hidden Figures,” “Jackie,” “Nocturnal Animals,” “Loving,” “Silence,” “Suicide Squad,” and “Hail Caesar!” are among movies whose producers have bucked the digital cinematography trend.

Kodak is the last big supplier of motion picture film. Competitor Fujifilm stopped its production in 2013.

The Rochester-based photography and film pioneer began making movie film in 1896. Production was in danger of being halted until 2014, when the company reached new supply agreements with the major Hollywood studios. At the time, it had seen sales fall 96 per cent since 2006.

AP

Flybe notes slow start to final quarter

Airline Flybe said uncertain customer confidence and poor weather led to a slow start to the current quarter, after tough trading conditions and increased market capacity hit its fleet utilisation in the third quarter.

However, the airline, which connects British regional airports to London and other European cities, said on Monday its third-quarter revenue grew, boosted by additional capacity in its network.

Passenger revenue grew 13.5 per cent in the third quarter ended December 2016, compared with a 5.7 per cent increase in the first half. Revenue per seat rose 0.2 per cent in the third quarter versus a decline of 6.9 per cent in the first half.

European airlines have driven down fares by adding more seats to boost their market share in a period of low oil prices.

They have also experienced some demand turbulence over the past year due to uncertainty arising from Britain's decision to leave the European Union, a string of attacks in Europe and lower appetite for corporate travel.

Reuters

Brazil Supreme Court validates plea bargains in graft probe

The head of Brazil's Supreme Court validated 77 plea bargains with officials from a construction giant targeted by a major corruption probe on Monday, a step that is likely to significantly widen investigations into top politicians and businessmen.

All Brazil has been waiting to learn what is contained in the plea bargains with executives and former executives from Odebrecht, one of the main players in a massive kickback scheme. The investigation into kickbacks at the state-run oil company Petrobras is already the largest ever in Brazil, but the Odebrecht deals are expected to reveal even more wrongdoing and contain allegations that the corruption reached the highest levels of government. At least one could implicate President Michel Temer, who denies wrongdoing.

The dossiers from the deals are now being sent to the prosecutor, the court said in a statement. They will remain secret for the time being.

Prosecutors say that inflated contracts at Petrobras and other state companies yielded more than $2bn in bribes over a decade and the probe already has ensnared dozens of politicians and executives, many of them implicated by information learned in plea bargains.

AP

Citigroup plans to exit mortgage servicing by end of 2018

Citigroup plans to exit the mortgage-servicing business by the end of 2018 to focus on making new loans.

The bank reached an agreement to sell the servicing rights on Fannie Mae- and Freddie Mac-backed loans with $97bn of outstanding balances to New Residential Mortgage, New York-based Citigroup said Monday in a statement. The bank also reached a deal with Cenlar FSB to service its remaining mortgages, and plans to transfer the rights for those loans beginning in 2018.

The sale to New Residential, which is subject to regulatory approval, is expected to be completed in the first half of 2017. Citigroup said the agreements will reduce pretax results by about $400m in the current quarter. Expense benefits will start to accrue in 2018, according to the bank.

Bloomberg