Now maybe David is sitting there today asking himself just what the hell that post of Edward’s on outsouring in the US had to do with a European centred blog. Well the answer didn’t take long in reaching us: the euro rose to a fresh record above $1.29 today as upbeat U.S. data yesterday failed to diminish the bearish view of the greenback and off it went to new multi-year lows against a range of other currencies (this should make us ask ourselves what may happen if we get a run of bad data).
And just what has this got to do with outsourcing? Well we seem to be on a conveyorbelt at the moment, one which stretches all the way though Asia across the US and then on over to Europe. What this is producing is ‘weakness’ in the US labour market, an intractable US trade deficit, and interest rates at historic lows. Which means of course that the dollar keeps on falling, and the euro keeps on rising. Until…….
Meanwhile, back here in Europe Volkswagen AG, Europe’s largest carmaker, has announced it is going to cut its dividend for the first time in 11 years after problems with the rising euro and lower-than-expected sales of the Phaeton in the US , where the car has a starting price of 57,300 euros, triggered a writedown of 711 million euros, provoking a fourth-quarter earnings reduction of around 60 percent.
Volkswagen, Europe’s biggest carmaker, cut its dividend for the first time in more than 10 years as weak sales, the strong euro and the effects of an ageing product line sliced into earnings last year.
The German automotive group reduced its dividend 19 per cent to ?1.05 in 2003 from ?1.30 a year earlier, after reporting a drop of almost 48 per cent in operating profits before extraordinary items to ?2.49bn ($3.21bn).
Net profit fell 57 per cent to ?1.12bn in 2003, on sales of ?87.15bn compared with ?86.95bn a year earlier.
However, the company beat its own forecasts for operating profits “slightly less than half” the 2002 result, and investors, who had feared an even larger reduction, reacted with relief.
VW’s shares jumped almost 3 per cent to ?40.40 in early trading in an otherwise flat market.
The shares have been weighed down in recent weeks by earnings concerns and disappointment over the sales performance of the revamped Golf, VW’s most important model.
The group reported one-time charges of ?711m in the fourth quarter, to cover the costs of cars and technologies that are failing to generate the revenues the company expected.
Analysts believe the Phaeton, VW’s slow-selling luxury sedan, is largely to blame. Restructuring in Brazil, where the group is aiming to shed 4,000 jobs because of chronic overcapacity, is also a factor.
The group’s performance has been further hit by heavy investment in new model launches, although analysts believe these costs have now peaked.
Investment fell 1 per cent to ?9.03bn last year. Cash flow was down 15.7 per cent at ?6.8bn.
The company did not provide a clear outlook for the current year, only commenting that the dividend cut reflected both the drop in earnings and “positive expectations for earnings medium term”.
The group is scheduled to hold its annual news conference on March 9.
Source: Financial Times