Retail Sales Rebound After Omicron Disruption; NatWest Returns To Profit – Business Live

Elsewhere in retail, the boom in rapid delivery services and online shopping has pushed up profits at British warehousing firm Segro.

Segro, whose warehouses are scattered across the UK and continental Europe, reported a 20% jump in adjusted profits for 2021, while an earnings measure that tracks the value of its buildings surged by 40%.

Segro says it saw record levels of rental growth last year, and a £4.1bn increase in the value of its portfolio.

Demand to rent Segro’s properties jumped in the lockdown, as more customers shopped over the internet.

As chief executive David Sleath told us late last year:

“We get everyday things. That could be a coffee cup, or it could be something you’ve downloaded on your phone that’s gone through a data centre…

We create the space to enable extraordinary things to happen.”

Segro says that ‘quick-commerce’ (where customers can order goods to arrive almost immediately) is driving growth too.

E-commerce is still an important source of occupier demand across Europe and continues to contribute significantly to our lettings performance, but we are seeing new names emerge in the space (for example rapid grocery delivery services and other ‘q-commerce’ businesses) and its impact is now being felt more widely across the portfolio, for example in our urban estates in Germany, France and Spain.

In France, power company EDF raising €2.5bn to strengthen its finances, after being forced to sell power below market prices to protect consumers from the energy crunch.

EDF will hold a €2.5bn rights issue, through which France’s government will pump €2.1bn into the company.

EDF announced the cash call after an estimated €8bn were wiped out by the French state’s move to cap energy bill hikes at 4% this year.

Under that plan, EDF was forced to sell electricity generated by its fleet of nuclear reactors to rival home suppliers at well below the current record high market prices, to protect customers in the cost of living crisis.

On top of that, EDF says it faces an €11bn hit to core profits from outages at several French nuclear power plants, due to maintance work.

France’s finance Mmnister Bruno Le Maire, told RTL radio station that the state’s participation in the EDF rights issue senta signal to investors.

“You can have confidence in EDF.”

EDF expects that higher global energy prices will add around €6bn to this year’s core profits.

Many economists are warning that UK retailers face a tough 2022, despite the bounceback in spending in January.

Adam Hoyes, assistant economist at Capital Economics, says the strong 1.9% jump in retail sales volumes last month masks some underlying weakness.

Food sales declined for the third consecutive month, by a chunky 2.3% m/m, although this may be partly due to people eating out more and ordering takeaways, which boosts non-retail spending.

Clothing sales fell 5.0% m/m (the second decline in a row), perhaps due to the less generous deals on offer in the January sales as confirmed by the consumer price data released earlier this week. This may suggest that the cost of living crisis is already forcing some households to cut back on spending.

Consumer spending will be squeezed as wages are eroded by inflation, as Sam Miley, senior economist at the CEBR thinktank, explains:

“Sales volumes returned to growth in January as the partial reversal of Omicron effects put upward pressure on consumer activity. Despite this monthly uptick, downside risks remain for the retail sector, notably the emerging cost of living crisis. Other data released this week showed that real earnings are now falling.

This trend is expected to continue over the coming months, leading to an erosion of consumer spending power and subsequent changes in the scale and structure of spending. Retail activity is likely to fall as a result.”

Jacqui Baker, partner and head of retail at RSM UK, says the cost of living crisis means January’s uplift in sales might not last.

‘Consumer confidence is at its lowest level in 12 months, footfall is down, and mounting price inflation may curb future spending as fear of soaring energy costs, higher mortgage repayments and increased petrol prices eat into household budgets. This all lands ahead of a pinch point as retailers will face increased costs from 1 April with average hourly rates and national insurance both increasing, at a time when the remaining Covid support measures come to an end.

‘The next few months will undoubtably be tough for UK retailers, so it will be interesting to see if the Government will step in and announce new measures to ease the cost of living crisis for consumers and introduce urgent business rates reform in next month’s Spring Budget. This would allow confidence to return; give retailers the chance to recover; and prevent further distress across the sector after a slow start to the year post-Omicron.

European stock markets are rather mixed this morning, after Wall Street took a tumble last night.

In London, the FTSE 100 is up just 6 points. Utility companies are leading the risers, along with consumer goods maker Reckitt (+1.8%) , discount retailer B&M (+1.4%) and fashion group Burberry (+1.2%) also higher.

But NatWest is dragging the market down, now down 3%.

Ocado (-2%) and technology-focused investor Scottish Mortgage (-2.3%) are also down, after the US Nasdaq Composite fell 2.9% on worries about Ukraine conflict, and likely US interest rate rises.

Across Europe, the German DAX is down 0.1%, the Italian FTSE Mib is flat, while France’s CAC has gained 0.35%.

Joanna Partridge

NatWest is giving its bankers bigger bonuses this year after the group, still majority-owned by taxpayers, bounced back to a £4bn profit in 2021 as the economy recovered from the coronavirus pandemic.

The lender said it had increased its bonus pool to £298m, a 44% increase on a year earlier.

Alison Rose, the chief executive of NatWest, said it was a “restrained bonus pool” and added that the bank was “very mindful of the challenges that our customers are facing with inflation and cost of living”.

She told BBC Radio 4’s Today programme:

“We need to make sure we are rewarding fairly.”

Rose’s total pay for 2021 was £3.6m, up from £2.6m a year earlier.

NatWest also benefitted from a booming mortgage market last year.

Net mortgage lending across the business jumped by £10.8bn in 2021, with NatWest reporting “strong gross new mortgage lending and improved retention”.

UK house prices jumped 10.8% during 2021, meaning borrowers had to take out larger loans to buy properties.

Customer deposits also rose during the year, up by £17.1bn or 10% across its retail banking.

NatWest says this was due to UK Government support schemes, and the Covid lockdowns which hit consumer spending and led to increased savings in the first half of last year.

NatWest’s shares have dropped 2.8% in early trading, despite its return to profit, the top faller on the FTSE 100.

The City may be disappointed that NatWest has lowered its cost reduction target (see earlier post), as it reacted to the surge in prices.

Zoe Gillespie, investment manager at Brewin Dolphin, says NatWest appears to be in good health, following its return to profits.

“NatWest has beaten expectations again and looks set to continue on its positive trajectory. The net impairment release of nearly £1.3 billion, bumper profits, and strong capital reserves point to a bank in good health. The increased dividend and share buyback programme suggest NatWest’s management team are optimistic about the year ahead, while rising interest rates should only benefit its core business.

NatWest is now much more attractive as an investment prospect, notwithstanding the likelihood of the government winding down its substantial stake in the bank.”

Freetrade analyst Gemma Boothroyd says NatWest will benefit from the likely increases in interest rates this year:

For a bank like NatWest, an interest rate rise is warmly welcomed news. It means the spread increases between the rate it’s borrowing at and what it’s charging for interest on customers’ loans.

Although rates have risen, NatWest customers probably aren’t about to see more interest in their current accounts. They’re not going to benefit here, but NatWest is. That’s because the bank’s not worried about luring in more customers eager to make deposits.

NatWest doesn’t need to entice them with higher deposit rates – it’s already got enough cash on hand.

It’s all about raising the rates it charges on loans. NatWest’s Q4 net interest margin reached 2.38% – 3 basis points higher than the previous quarter.

That’s NatWest’s profit engine, and so long as it can keep widening that as rates rise, it’ll keep strutting through 2022.

So slowly but surely, NatWest’s getting back up on its feet. Its share price is finally returning to pre-pandemic levels, and investors will be welcoming today’s 7.5p dividend – well over double last August’s payout.

Richard Hunter, Head of Markets at interactive investor, says NatWest’s capital reserves look strong (allowing it to raise its dividend and launch the £750m share buyback programme).

“Another period of growth in the final quarter has sealed a successful year for NatWest, with the release of provisions for bad debts being a major driver.

Operating profit for the year of £4 billion compares to a loss of £481 million the previous year, and much of this significant swing was enabled by a net impairment release for the period of £1.3 billion.

The CET1 ratio, or capital cushion, stood at an extraordinary 18.2% at the end of the period, with a liquidity coverage ratio of 172% not only underlining the strength of the bank’s capital position, but also that there is something of an embarrassment of riches to be considered.

NatWest has cut its cost-cutting target for the next two years – due to the inflation squeeze hitting the UK.

The bank is lowering its cost reduction target to around 3% per annum for 2022 and 2023⁾, reflecting “higher inflation and our ongoing investment in the business”.

Government-backed bank NatWest has returned to profit, as it benefitted from the economic recovery last year.

NatWest has kicked off the bank reporting season by posting an operating pre-tax profit of £4bn in 2021, recovering from the £481m loss in 2020.

Profits were boosted by impairment releases of £1.3bn — money set aside to cover potential losses due to the pandemic, which NatWest now doesn’t expect to incur.

Shareholders will benefit, with NatWest proposing a final dividend for 2021 of 7.5p, more than double last year’s 3p.

It has also announced a share buyback of £750m – another way of returning cash to shareholders.

This means NatWest will distribute more than £3.8bn of capital to shareholders for 2021, including £1.7bn to the taxpayer (who own a majority stake, dating back to the bailout of Royal Bank of Scotland in 2008).

Here’s the details:

• £1.2bn dividends – £846m final (7.5p/share), £347m interim (3p/share).
• £1.5bn on market buy-backs – £750m executed + additional £750m announced today.
• £1.1bn directed buy back in March ‘21.
• Total of ~£1.7bn back to UK government in dividends and buybacks for ‘21.

CEO Alison Rose says:

We are acutely aware of the challenges that many people, families and businesses continue to face up and down the country and are working alongside our customers to provide the support they need – whether that is managing their money better, saving for a house or retirement or starting or growing a new business – as well as playing a leading role in the transition to net zero.

There was also a jump in spending on fuel last month, as more people returned to the office after the move to home working.

Automotive fuel sales volumes rose by 4.1% in January 2022, following a fall of 5.0% in December.

But, sales volumes in January 2022 were still 3.3% below their February 2020 levels

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Retail sales have bounced back as shoppers returned to high streets after the Omicron variant hit the UK economy…. despite the squeeze from inflation.

Retail sales volumes across Great Britain rose by 1.9% in January, faster than expected, and the biggest monthly increase since the lockdown was lifted last spring.

That recovers about half of the 4.0% drop in December when the surge in Covid-19 cases and pandemic restrictions hit spending, and lifts retail spending to 3.6% above its pre-pandemic levels.

The recovery was driven by an increase in spending at non-food stores such as household goods and garden centres.

The ONS explains:

Household goods stores sales volumes rose by 7.5% in January 2022 because of strong growth in furniture and lighting stores (16.6%) and electrical goods stores (16.0%). Sales volumes were 3.8% above their February 2020 levels.

Department stores reported a monthly increase of 7.1% in sales volumes but remained 8.0% below their February 2020 levels.

But, clothing stores reported a fall of 5.0% over the month — possibly because the January sales were less generous (which also pushed up inflation to a 30-year high).

On an annual basis, people bought 9.1% more items than a year ago, when non-essential shops were closed in the 2021 lockdown.

However, spending at food stores such as supermarkets fell below pre-coronavirus levels for the first time. Retail volumes at food stores were 0.8% below where they were in February 2020, having surged once the first lockdown began.

In another sign that the economy was returning to more normal, online shopping’s share of spending fell to 25.3% in January 2022, its lowest proportion since March 2020.

The retail sales report also shows the impact of inflation over the last year, with the amount spent at retailers up 16.5% — although volumes were only 9.1% higher….

Elsewhere, European stock markets are on track to open slightly higher, after US secretary of state Antony Blinken agreed to a meeting with Russian foreign minister, Sergei Lavrov, next week.

Wall Street and European stocks fell on Thursday as the US said Russia was on the brink of invading Ukraine within several days.

The agenda

• 7am GMT: UK retail sales to January
• 7.45am GNT:France’s inflation report for January
• 10am GMT: Eurozone construction PMI for December
• 3pm GMT: Eurozone consumer confidence report for February
• 3pm GMT: US existing home sales for January