BUSINESS LIVE: Bumper January budget surplus; HSBC profits hit $30.3bn; BAE Systems earnings jump

Rio Tinto suffered a 12 per cent profit slump last year, in line with forecasts, but the miner has paid a better-than-expected final dividend on the back of easing cost pressures.

The FTSE 100 firm underlying earnings came in at $11.8 billion for 2023, down from $13.4 billion a year earlier, mostly due to lower prices for aluminium and its minerals division. That was largely in line with the LSEG consensus estimate of $11.7 billion.

Rio declared a final dividend of 258 cents per share, up from 225 cents per share in 2022 and ahead of the LSEG estimate of 247 cents per share.

Aarin Chiekrie, equity analyst, Hargreaves Lansdown:

‘BAE Systems continues to move from strength to strength, with both its full-year revenue and underlying operating profits coming in ahead of its prior guidance. The group manufactures heavy-duty military equipment like fighter jets, aircraft and submarines, and recent global events are keeping demand for its products strong.

‘Despite being a UK-based company, a whopping 42% of its sales came from the US last year, making it the largest single contributor. On an absolute basis, US military spending trumps any other country in the world, so having a large exposure here is proving very beneficial and has helped the group bring in a record £37.7bn worth of orders in 2023.

‘But BAE Systems isn’t stopping there. The UK’s largest defence contractor sealed the deal on its £4.4bn acquisition of US-based Ball Aerospace last week, which should further increase its footprint on the other side of the pond. Ball has unique positions in critical space and nuclear deterrence technologies, and the deal looks like a good strategic fit.

‘The new business should enhance top-line growth and margins, contributing positively to the group’s expectations for sales and profits to rise at double-digit rates this year. Against a backdrop of elevated global tensions and rising military budgets, the sky’s looking bright for this jet-maker.’

BAE Systems has hiked its dividend after the British defence group’s earnings soared 14 per cent last year jump in annual earnings, as the Ukraine war continues to drive government military spending.

The group said it expect further growth in 2024 as government orders for defence equipment surge due to rising geopolitical tensions.

Underlying earnings per share at the country’s biggest defence contractor came in at 63.2p, compared with a consensus forecast of 62.5p, and its guidance of a 10 to 12 per cent rise.

The company, whose biggest customers are the United States, Britain, Saudi Arabia and Australia, recorded sales of £25.3billion last year, up 9 per cent on 2022.

For this year, BAE, which makes submarines and Typhoon fighter jets in Britain, said it expected earnings per share to grow by 6 to 8 per cent on sales which are forecast to rise 10 to 12 per cent.

‘Our performance, combined with our global footprint and record order intake, means we’re well-positioned for sustained growth in the coming years,’ said CEO Charles Woodburn.

HSBC has posted a record pre-tax profit for 2023 at $30.3billion, missing market forecasts after gains from higher interest rates were offset by a hefty $3 billion charge from its stake in a Chinese bank.

The lender’s profits were up 78 per cent from a year earlier but worse than a $34.1billion broker estimate.

But HSBC has rewarded investors with a fresh $2 billion share buyback, and said it would consider a special dividend of $0.21 per share in the first half of 2024 once its Canada disposal is complete.

However, the record-high annual profit was marred by a $3 billion impairment on the bank’s stake in China’s Bank of Communications.

Monzo is eyeing a valuation of £4billion in its latest funding round – not much more than it was worth three years ago.

The online bank is set to finalise a deal in the next two weeks to raise as much as £350million from old and new investors, according to reports.

Rachael Griffin, tax and financial planning expert at Quilter:

‘With the government’s spring budget now just two weeks away, the impact of its current tax policy has been laid bare this morning as new HMRC figures reveal PAYE income tax and NIC1 receipts for April 2023 to January 2024 were £336.2 billion, which is £22.7 billion higher than the same period last year.

‘This soaring increase in tax take has persisted despite the fact that these figures include the first month of the government’s 2% cut to National Insurance from 12% to 10% for the main rate of Class 1 employee NICs. Though time will tell whether the cut to NI will cause a slowdown in the rate at which this increase in tax take grows, the fiscal drag effect caused by the frozen income tax thresholds coupled with inflation driven wage growth will likely keep the number ticking up.

‘The cut to NI allows basic rate taxpayers to save a maximum of £754 a year. However, this saving is already being eaten into as households face increased costs elsewhere, such as the increase to council tax which will hit from April. The changes mean the average Band D household will now face an annual bill of £2,168, a rise of £103 compared to the current financial year.

‘Given the pressures on households, rumours suggest the government is considering a further cut to either income tax or NI during the budget. Polls suggest the Conservatives are struggling, so we can expect they will pull out all the stops at the budget in an attempt to sway voters as we near the election. Should a further cut materialise as part of this, we could see tax revenues fall considerably.

‘Inheritance tax had been hitting the headlines as an area for potential change, including suggestions of total abolition, but those rumours have since gone quiet. Given inheritance tax receipts for April 2023 to January 2024 were £6.3 billion, £0.4 billion higher than the same period last year and on track for another record breaking year, the government is likely to leave it well alone. Though higher house prices and frozen thresholds have seen more people caught by the IHT net in recent years, ultimately, it impacts relatively few families but brings in a tidy sum to boost government coffers which it will be unwilling to relinquish – particularly if other tax cuts are on the table.’

Britain recorded its biggest monthly budget surplus since 1993 in January at £16.7billion as tax receipts soared to £111.4 billion for the month, fresh data from the Office for National Statistics shows.