BUSINESS LIVE: Tesco profits near £2.8bn; THG returns to revenue growth; M&C Saatchi earnings slump

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.

‘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.’