The Sky News Business Round-Up And Look Ahead

Sky's Naomi Kerbel offers a look ahead to what's coming up in the week's business news.

:: Monday July 8

Eurogroup Finance Ministers meeting

Christine Lagarde, the managing director of the International Monetary Firm (IMF) will present its annual review of the euro region

:: Tuesday July 9

Marks & Spencer Plc - AGM

:: Wednesday July 10

Burberry Q4 trading update

The luxury fashion brand recently chose Sienna Miller and Tom Sturridge to star in its autumn/winter 2014 advertising campaign

:: Thursday July 11

Associated British Foods - Q3 results

Its grocery division includes the Twinings brand, but its the Primark business that accounts for 40% of the group profits

:: Friday July 12

UK construction industry output

Details of the industry's performance in May will be announced

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Portugal: Deal Saves Coalition Government

A deal has been reached to save Portugal's centre-right coalition government, the country's prime minister Pedro Passos Coelho has said.

The coalition was threatened with break-up because of a dispute over austerity policies but Mr Passos Coelho said "a formula" had been found that secures its survival.

The policies squeezing the bailed-out nation had led markets to plunge on Wednesday.

But they rallied after Mr Passos Coelho said he was "convinced" he could maintain government stability despite his finance and foreign ministers saying they were quitting.

European Central Bank chief Mario Draghi sought to soothe market nerves, saying Portugal's economy was "in safe hands" with finance minister Vitor Gaspar's successor, Maria Luis Albuquerque.

The Portuguese reform process has been a "painful route and the results achieved have been quite significant, remarkable, if not outstanding", Mr Draghi told a news conference in Frankfurt.

The Portuguese stock market's PSI-20 index rose to close 3.73% higher on Thursday, after plunging 5.31% on Wednesday.

Pressure on the bond market eased, too, with the Portuguese benchmark 10-year government bond yield sliding to 7.40% in the afternoon, having soared to 8.106% the day before.

Foreign minister Paulo Portas's resignation had threatened to sink the government because he is also leader of the junior partner in the governing coalition, the small conservative CDS-PP party.

But the PM, desperate to hold together the coalition led by his Social Democratic Party (PSD), refused to accept Mr Portas' resignation.

The prospect of a deal emerged when the CDS-PP leadership asked Mr Portas to meet with the premier to find "a viable solution for the government of Portugal".

Mr Passos Coelho and his foreign minister held talks in a "very positive atmosphere", the premier's office said earlier.

Portuguese newspapers said the prime minister could reshuffle the cabinet to give Mr Portas the post of deputy premier in charge of the economy.

"The prospect of a snap election is so terrifying for the PSD that the prime minister will do anything to save the coalition," said Antonio Costa Pinto, a political scientist at Lisbon University.

Socialist opposition leader Antonio Jose Seguro had urged the Portuguese president to call snap elections in a meeting on Wednesday.

European Union leaders, fearing a resurgence in tension in the eurozone's debt-laden periphery, pressed Lisbon to resolve the crisis.

"The political situation should be clarified as soon as possible," the European Commission's Portuguese president, Jose Manuel Barroso, said on Wednesday.

The government has imposed unpopular spending cuts and tax rises under the 2011 bailout deal agreed with the "troika" of creditors - the European Commission, the European Central Bank and the International Monetary Fund.

It is now under pressure to present a further 4.7 million euros (£4m) in spending cuts to the troika when its delegates visit on July 15.

The austerity measures have plunged Portugal into a deeper recession with higher unemployment than had been expected, sparking mass protests and strikes.

In his resignation letter, Mr Portas had said he disapproved of the prime minister's naming of Treasury Secretary Maria Luis Albuquerque as the new finance minister.

Her appointment was seen as an indication that Mr Passos Coelho intended to push on with austerity despite protests.

"The big fear is this country has failed to demonstrate economic growth since its bailout and its government has also been unable to meet targets set out by the troika," said Ishaq Siddiqi, strategist at London-based brokerage ETX Capital.

"Now, without a stable government in power, investors are concerned Portugal will be unable to meet its debt obligations."

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Superfast Broadband Roll-Out Running Late

The Government programme to roll out superfast broadband to 90% of the population is running late and lacks strong competition to protect public value, the National Audit Office has reported.

It has already announced that superfast broadband will reach 95% of the population by 2017, just two years after the original target of 90%.

Just nine out of 44 local projects are expected to reach the original target, according to the report, with the delay partly attributed to the EU State Aid process taking six months longer than expected.

The NAO said that competition among suppliers had been "limited", leaving BT as the only active participant and expected to win all 44 local projects.

It warned that the Department for Culture, Media and Sport (DCMS) had "secured only limited transparency" over the costs in BT's bids.

And it said the DCMS now expected BT to provide just 23% of the overall projected funding of £1.5bn - £207m less than expected.

Amyas Morse, head of the NAO, said: "The rural broadband project is moving forward late and without the benefit of strong competition to protect public value.

"For this we will have to rely on the department's active use of the controls it has negotiated and strong supervision by Ofcom."

Public Accounts Committee chairwoman Margaret Hodge said. "The DCMS has not had a good enough grip on its rural broadband programme."

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Rolls-Royce Accused Of Hiding Engine Defects

Two former Rolls-Royce employees have alleged the engine maker "cut corners on quality control requirements" and "lied to" customers.

Thomas McArtor and Keith Ramsey have also accused the company of hiding internal records of defects in engines it sold to commercial and military clients.

They claim that the company collated these alleged defects into a "secret set of books".

The ex-quality control officers in the United States are challenging a court order that prevents them from releasing information they say reveals potentially serious defects in its manufacturing processes, according to reports in The Financial Times and The Daily Telegraph.

Rolls-Royce has denied the claims and said the lawsuit is "without merit", adding that a US district judge had already thrown out two of the four claims before the "discovery" phase of the litigation had been entered.

"This lawsuit is entirely without merit," a Rolls-Royce spokesman said.

"Judge William T Lawrence did not find that Rolls-Royce engaged in any wrongdoing, failed to follow its quality system, concealed anything from the US government or even that a jury is entitled to hear the allegations.

"Rolls-Royce categorically rejects the other claims and will defend itself vigorously. Any and all facts of the case will be presented in court, where we are confident it will be found the lawsuit is without merit."

The lawsuit comes at a difficult time for the firm.

Last month an Australian safety regulator reported that Rolls-Royce had failed to identify a defect that caused one of its engines to explode on a Qantas Airways Ltd flight over Indonesia in November 2010.

In its final report on the incident, the Australian Safety Transport Bureau (ASTB) said the company missed multiple opportunities to detect a faulty component.

Rolls-Royce is also the subject of an investigation by the Serious Fraud Office (SFO) into claims that company representatives paid bribes to win airline engine contracts in China and Indonesia.

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Samsung Posts Disappointing Profits Forecast

Samsung has forecast weaker than expected profits for the last quarter, fuelling concerns about flagging demand for high-end smartphones.

The South Korean firm is predicting £5.5bn in operating profit for the period April to June.

That would be a record result for the electronics giant - but lower than the £6bn forecast by analysts.

Samsung shares dropped nearly 3% after the company issued the profit guidance on Friday.

Concerns about sales of Samsung's new phones and tablets have seen the electronic giant's share price drop almost 18% in the last month.

Mobile phones and IT account for 70% of the company's profits.

Despite robust sales of its Galaxy S4 in the first month, new rivals have emerged to eat away at its market share.

It has also become harder for the industry to impress buyers with new features in upgraded models as most smartphones offer similar functions.

Fewer wow factors in new smartphones mean people will not upgrade as quickly as they did when the devices were still a novelty, forcing device makers such as Samsung to spend more on splashy advertising and marketing.

Analysts say high marketing costs probably weighed on Samsung's mobile business despite sales of the S4 hitting the 10 million mark about 20 days faster than the previous model.

"Because of the marketing costs, the telecommunications business was probably weaker than expected," said CW Chung, an analyst at Nomura Financial Investment in Seoul.

Samsung will announce its net income and final quarterly financial results later this month.

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EU: Business Warning Over Britain Pullout

Britain's leading business organisation has warned that a Norwegian or Swiss-style relationship with the European Union would not be better than full membership for the UK.

As a bill to enshrine an in/out EU referendum in law passes its first big test in the Commons, some advocates of withdrawal have held up Norway and Switzerland as models for a future for Britain outside the 28-nation bloc.

But a report from the Confederation of British Industry (CBI) has warned that the "halfway house" positions followed by the two states "are not easy options that simply allow a country to gain the advantages of membership while removing the disadvantages".

"The CBI rejects the premise that these models would be better options for the UK," said the report.

Neither Norway nor Switzerland are members of the EU, but both enjoy varying degrees of access to the single market.

Norway is a part of the single market through its membership of the European Economic Area (EEA), while Switzerland has negotiated a free trade deal and more than 120 bilateral agreements with the EU.

But after interviews with a wide range of Norwegian and Swiss businesses, politicians and other stakeholders, the CBI concluded that both found themselves in the position of having to comply with swathes of EU laws and standards without having the power to influence the way they are framed.

Norwegian firms were placed at a "competitive disadvantage" because they operate in a more uncertain regulatory framework than EU counterparts, but Oslo was unable to take advantage of its hoped-for trade flexibility, as international negotiators preferred to conclude deals with the EU first, said the report.

Meanwhile, Switzerland tends to introduce measures domestically to match those of the EU in order to ensure its companies have access to the single market.

Negotiating bilateral trade agreements has been "complex and time-consuming", with one important set of deals taking almost a decade to be finalised and enter into force.

The CBI quoted Norwegian Conservative Party spokesman Nikolai Astrup MP advising Britain: "If you want to run the EU, stay in the EU.

"If you want to be run by the EU, feel free to join us in the EEA."

The report concluded: "It is clear that neither the Norwegians nor Swiss have developed an associate membership that is satisfactory to both Brussels and the country in question.

"The CBI rejects the notion that these models would be better for the UK, arguing that British businesses don't want to find themselves at the margins of the world's largest trading bloc operating under market rules over which they have no influence."

The Norwegian model "would not be suitable for the far more complex British economy," found the report.

"Nor does it in any way accommodate those who want to see a reduction in Brussels' influence on the UK and our regulatory development.

"If anything, the position would be worsened. Norway makes a significant financial contribution in return for market access, but accepts rules it has virtually no influence over."

And it added: "Neither is the Swiss model an attractive option, as in practice it would potentially mean a long period of uncertainty during negotiations over market access, with no guarantee of the UK getting what it wants, before ultimately becoming a 'standards-taker' with limited influence."

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Inventor's 'Safety Net' For Fishermen

By Naomi Kerbel, Business Producer

The depletion of fish stocks costs millions of pounds and threatens 40% of the world's population who rely on fish to eat.

In the North Sea alone, the European Commission estimates that 50% of fish - often endangered species like cod - are thrown away or "discarded".

In February 2013, the European Parliament voted for reforms aimed at vastly reducing the needless waste - but innovation is needed to help fishermen reduce discard from their trawlers.

For our science and technology partnership with Yahoo!, The Lab, I met Dan Watson, winner of the prestigious James Dyson award and one of the new generation of inventors making their living trying to solve problems.

Mr Watson has created the SafetyNet, a trawling system that aims to cut down on fishermen's catch and in turn minimise the discard of juvenile and endangered fish.

I visited him at his studio, an unused school in Battersea, South London. He shares a classroom with an animator and all the adjoining rooms are filled with artists, film-makers and photographers.

Mr Watson showed me his prototype. On an upended classroom table, a section of fishing net is tied from leg to leg.

In the centre is a white plastic ring and he uses some clever gadgetry to tense the net - imitating the pressure the net would undergo deep in the sea.

The white ring, made of highly durable cast nylon, stays in place.

Current fishing nets fail because when the net is being towed, the flow of water stretches the meshes, closing them and not allowing the juvenile fish to escape.

Mr Watson's reinforcing ring aims to keep the meshes fully open, allowing the smaller fish to escape while retaining the larger, marketable fish like haddock and whiting.

He has identified another problem - that fish often can't see the netting so don't know they are trapped. He has inserted LED lights powered by water flow into the ring, offering a highly visible exit.

Marine Conservation Society fisheries officer Sam Stone said the invention could be a major step in the right direction.

He said: "The SafetyNet won't solve our fisheries problem, but it provides a great example of what can be achieved, or potentially be achieved, if there is significant investment in innovation experimenting with fishing nets."

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Cyber Experts Unite To Halt 'Gunpowder Moment'

PM Warned Of Cyberattack Threat

Updated: 1:18pm UK, Thursday 06 June 2013

Britain's national security is potentially being put at risk by the involvement of Chinese firms in the UK's telecoms systems, MPs have warned.

In a highly critical report, the parliamentary Intelligence and Security Committee (ISC) has warned that attempts by ministers to balance the need to encourage Chinese investment in the UK with security equipment had resulted in an "unacceptable" stalemate.

It highlighted the case of the Chinese telecoms company Huawei, which signed a major contract in 2005 to supply equipment to BT and has since signed deals with other companies including O2, TalkTalk and EverythingEverywhere.

But despite concerns that China exploits vulnerabilities in the Huawei equipment to spy on the UK through the telecoms system, the ISC said ministers were not even informed about the BT deal until a year after it was signed.

The committee said staff from the GCHQ signals intelligence agency should take over the running of Huawei's cyber security evaluation centre - known as the Cell - which it has built in Banbury, Oxfordshire.

"The Government's duty to protect the safety and security of its citizens should not be compromised by fears of financial consequences, or lack of appropriate protocols," the report says.

"However, a lack of clarity around procedures, responsibility and powers means that national security issues have risked, and continue to risk, being overlooked."

The report says members were "shocked" that officials chose not to inform - let alone consult - ministers about Huawei's deal with BT.

"We are not convinced that there has been any improvement since then in terms of an effective procedure for considering foreign investment in the CNI (critical national infrastructure)," it says.

"The difficulty of balancing economic competitiveness and national security seems to have resulted in stalemate. Given what is at stake, that is unacceptable."

The ISC expressed concern that the Cell was funded and staffed by Huawei - even though personnel were security-cleared in the UK - and called for the National Security Adviser to carry out a review "as a matter of urgency".

As an "absolute minimum", the ISC said GCHQ should have greater oversight of the Cell and that the Government must be involved in the selection of its staff.

Despite strenuous denials by Huawei, the ISC described reported links between the firm and the Chinese state as "concerning", saying they raised suspicion as to whether Huawei's intentions were "strictly commercial or are more political".

It said that as far back as 2008, MI5 warned that the Chinese state could potentially exploit vulnerabilities in Huawei's equipment to access the BT network for espionage purposes.

The Joint Intelligence Committee - the UK's senior intelligence body - also warned that in the event of a cyberattack it "would be very difficult to detect or prevent and could enable the Chinese to intercept covertly or disrupt traffic passing through Huawei supplied networks".

The ISC said it had been assured by GCHQ that the UK network had not been put at risk because of "mitigation" measures by BT.

However, the report notes: "Any vulnerability, even as a result of an innocent mistake rather than malicious intent, would call into question whether a product is sufficiently well-engineered.

"An insecure product would risk a third party exploiting its weaknesses to access UK networks for hostile purposes."

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Slump In Pound Signals Gloom For Holidaymakers

The pound has fallen heavily against the dollar for the second time this week after key US jobs figures showed better than expected evidence of an economic recovery.

While stock markets rallied, seemingly shrugging off recent fears about US stimulus being slowly withdrawn, sterling lost two cents against the world's reserve currency when news of the positive employment data from the US emerged.

The pound, which had also dropped heavily the previous day when the Bank of England confirmed the base rate of interest was to remain at its current level for at least two years, fell below the $1.48 mark.

While such exchange rates are good news for exporters, it will hit the spending power of British holidaymakers heading to America.

The euro has also strengthened against the pound.

The US payroll rose by 195,000 in June and the jobless rate remained the same at 7.6% - raising hopes for a stronger economy in the second half of 2013. The forecast was for around 165,000.

Hiring was more robust in the two previous months than earlier estimated, with some 70,000 net new jobs in May and April.

The positive data was seen as suggesting that the US Federal Reserve may start to ease off its support for the economy as early as this autumn - while quantitative easing and low interest rates will continue to push down the pound in the UK.

The US job market and the economy have proved surprisingly resilient this year. Hiring and consumer confidence have remained steady despite higher taxes and federal spending cuts.

The US economy has added an average of 202,000 jobs a month for the past six months, up from 180,000 in the previous six. That suggests businesses are growing more confident in the economy.

If the gains continue, the Federal Reserve might start to scale back its bond purchases before the year ends.

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Ex-Trade Minister Plots £10bn Raid On Lloyds

Lord Davies, the former trade minister, is masterminding a £10bn raid on Lloyds Banking Group that would allow the Government to offload a big chunk of its shareholding in Britain's biggest high street lender.

Sky News can exclusively reveal that Lord Davies, who served in the last Labour administration, has assembled a consortium of blue-chip City and international investors to buy as much as half of the taxpayer's 39% stake in Lloyds.

Lord Davies has been working on the plan for more than a year, according to insiders, and approached the Treasury about his proposal several months ago.

Corsair Capital, the financial services-focused private equity firm where he is a senior partner, would be part of the consortium but would not buy the stake on its own.

A former chairman and chief executive of Standard Chartered, the emerging markets bank, Lord Davies has enlisted the backing of sovereign wealth funds in Asia and major City institutions.

The deal would be structured to acquire the Lloyds stake at somewhere close to the current share price, which by one measure is now above the taxpayers' break-even price.

HSBC and JP Morgan, the Wall Street bank from which Corsair was spun out several years ago, are said to be helping Lord Davies to structure and finance a deal.

The Government paid more than £20bn to rescue Lloyds during the banking crisis of 2008, although it quickly recouped £2.5bn as a fee for the implicit guarantee the bank had enjoyed from its prospective participation in a giant scheme to insure toxic banking assets.

Lord Davies is understood to be in active dialogue with the Treasury about his proposal, which would be structured to allow the Government to share in any future rise in the Lloyds share price.

Arranging it in this way would allow George Osborne, the Chancellor, to avoid any future accusation that he had sold the Lloyds shares too cheaply.

Gordon Brown was dogged by criticism that he had sold Britain's gold reserves too cheaply, leading to broader questions about his economic competence.

The Government paid more than £20bn to rescue Lloyds

Institutions such as Standard Life Investments have been approached about participating in Lord Davies' deal, although sources played down the likelihood that Temasek Holdings, the Singaporean state-backed fund, would be involved.

The Treasury has not yet decided whether to proceed with a transaction with Lord Davies's consortium, although the former trade minister is said to be positive about the prospects of a deal.

However, one insider insisted on Saturday that it could still not happen because of competing proposals from other investors keen on buying the Government's Lloyds shares.

The exact size of the stake that the consortium would buy is unclear, although it is likely to be much larger than 10%, or a quarter of the Government's shareholding.

Lord Davies would not seek board representation as part of any deal, a source said, despite the fact that - if it bought 20% of the bank - it would become easily the biggest private sector shareholder in Lloyds.

At Friday's closing share price of 64.63p, Lloyds had a market capitalisation of £46.1bn.

Antonio Horta-Osorio, Lloyds' chief executive, will receive a larger bonus if the Treasury sells at least a third of its stake for more than 61p-a-share.

The bank's share price has recovered sharply during the last year as its underlying earnings power has become apparent.

Lloyds has been the most heavily punished of the UK banks from the scandal surrounding the mis-selling of payment protection insurance, having had to pay out well over £4bn to date.

Mr Osborne said in his Mansion House speech last month that he was actively considering proposals to sell Lloyds shares and it is conceivable that the first disposal could come as soon as  the next few weeks.

UK Financial Investments, the agency which manages the taxpayer's stake in Lloyds, is understood to be aware of Lord Davies's consortium.

The Lloyds stake is not the only state-backed banking asset for which Lord Davies is trying to make an offer. Corsair is also among three remaining bidders for more than 315 Royal Bank of Scotland branches, and has secured the backing of the Church Commissioners for England in an attempt to provide an ethical dimension to its plans.

Lloyds and Lord Davies were unavailable for comment.

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