BUSINESS LIVE: US inflation higher than forecast; Tesco profits near £2.8bn; M&C Saatchi earnings slump

Direct Line has appointed the head of Aviva’s general insurance division in the UK and Ireland as its next chief financial officer.

Jane Poole will be the second person to join the board of Direct Line from Aviva this year following the appointment of chief executive Adam Winslow, who was her superior at Aviva between August 2021 and March 2024.

Lindsay Rosner, head of multi-sector investing for Goldman Sachs Asset Management:

‘With the market gaining conviction in advance of this number that the Fed could be losing confidence around its dot-projected 75 bps cut, today’s data mattered.

‘CPI came in stronger than the consensus 0.3% and the rates market needs to seriously consider the likelihood of higher-for-longer at least lasting through the summer and potentially through the end of the year.

‘This number did not eclipse the Fed’s confidence; it did, however, cast a shadow on it.

‘When it comes to spread risk, one hotter CPI print does not derail the bigger story which is the economy is strong, defaults remain benign, and the technicals continue to cast sunshine on spreads maintaining this range.

Neil Birrell, chief investment officer and lead fund manager, Premier Miton Diversified Funds:

‘With rate cut expectations getting pushed further out over the last few weeks, today’s CPI data will give little hope for those looking for better news on that front.

‘The US economy is running along at quite a pace and a June rate cut looks less and less likely – July or September is the call now.

‘The Fed has got some head scratching to do and if other central banks were waiting for the Fed to move, they have got a conundrum on their hands now.’

Richard Flynn, managing director at Charles Schwab UK:

‘Today’s figures show that the rate of inflation has increased compared to last month.

‘Every piece of economic data is now being placed under the microscope as the market tries to predict when monetary policy will change, but these figures are unlikely to cause a shift.

‘In recent months it has become clear that the journey to the Fed’s target of 2% inflation will be bumpy and Central Bankers are proceeding with caution when it comes to rate changes.

‘It’s often said that the Fed takes the escalator up and the elevator down when setting rates, but for the path downwards in this cycle, it looks like they will opt for the stairs.’

US Consumer Price Inflation was higher than expected in March, with both core and headline inflation up 0.4 per cent compared to market expectations of 0.3 per cent, according to the US Labor Department.

On an annualised basis, US CPI was up 3.5 per cent, versus forecasts of 3.4 per cent.

Treasury yields are trading higher as the data tempers Federal Reserve interest cut expectations.

Two-year and five-year yields are up at 4.91 and 4.5 per cent, respectively.

Another whistleblower has come forward to accuse airline making behemoth Boeing of taking shortcuts when building the 777 and 787 Dreamliner jets and of retaliating against him when he raised concerns with management.

The former boss of Rolls-Royce is set to take on a top job at Britain’s air traffic services provider, National Air Traffic Services (NATS).

Warren East will take over as chairman of NATS from 1 September, succeeding Paul Golby who has been in the role for a decade.

Capita shares rose on Wednesday after the group confirmed it had extended its contract with a ‘leading’ European telecoms company.

Shares in Capita rose 3.15 per cent or 0.44p to 14.38p on Wednesday, having fallen over 59 per cent in the last year.

M&C Saatchi’s profits fell last year following a slowdown in marketing spending by large technology businesses.

The advertising agency’s headline pre-tax profits declined by 10 per cent to £28.7million in 2023, as higher interest rates and an absence of pandemic-related restrictions slowed the technology sector’s growth.

THG losses narrowed last year as the retailer boosted the use of ‘automation’ and AI across its operations.

The group, whose stable of brands include Look Fantastic and My Protein, posted a reported loss before tax of £252million, against a loss of £549.7million in 2022.

Concerns have been raised over the future of the Slug & Lettuce and Be At One chains as the owner scrambles to plug more than £2billion in debts.

Stonegate Pub Company, which has a network of 4,400 UK pubs, has warned of a ‘material uncertainty’, which casts doubt on the company’s ability to continue.

London-listed stocks have opened on a positive footing, underpinned by strength in energy shares, while investors brace for the release of US consumer price data for fresh insights into the Federal Reserve’s interest rate-cut trajectory.

Shares of oil and gas companies are up 1 per cent after uncertainty over the security of supplies from the Middle East pushed oil prices higher.

Market attention is predominantly fixed on the US consumer price inflation data for March, due later in the day, where a robust figure could potentially push rate-cut bets further back into the year.

UK investors are also poised to closely monitor the European Central Bank’s monetary policy meeting on Thursday, and Britain’s GDP figures on Friday.

Mark Crouch, analyst at investment platform eToro:

‘M&C Saatchi has posted a mixed set of results this morning. While the business has seen a slight fall in revenues and profits, their margins have actually improved.

‘Like so many of their larger peers, M&C Saatchi set out a plan last year to improve efficiency following a fall in revenues.

‘This plan looks to be paying off as the share price rallied an impressive 40% in the last six months, testament to management’s commitment to navigating the business through a challenging economic period, which has seen advertising and marketing budgets slashed across the technology sector.

‘Adapting quickly to economic challenges and diversifying the business, the nimbleness of the company may well prove to be an advantage. Despite the ups and downs, shareholders will be pleased overall with the resilience and resourcefulness demonstrated by the company.

‘As new business deals with big names such as Nike, Porsche and McDonalds help to widen margins, the challenge now will be to build on this and achieve steady growth into 2024.’

Tesco said inflation in the grocery sector has ‘lessened substantially’ as it revealed higher sales and profits for the past year.

The UK’s biggest supermarket group posted an adjusted operating profit of £2.83billion for the year to February, up nearly 13 per cent on the previous year.

Europe’s defence and aerospace stocks suffered a £12billion sell-off yesterday amid concerns that their record-breaking run could be reaching its peak.

Britain’s BAE Systems and Rolls-Royce were among those in the red after analysts questioned whether steep increases in valuations could continue.

John Moore, senior investment manager at RBC Brewin Dolphin:

‘Tesco has delivered an impressive set of results against some tough comparators from last year. Profits have surged and the supermarket group has reported strong growth more or less across the board, as the impact of its strategy filters through to the bottom line, inflation pressures begin to ease, and consumer sentiment improves.

‘With the outlook beginning to turn more favourable, Tesco has put itself in a very good position among the UK’s supermarkets through a clear set of priorities, disciplined capital structure, a simplified business model, and investment in its customer offering.

‘Shareholders should be in line to benefit through Tesco’s combination of share buybacks and an attractive dividend over the months and years ahead, which give it the potential of becoming a good compounder.’

Fiona Orford-Williams, director of TMT at Edison Group:

‘There has been a lot going on under the bonnet at M&C Saatchi at an operational level, so delivering results for 2023 that are, if anything, a shade above market expectations is a good result, especially considering the difficult market and sector backdrop in which it’s been operating.

‘The earlier issues on outstanding put option liabilities are now retreating in importance, with minority interests in 2023 down to 13% from 25% in the prior year, and the majority of the remaining put option liabilities expected to be settled in 2024. 

‘The focus is now firmly on optimisation of the operational structure. There has already been good progress here, simplifying and achieving greater coherence, with better alignment to how clients (and potential clients) want to make use of the group’s global capabilities.

‘The incoming CEO, Zaid Al-Qassab, who starts formally next month, should be taking on the group’s navigation in somewhat less stormy waters.’

Frasers Group and Next are both in talks to buy Ted Baker out of administration.  Mike Ashley’s Frasers and Lord Wolfson’s Next are said to be considering saving the fashion chain’s European business.

The companies – two of the biggest names on the High Street – have spoken to administrators at Teneo about a full or partial sale, according to The Times.  The report said bidders have less than six weeks to make an offer and a buyer could be announced this month.

M&C profits fell last year amid ‘challenging market dynamics’ in the advertising, consultancy and media markets.

Headline operating profit fell 8 per cent year-on-year to £32.4million, but grew 30 per cent in the second half thanks to a £3.9million cost savings programme and disposal of loss-making, non-core businesses.

On a statutory basis, pre-tax profits fell 87 per cent to £700,000.

Zillah Byng-Thorne, executive chair, said:

‘2023 was a year of strategic progress. We have begun to transform into a leaner and more agile business laying the groundwork for sustained growth and improved profitability ahead. There is much more to do on simplifying how we interact with our clients and evolving our go-to-market strategy. With strengthened cash generation, we expect to re-invest in value accretive opportunities to enhance shareholder returns.

‘I am delighted that Zaid Al-Qassab joins as CEO in May to lead M&C Saatchi on its next phase of growth, building on a simplified operating model and supported by our exceptional leaders.

‘We are encouraged by our performance in the start to the year, and while macro-economic uncertainty across our markets remains, our continuing transformation, which is already delivering, underpins our confidence that we will meet expectations.’

Shell’s former boss yesterday fuelled fears that the energy giant will ditch London for New York.

Ben van Beurden said the oil major is ‘massively undervalued’ and the gap between UK-listed stocks and their Wall Street rivals is a ‘major issue’.

Online retailer THG returned to revenue growth in the fourth quarter of last year, as its losses halved.

Full-year revenues fell by around 8.7 per cent to £2billion, but final quarter revenue grew year-on-year.

Its pre-tax loss narrowed from £549.7million to £252 million.

The business said the UK is its ‘key growth market’, with the proportion of its overall sales growing from 42.9 to 45.8 per cent.

Boss Matthew Moulding said:

‘In 2023, we made material progress against our strategic priorities, delivering significant profit growth following the support for our consumers through the cost-of-living crisis in 2022. This focus led to the Group delivering record EBITDA after cash-adjusting items in 2023, higher than at the peak of the pandemic.

‘Having completed our recent infrastructure investment programme, the Group is now delivering operating leverage. Our fulfilment network is becoming increasingly optimised through a combination of robotics automation, AI and the onboarding of new Ingenuity clients utilising existing capacity.

‘The return to Group revenue growth in Q4 was especially pleasing, and this momentum has continued into 2024.’

Rising commodity prices were not enough to prop up the London stock market as defence shares tumbled.

On a subdued day of trading, the FTSE 100 dipped 0.1 per cent, or 8.68 points, to 7934.79 and the FTSE 250 descended 0.5 per cent, or 91.23 points, to 19,763.35.

Brent crude headed towards $91 a barrel and even after giving up its gains it remains up more than 15 per cent so far this year.

Tesco expects even stronger profitability this year after bumper demand lifted 2023 earnings by 11 per cent to almost £2.8billion.

Britain’s biggest supermarket group forecast retail adjusted operating profit, its key profit measure, of ‘at least’ £2.8billion this year, after 2023 earnings beat forecasts of just under £2.5billion.

Group sales, excluding VAT sales tax and fuel, rose 7.4 per cent to £61.5billion, with UK like-for-like sales up 7.7 per cent.

Boss Ken Murphy said:

‘This strong performance reflects the hard work of colleagues across the whole Tesco Group, and their commitment to serving our customers.  Customers are choosing to shop more at Tesco, which is reflected in growing market share as they respond to the improvements we’ve made to the value and quality of our products.

‘Inflationary pressures have lessened substantially, however we are conscious that things are still difficult for many customers, so we have worked hard to reduce prices and have now been the cheapest full-line grocer for well over a year.  We have continued to invest in helping customers where it matters most, cutting prices on more than 4,000 products and doubling down on our powerful combination of Aldi Price Match, Low Everyday Prices and Clubcard Prices. 

‘Customer perception of the quality of our products is growing ahead of the market and we continue to win customers from premium retailers, with sales of Tesco Finest now exceeding £2bn.’