📉 Inflation Takes a Bite out of AB Foods' Profit

Primark's owner saw profits dip in Q1, figures revealed the government borrowed a lot less than expected last year, a slump in house building weighed on Travis Perkins’ Q1 results, and British American Tobacco are forced to cough up $635m in fines over North Korean activities.

April 26, 2023

Good morning. In today’s update - Primark’s owner saw profits dip in Q1, figures revealed the government borrowed a lot less than expected last year, a slump in house building weighed on Travis Perkins’ Q1 results, and British American Tobacco were forced to cough up $635m in fines over North Korean activities.

Markets

UK markets continued to struggle on Tuesday ahead of key earnings in the US, with the FTSE 100 (-0.3%) and FTSE 250 (-0.1%) both below the waterline. Banks led the declines, with financial stability back in focus as First Republic fell nearly 50% after reporting huge deposit outflows in Q1; Barclays (-1.8%), HSBC (-2.4%), Standard Chartered (-1.9%) and Lloyds (-1.4%) all closed lower. On the upside, Vodafone (+1.8%) finished higher after UAE investor e& (its largest holder) upped its stake and pushed for changes to the board.

Top Stories

📉 Profits down at Primark’s owner

Despite healthy sales growth of 21%, AB Foods reported lower profit for the first half of the year as inflation “dominated” its business environment. Operating profit fell 3% to £684m as prices were kept low at Primark and the business faced the “usual delays” of recovering inflation in its Food unit. On its outlook - ABF remained “cautious” on consumer spending resilience at Primark, forecasting a slowing of sales growth into the second half of the year. A 3% increase in the dividend wasn’t enough to stop shares falling 4.2% on the day. (Official)

💰 Thrifty Hunt

Official figures showed the UK government borrowed far less than expected for the 12 months to March, despite substantial energy support. The OBR had estimated the government would add £152.4bn to the country’s debt pile, but that number came in around £13bn lower at £139.2bn. Despite this, chancellor Jeremy Hunt described the amount as “eye-watering” and claimed the government had a “clear plan” for bringing the debt pile down.

🏠 Dampened house building weighs on Travis Perkins

The UK’s biggest building materials supplier saw sales fall around 3% in the first quarter, impacted by “weakness” in the house building sector. More positively, the portion of the business catering to the commercial property and public sectors saw resilient demand. Overall, Travis Perkins continue to expect full year operating profits in-line with market forecasts (£272m). (Official)

🚬 BAT fined $635m over North Korea

British American Tobacco has been ordered to pay over half a billion dollars to US authorities after violating sanctions relating to sales in North Korea. The settlement relates to activity between 2007 to 2017 and represents the single largest sanctions penalty over the region. BAT said they “deeply” regret the actions.

What Else Happened?

Economics / Politics / General

Economic uncertainty and strains in the banking sector hit London finance jobs in Q1 - vacancies dropped 31% year-on-year.

Bank of England Chief Economist Huw Pill claimed workers should “accept” they are poorer as a result of inflation, and stop asking for pay rises.

UK shoppers turned to own-label value items as grocery annualised inflation remained above 17% during the last month - research group Kantar claimed it is too early to call the top.

Deals

Deal done - Planet Organic founders Renée and Brian Elliott rescued the chain from bankruptcy; 10 out of the 14 stores will remain open, with almost 200 jobs saved.

Tuesday’s top VC deals - carbon emissions accounting platform CarbonChain raised $10m, co-led by Union Square and Voyager Ventures (TC); London-based AI sales platform Kulster raised a £4m Series A led by Foresight Group; Zaptic, the startup building a software platform for frontline operational workers, raised a $10m Series A round led by UK VC fund Molten Ventures.

Company News / Trading Updates

Mining giant Anglo American reported mixed Q1 results on Tuesday - strong output from its new mine in Peru was offset by lower production in Chile. Shares closed 3.4% lower on the news.

Despite record Q1 revenue on the back of increased demand for flexible workspace, London-listed WeWork rival IWG remained cautious on its 2023 outlook. (Official)

Ocado announced plans to close operations at its Hatfield fulfilment centre - its first site - putting 2,300 jobs at risk.

🌎 Global Snapshot

Google parent Alphabet beat market expectations for Q1 results following a strong performance in ad sales and cloud computing. The company also announced plans to kick off a $70bn buyback scheme - shares rose in after-hours trading.

Likewise, Microsoft also exceeded markets’ quarterly expectations - revenue increased 7% year-on-year driven by outperformance in its Intelligent Cloud unit. Shares were up 5%+ in after-hours trading.

Bittersweet day for Spotify - the music streaming app reached 500m users, but less people are actually paying for the service.

Confectionary giant Nestle mitigated the effects of inflation by raising prices by 10% over the last year; revenue rose by 5.6% to 23.5bn Swiss francs in Q1, beating market estimates.

After a legal dispute regarding App Store practices, Apple claimed victory over Fortnite-owner Epic Games; Epic originally sued Apple after the tech giant prohibited Fortnite's use of an in-game payment system.

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