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Bans on single-use plastics spread to US cities

SNL Banker

Credit Analytics Case Study: Carillion Plc

Live Linear OTT Streaming Bumps Up The Multiscreen Transcoder Market

FOX Could Reap Substantial Rewards For 2026 World Cup


Bans on single-use plastics spread to US cities

U.S. cities are bolstering efforts to curb single-use plastic straws and utensils as the focus on reducing waste intensifies globally.

Seattle and Oakland, Calif., are among the most recent cities to enact bans, which are going into effect July 1. At least a couple of other cities are reportedly considering doing the same.

The moves come as companies are also increasingly moving away from plastic straws and utensils even though the cost of alternative supplies are more expensive. Shareholder proposals are driving some to adopt broad sustainability and recycling pledges, while government bans are also forcing companies to look for alternatives. In the most recent illustration of the trend, Starbucks Corp. announced July 9 that it will eliminate single-use plastic straws from its more than 28,000 stores worldwide by 2020 in favor of recyclable strawless lids and paper or compostable plastic straws.

"It's kind of the beginning to a long conversation on packaging," Conrad Mackerron, senior vice president of As You Sow, said in an interview with S&P Global Market Intelligence. As You Sow is a nonprofit group focused on environmentalism through shareholder action.

Seattle's rules bar offering single-plastic straws and utensils and require compostable or recyclable alternatives, according to Seattle Public Utilities. The city's ban began in 2008 but officials delayed it until this year as they waited for more companies to manufacture alternatives. Oakland's rules only cover single-use straws but allow diners to get a straw if they ask for one or if they order takeout, according to city code.

On a larger scale, San Francisco and New York are considering bans on plastic straws while the California Assembly passed a bill barring restaurants and other business that serve food from offering single-use straws unless a customer asks for one, The New York Times reported. California's Senate is considering the bill in committee, according to the state Legislature.

The U.K. in April also announced its intent to ban plastic straws, stirrers and plastic-stemmed cotton swabs, according to a government announcement. U.K. officials will start a consultation on the ban later this year, and no timeline for its rollout has been announced.

Groups monitoring plastic waste give wildly varying estimates on the number of items consumers are discarding. Environmental groups including For A Strawless Ocean frequently cite estimates of 500 million straws per day used in the U.S. The U.K. government, citing studies on the matter, said 8.5 billion plastic straws are thrown away there each year.

Seattle-based Starbucks began offering compostable straws, splash sticks and cutlery at its stores in its home city when Seattle's ban began, a company spokesperson said in an e-mail. Starbucks declined to provide a cost estimate for the switch.

The coffee giant said July 9 that its new strawless lids are already used for a small number of cold drinks in more than 8,000 Starbucks stores in the U.S. and Canada. Seattle and Vancouver, British Columbia, will be the first cities to see strawless lids replace single-use plastic straws, according to Starbucks.

The worldwide switch will eliminate more than 1 billion plastic straws from Starbucks stores, the company said. Starbucks is also testing paper straws in its U.K. stores.

McDonald's Corp. and Yum! Brands Inc.'s KFC and Taco Bell did not return messages seeking comment, though the Illinois-based burger chain is rolling out paper straws in 1,361 restaurants in the U.K. and Ireland by 2019.

KFC Singapore on June 20 stopped providing plastic straws and drink-up lids to dine-guests in favor of looking further into biodegradable packing, Inside Retail Asia reported.

McDonald's has also pledged to use packaging entirely from recyclable or sustainable sources by 2025. Outside the restaurant industry, Swiss food giant Nestlé SA has made a similar pledge to McDonald's, and Unilever PLC is working with two other companies to develop new technology to recycle PET plastic waste into material for food packaging.

In Seattle, restaurants have switched to a variety of options: offering compostable plastics, redesigned strawless lids or no straws at all, Morgan Huether, spokesperson for the Seattle Restaurant Alliance, said during a phone interview.

"We're seeing a huge variety in what our members are doing," Huether said. "Each individual operator has been going out and finding what works for them."

Alternatives are generally more costly than the plastic they replace.

"A paper straw will be five times the cost of a similarly sized plastic straw," said Laura Craven, director of communications and marketing for Florida and New Jersey supply company Imperial Dade. Craven noted that Imperial Dade supplies more than 40,000 restaurants, cruise lines, cafeterias and grocery stores and that more than half of those customers use straws of some kind.

Compostable plastic straws cost about four times more than their noncompostable counterparts, while bamboo or metal straws can drive up that cost difference even further, Craven said. A compostable fork can cost about eight times more than nonbiodegradable plastic.

Aside from the costs, moving away from plastic puts more pressure on manufacturers to keep up with demand. Craven said Imperial Dade has a three-month backorder for paper straws but is working with manufacturers to try to make more alternatives available.

Increased demand could drive up wait times even higher.

"If they were not able to use plastic straws and could only use paper or compostable PLA straws, I don't see right now how we would keep up with that demand," Craven said.

Even if companies can find alternatives to plastic, Mackerron said, people should be encouraged to recycle more in the U.S., and companies should have a stake in ensuring that packaging is actually recycled.

"That's what it comes down to: Make your stuff recyclable and become a part of a system … that ensures we do have significant recycling rates," he said.

Seattle's ban does require businesses to assume responsibility for collecting and recycling straws and utensils, according to city code.

Mackerron pointed to British Columbia, which first put into place "extended producer responsibility" plans in the 1990s requiring companies to pay for recycling programs.

As of March 2017, the programs shifted $85 million in costs from local governments to industry, according to the British Columbia Ministry of Environment.

Mackerron also said British Columbia boasts recycling rates of 70% or higher, compared to 30% in the U.S.

"That's a very good harbinger that this can work," he said.


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Credit Analysis
Credit Analytics Case Study: Carillion Plc

Highlights

Co-written by Elijah Harden, Risk Services.

Jul. 05 2018 —

Bankruptcy Summary
Carillion Plc (Carillion), a construction services firm, had “declining profit margins” and “high adjusted debt [due to] reverse factoring and its unfunded pension deficit” according to S&P Global Ratings1 . When Carillion filed for liquidation on January 15, 2018, the company had debt and liabilities in excess of £1.5 billion. Trading in the shares was suspended that same day. S&P Global Market Intelligence’s Fundamental Probability of Default (Fundamental PD) rose to 18.27% in the first quarter of 2017 from 1.32% the previous quarter – the equivalent of the implied credit score falling to ‘ccc’ from ‘bb’2 . An additional 30% increase from Q1 to Q2 2017 brought the Fundamental PD to 24%, six months ahead of Carillion’s liquidation. In the quarter leading up to its compulsory liquidation filing, the median Market Signal Probability of Default (Market Signal PD) was 18%, and reached as high as 29%. The Market Signal PD increased nearly sixfold, from 2.17% to 12.69% (equivalent to a credit score decrease from ‘bb-‘ to ‘ccc+’) during July 2017 in response to a share price decline of nearly 70% during the month. Carillion’s share price fell by 39% on July 10 alone, triggered by a profit warning (the first of three) and the announcement of a strategic review.

Exhibit 1: Market Signal and Fundamental PD Escalation

Source: S&P Global Market Intelligence as of June 11, 2018. For illustrative purposes only.

Business Description
Carillion provides maintenance, facilities management, and energy services to buildings and large property estates, in public and private sectors; infrastructure services for roads, railways, and utility networks. It serves aviation, corporate, financial services, oil and gas, central and local government, defense, healthcare, transport, education, commercial and retail, and residential and leisure sectors. Carillion was incorporated in 1999 and is headquartered in Wolverhampton, in the United Kingdom.

Fundamental Probability of Default Analysis
Upon closer inspection of the Fundamental PD in the third quarter of 2017, business and financial risks were significant problems for the company, with vulnerable and highly leveraged scores, respectively. In the first quarter of 2017, Carillion’s Fundamental PD of 1.32% was better than the UK Construction & Engineering industry median of 4.43%. The Fundamental PD later increased to place Carillion in the worst 25% of the industry by the second quarter of 2017. The most significant factor contributing to the increase in Fundamental PD is Carillion’s EBIT interest coverage, a measurement of the company’s ability to pay interest on debt, which fell to -0.32 in the first quarter of 2017 from 2.75 in the fourth quarter of 2016 (semiannual data was multiplied by 0.5). The elevated Fundamental PD was also due to total equity and cash interest coverage which stood at -£405MM and 0.09, respectively, in the first quarter of 2017 down from £730MM and 2.7 in Q4 2016. Between Q4 2016 and Q1 2017 EBIT decreased by £132MM to a net loss of £100MM and equity decreased by an astonishing £1,135MM. The Fundamental PD illustrates Carillion’s sizable net losses left the company debt ridden and unable to operate.

Exhibit 2: Fundamental Probability of Default Contribution Analysis

Source: S&P Global Market Intelligence as of June 11, 2018. For illustrative purposes only.

Exhibit 3: Key Developments

Source: S&P Global Market Intelligence as of June 11, 2018. For illustrative purposes only.

Copyright © 2018 by S&P Global Market Intelligence, a division of S&P Global Inc.
These materials have been prepared solely for information purposes based upon information generally available to the public and from sources believed to be reliable. S&P Global Market Intelligence, its affiliates, and third party providers (together, “S&P Global”) do not guarantee the accuracy, completeness or timeliness of any content provided, including model, software or application, and are not responsible for errors or omissions, or for results obtained in connection with use of content. S&P Global disclaims all express or implied warranties, including (but not limited to) any warranties of merchantability or fitness for a particular purpose or use.

S&P Global Market Intelligence’s opinions, quotes and credit-related and other analyses are statements of opinion as of the date they are expressed and not statements of fact or recommendation to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security.

S&P Global keeps certain activities of its divisions separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain divisions of S&P Global may have information that is not available to other S&P Global divisions.

S&P Global Ratings does not contribute to or participate in the creation of credit scores generated by S&P Global Market Intelligence. Lowercase nomenclature is used to differentiate S&P Global Market Intelligence PD credit model scores from the credit ratings issued by S&P Global Ratings.

S&P Global provides a wide range of services to, or relating to, many organizations. It may receive fees or other economic benefits from organizations whose securities or services it may recommend, analyze, rate, include in model portfolios, evaluate, price or otherwise address.

[1] Source: S&P Global Ratings, Carillion’s Demise: What’s At Stake? https://www.capitaliq.com/CIQDotNet/CreditResearch/SPResearch.aspx?DocumentId=38529831&From=SNP_CRS as published on March 23, 2018.
[2] Lowercase nomenclature is used to differentiate S&P Global Market Intelligence PD scores from the credit ratings used by S&P Global Ratings. S&P Global Ratings does not contribute to or participate in the creation of credit scores generated by S&P Global Market Intelligence.

Credit Analytics Case Study: Carillion Plc

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50 Years Of Altman Z-score, And PD Model Fundamentals – Case Study General Motors

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Credit Market Pulse March 2018 Issue

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Technology, Media & Telecommunications
Live Linear OTT Streaming Bumps Up The Multiscreen Transcoder Market

Highlights

Multiscreen transcoding is widely used today to prepare and distribute video content in over-the-top and TV Everywhere services.

Jul. 05 2018 — Multiscreen transcoding is widely used today to prepare and distribute video content in over-the-top and TV Everywhere services. Multiscreen transcoding revenue is forecast to grow to $628.2 million in 2022, up from $415.1 million in 2017. However, revenue is not rising as quickly as the amount of video being delivered. There are a large number of competitors, so price pressure and the move from hardware appliances to software licenses and cloud services is affecting worldwide multiscreen transcoder revenue.

The amount of video streamed via the internet continues to grow. However, not all of the video is transcoded using a broadcast-quality multiscreen transcoding solution from the vendors discussed in detail in Kagan's latest transcoder report. Some of the largest video streamers in the world, including Netflix Inc. and Alphabet Inc.'s YouTube, use an internal solution. Additionally, those who do not need the same level of density or quality may use solutions such as the free FFmpeg or x264 software, particularly for file transcoding. In some cases, a content producer will use the transcoder that is part of its media asset management system rather than a separate transcoding solution.

Growth in live transcoding revenue is being helped by the expansion of TV Everywhere, or TVE, services. Many multichannel video programming distributors continue to expand the number of linear channels and the amount of VOD content available on their TVE systems in order to offer the same ability to view content on other devices as is available via the set-top box, or STB, in the home. For example, Sky Deutschland GmbH is expanding to offer more than 100 linear channels on Sky Go rather than just the Sky Sport channels. OTT provider ivi.ru of Russia added streamed channels to its service in 2018. Nc+ GO of Poland added 22 channels in April 2018.

FFmpeg and open source solutions have more of an impact on the file transcoding market since multiple passes can be done to produce the quality desired. Therefore, file transcoding vendor revenue is not growing as quickly as the live transcoding vendor revenue. However, some content producers and OTT VOD providers do choose to buy products and services for file-based multiscreen transcoding rather than using an internal or open source solution. The amount of content and the number of versions required to monetize that content continues to grow, causing our expectations of revenue in the file transcoding segment to increase by single-digit percentages each year.

Many transcoder vendors offer cloud transcoding services, oftentimes with multiple cloud providers. The cloud providers tend to be agnostic to the transcoder vendors. A primary example of this is Amazon Web Services, or AWS. Even though AWS owns AWS Elemental, many others also run on AWS, including Beamr Ltd., Bitmovin Inc, Encoding.com Inc., Harmonic Inc., Telestream Inc. and Zencoder Inc.

Revenue from cloud transcoding is expected to increase each year as both the overall multiscreen transcoder revenue grows, as well as the percentage of transcoder revenue that comes from transcoder services that run in the public cloud. The advantages of using cloud transcoding simply outweigh any disadvantages for most use cases.

This article provides some of the highlights contained in Kagan's latest in-depth report titled "Worldwide Transcoding: Live linear OTT streaming bumps up the multiscreen transcoder market," which updates vendor activity and provides global forecasts for live and file transcoding revenue by region, as well as cloud transcoding revenues as a percent of total revenues through 2022.

Video CDN Revenue To Reach $2.2 Billion In 2022

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Technology, Media & Telecommunications
FOX Could Reap Substantial Rewards For 2026 World Cup

Jul. 05 2018 — The 2018 FIFA Men's World Cup has struggled with U.S. viewership due in part to the timing of matches aired from Russia. But the June 14 announcement that the quadrennial cup competition will head back to North America in 2026 was likely music to the ears of TV rights owners Telemundo and 21st Century Fox Inc.'s FOX Sports. The choice of a three-country combination — the U.S., Canada, and Mexico — does not come cheap for the U.S. networks, however. The two will pay a combined $887 million for the 2026 games, including an additional approximately $300 million bonus paid to FIFA because North America was chosen as the location.

The upside is that the World Cup will take place in more ideal airing times, offering stronger ad pricing and bigger audiences. In addition, the number of teams in 2026 will increase to 48, compared to 32 today.

The current tournament is the first in which Telemundo and FOX Sports took away rights from Univision Communications Inc. and Walt Disney Co.'s ESPN/ABC. The announcement may make up for some of the troubles surrounding this year's competition after the U.S. Men's National Team failed to make the cut. In addition, the tournament is in Russia, meaning many of the games have aired during lower viewing times in the U.S.

Despite the challenges, Telemundo and FOX Sports could deliver higher ad revenues compared to 2014, according to some estimates. Telemundo recently announced that it had reached its goal of $225 million in ad sales for this year's tournament. The networks may be benefiting from unused funds tied to the NBA Finals, which ended after just four games

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