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- Says best solution to either absorb Osaka Steel or make it a wholly-owned unit

The Cosmograph Daytona is still leading the pack after six decades

Coffee giant would benefit from a helping hand from a local partner

Starbucks’ determination to capture the attention of the Chinese consumer extended to offering a pork-flavoured latte in the country earlier this year. The limited edition drink is made of espresso, steamed milk and Dongpo braised pork flavour sauce topped with extra sauce and pork meat as garnish. Such product “innovation”, however, hasn’t cut it: operating in the country is no easy task, particularly given fierce local competition.

Starbucks had almost 7,600 outlets in China as of late September and the country accounts for about a fifth of the group’s global total. It is still expanding in China, increasing the number of its stores by more than a tenth in the latest financial year. Starbucks had a 14 per cent market share of China’s café market in 2022, according to the most recent available data.

That makes it an attractive target for Chinese groups, including domestic coffee chains. Starbucks, which is reported to be exploring options for its Chinese operations — including the possibility of selling a stake in the business — would also benefit from a helping hand from a local partner.

The buyer, if not already in the coffee chain business, would have to be prepared to deal with extreme competition, which is now hotter than ever thanks to two local rivals: Luckin Coffee and Cotti. These Chinese rivals are a step ahead in terms of local trends, including automation — and offer much cheaper coffee too.

The pace of growth of domestic coffee chains has been impressive in the past year. Luckin’s performance has been especially strong. It has proved sceptics, who once saw its ultra-cheap coffee prices and high costs as a flawed business model, wrong this year. Luckin Coffee’s operating margin hit 15.3 per cent in the latest quarter as net revenues rose more than 40 per cent to $1.5bn, adding to annual sales that nearly doubled last year. It opened 1,400 new stores in the latest quarter, bringing its total to 21,300. Meanwhile, signs of the pressure are showing with same-store sales at Starbucks down 14 per cent in China last quarter.

Automation, a rapidly growing trend in the local coffee chain industry, is helping margins during a time when costs are rising, especially delivery, sales and marketing expenses. Cotti, which has grown rapidly since it was founded in 2022, is pushing out coffee-making robots. Luckin has fully automated pour-over coffee machines. Luckin’s coffee robots and unmanned coffee shops were key to maintaining growth during the pandemic.

Valued at an industry multiple, the Chinese operations of Starbucks could be worth about $12bn. Like the different drinks on the menu, each market increasingly requires distinct strategies to stay ahead of the competition.

Tight market for oil rigs might restrain supply even if producers pull back from projects

There is a feeling of déjà vu about BP’s big new oil project. Not just because the company is returning to the Gulf of Mexico, 15 years after the Deepwater Horizon accident killed 11 people, spilled 5mn barrels of oil and cost the company more than $60bn. 

It is also because it is drilling its new Kaskida field, where oil sits about six miles below the surface of the sea at an incredibly high pressure, with the same company that owned Deepwater Horizon: Transocean.

This time around, the drillship is called the Deepwater Atlas. Before you raise your eyebrows at the reunion, BP had little choice; Transocean was the only company with an available drillship capable of handling the high pressure of the oil reservoir.

Indeed BP was forced to pay a high price, roughly $635,000 a day, to secure the Deepwater Atlas, since Transocean’s fleet is almost fully booked. Its chief executive said last month that its rigs are 97 per cent booked for next year and 86 per cent for the first half of 2026. He boasted that the company had a backlog of work worth $9.3bn. 

Since the start of 2022, the average day rate for floating oil rigs has risen by more than 40 per cent according to analysts tracking the industry at Rystad, an energy consultancy. Since renting a rig accounts for between 20 per cent and 40 per cent of the cost of developing an oilfield, the rise in prices, combined with rig availability, has implications for how much oil is going to come on to the market over the next few years.

The number of future rig contracts is already falling as companies, fretting over a possible oversupply of oil, exercise restraint in starting new projects. The worries have seen the share prices of some leading rig operators fall nearly 30 per cent in the last year, despite the current boom.

The story of the Deepwater Atlas illustrates the boom and bust of the market. The ship was commissioned from a yard in Singapore in 2014, back when the price of oil was more than $115 a barrel and companies were falling over themselves to find and develop more offshore oil. But almost as soon as work started on the $1bn vessel, the oil market collapsed as Saudi Arabia fought a price war against oil from the US shale patch and Russia.

Contractors quickly learnt how vicious the cycle can be; plenty of oil companies simply walked away from their contracts. How much oil the world would need in the future was increasingly unclear as oil companies diverted some spending to low-carbon projects and the Covid-19 pandemic hit demand and introduced the idea that gas-guzzling commuters might prefer to work from home. Transocean put the Deepwater Atlas deal on ice for years, only taking delivery in 2022.

The supply-demand balance now looks better for the oil rig companies. There has been significant consolidation in the offshore supply chain, plenty of older rigs have been scrapped and few companies are brave enough to place new orders.

And offshore oil is back, particularly in the US, Brazil and Guyana, but also in Africa and Asia. This year, oil companies will spend more than $100bn on offshore projects, rising to nearly $140bn in 2027, according to Rystad. With more deepwater oil being extracted, some analysts are now even expecting a glut of oil to hit the market in the next few years. By the end of the decade, the International Energy Agency thinks there may be as much as 8mn barrels a day of spare capacity, an amount never seen outside of the Covid pandemic.

Much depends on how quickly the demand for oil fades, especially in China, where consumers are switching rapidly to electric cars. But the tightness of the rig market may also point to constraints on supply. Offshore projects take years to develop and often over a decade to break even. If oil prices wane, they get put on ice while oil companies focus on cheaper and easier prospects.

Since April, despite wars in Europe and the Middle East, the price of crude has fallen more than 15 per cent, as traders fret over the Chinese economy. Rystad believes that three-quarters of the offshore projects looked at by oil majors will be approved at a $60 price for crude. Rig owners are also bullish. Transocean says some of its customers have boasted they can make a 20 per cent return even at $40 oil. 

But for rig operators to invest in new capacity, and to brave their shareholders’ reticence about capital spending, it will take several years of stable oil prices, as well as an expectation that the world’s oil needs can only be met from offshore drilling. That still looks like a tough call at the moment.

UK air taxi company Vertical Aerospace wins $50mn lifeline from creditor

Founder loses control to US distressed debt investor Mudrick Capital with debt to equity swap

UK entrepreneur Stephen Fitzpatrick will cede control of Vertical Aerospace, the air taxi start-up he founded, as part of a rescue deal with its largest creditor, ending a protracted fight for the future of the company.

Vertical said on Monday it had secured up to $50mn in new funding from Mudrick Capital, a US distressed debt investor, staving off a cash crunch at the Bristol-based company, which employs about 300 people.

As part of the agreement, about $130mn of loans from Mudrick Capital — half of the outstanding amount — will be converted into equity at $2.75 a share, reducing Vertical’s debt. The repayment date for the balance will be extended to December 2028.

The deal will make Mudrick Capital, founded by Jason Mudrick in 2009, the largest shareholder in Vertical with a stake of just over 70 per cent. Fitzpatrick’s stake will fall from 70 to around 20 per cent and he will remain on the board as a non-executive director. Vertical will continue to operate from the UK. 

Stuart Simpson, chief executive of Vertical, said the deal, which has been under discussion for months, would strengthen Vertical’s balance sheet and pave the way for a fresh fundraising round.

As part of the commitment, Mudrick will invest $25mn upfront and backstop another $25mn that will be reduced by any amounts raised from third parties. Fitzpatrick reserves the option to invest a further $25mn. 

Simpson said the most important part of the agreement was “deleveraging the balance sheet”, adding that the convertible loan notes had been an “impediment to raising equity”.

The future of Vertical, which is listed on the New York Stock Exchange, has been in the balance for months as its cash reserves dwindled to $60mn at the end of September. Its shares closed at $4.79 on Friday.

Simpson said the new funding would give Vertical enough “runway through to the end of 2025”.

Mudrick said the agreement “underscores our appreciation of Vertical Aerospace’s position in the [electric vertical take-off and landing] sector”. 

Fitzpatrick, who is best known in the UK for founding Ovo Energy, welcomed the deal. He set up Vertical in 2015 after becoming convinced of the merits of air taxis while stuck in a traffic jam in São Paulo. 

The company is one of a number of flying-taxi companies that went public as special purpose vehicles in 2021, attracting billions of dollars of investment. Most, however, have struggled with high development costs and regulatory approval. German start-up Lilium, which was also listed on the NYSE, filed for insolvency this month. 

Vertical has been testing its VX4 vehicle, which will have a range of up to 100 miles, a cruise speed of 150mph and capacity for four passengers. Simpson said the company was committed to bringing its air taxi to market in 2028, describing the timeline as “realistic”.