Afternoon summary
Time to wrap up…
Upmarket chocolates maker Hotel Chocolat has agreed to a £534m takeover by the US food company Mars at a near 170% premium to the UK firm’s market value.
Hotel Chocolat’s founders will share a £280m payday once the deal is completed.
Bank of England policymaker Megan Greene has insisted it is too early to think about cutting interest rates, despite UK inflation falling to 4.6% yesterday.
But the City is now expecting rate cuts by next May, with Goldman Sachs suggesting the first cut could come as soon as February 2024.
The pound hit a six-month low against the euro today, as traders calculated that UK interest rates have probably peaked.
The maker of Mr Kipling cakes, Angel Delight and Bisto gravy granules has announced price cuts on some of its ranges on the back of a fall in the rate of inflation on associated production costs.
The train drivers’ union, Aslef, will stage a series of one-day strikes and call an overtime ban across England’s operating companies at the start of December, causing more disruption,
One in three people in the UK had problems with the most recent delivery of a parcel to them, Citizens Advice research has shown, with Evri and Yodel named as the worst courier companies.
Large parts of the Port Talbot steelworks will be closed or mothballed for years, and would leave the plant and its few remaining workers reliant on imported steel, according to proposals under consideration by the owner, Tata Steel.
Energy bills in Great Britain are expected to rise by 5% from January, with analysts predicting that the government’s price cap could increase to about £1,930 a year for a typical gas and electricity bill.
The government will offer significantly higher subsidies for new offshore windfarms after crisis talks with developers that are battling cost inflation across global energy supply chains.
Royal Mail has launched a bonus scheme worth up to £500 a worker in an attempt to meet delivery targets over Christmas, as its owner’s losses more than doubled in the first half of the financial year.
South East Water is to be investigated by the industry watchdog over possible failures in maintaining the supply to households.
In the US, the number of people filing new jobless claims has risen, while industrial production dropped last month amid strikes at major carmakers.
HMV to reopen Oxford Street store next week
HMV will be returning to its original home on Oxford Street next week.
The retailer originally opened on 363 Oxford Street in 1921 and will be reopening its doors on Friday, November 24, after a four-year absence.
Back in 1921, the Guardian reported on the same HMV store, owned by the Gramophone Company, being officially opened by Edward Elgar.
Our story said:
“He [Elgar] recommended the modern gramophone with its superior technical accomplishment to the “wild and virulent piano playing” so painfully popular in the suburbs.’
Before its closure four years ago, the hmv website says the Oxford Street store was seen as a “community hub for music fans with performances and signings from global artists such as The Weeknd, Kylie Minogue, The Spice Girls, Blur and more, with the latter performing an iconic rooftop gig at the shop in 1995.”
Bank of England could start cutting UK interest rates as early as February, says Goldman Sachs
Goldman Sachs has suggested that the Bank of England could start cutting interest rates as soon as February, if the UK economy weakens.
In a note to clients, Goldman Sachs suggested that if the UK economy suffered a worse-than-expected slowdown in the coming months then the Bank’s Monetary Policy Committee would start cutting interest rates at either the February or March 2024 meeting.
Goldman says the MPC is very likely to hold Bank Rate again at the December meeting.
The Wall Street bank also predicts the MPC is most likely to stay on hold until making its first cut in the third quarter of next year.
But it added:
That said, earlier cuts are possible if the economy turns out weaker than expected, putting our probability-weighted path for Bank Rate slightly below market pricing for the end of 2024.
US industrial production drops amid auto strike disruption
US industrial production declined 0.6% in October, new data shows, as strikes at major carmakers hit the sector.
Output of motor vehicles and parts fell by 10% last month, according to the latest survey from the Federal Reserve.
That shows the impact of the walkout by workers at the Detroit Three automakers, in a strike organised by the United Auto Workers (UAW). The UAW reached deals with GM, with Ford and also with Stellantis, at the end of October,
Economists had expected a smaller, 0.4%, drop in industrial production last month.
Industrial Production turns negative YoY
— Ophir Gottlieb (@OphirGottlieb) November 16, 2023
In Oct manufacturing output, which accounts for 78% of total production, dropped 0.7% vs 0.3% drop est. pic.twitter.com/LfpGig277m
Unlike Walmart (see earlier post), shares in department store chain Macy’s are sharply higher after it beats Wall Street expectations today.
Macy’s has upgraded its forecast for earnings this year to between $2.88 and $3.13 per share, up from previous guidance of $2.70-$3.20/shares.
Macy’s also reported a 7% drop in sales for the third quarter of 2023, compared with a year earlier, a smaller drop than expected.
Profit margins for merchandise rose, due to lower permanent markdowns within the Macy’s brand.
Macy’s stock is up 12% in premarket trading.
CEO Jeff Gennette says:
We delivered better-than-expected top and bottom line third quarter results and are entering the holiday period in a healthy inventory position.
Our portfolio of nameplates are leading gift-giving destinations across the value spectrum offering exclusive products. We have refined our gift assortment, simplified our promotions and improved our shopping experience.
Updated
US jobless claims rise
Just in: More Americans filed new claims for unemployment support last week, which may indicate a weakening jobs market.
There were 231,000 ‘initial claims’ for jobless support filed in the week to November 11, an increase of 13,000 from the previous seven days.
Initial jobless claims have been extremely low in recent years, so this may be a sign that the labor market is normalising.
United States Initial Jobless Claimshttps://t.co/7p2FYAmZ3d pic.twitter.com/WEerQCjLN6
— TRADING ECONOMICS (@tEconomics) November 16, 2023
The number of ‘continuing claims’ (people claiming unemployment support for at least two weeks) has also risen, up 32,000 to 1,865,000 in the week to November 4th.
That’s the highest since November 2021.
2 year high on continuing jobless claims
— TheHappyHawaiian (@ThHappyHawaiian) November 16, 2023
Thats the sound of the mandate slowly switching pic.twitter.com/wwmUKTQDEN
Back in the UK, housebuilder Crest Nicholson has signalled it could start cutting jobs soon as a slowdown in the construction sector hit its business.
The company said that it would “align headcount” in its divisions to their “expected level of output” in the next financial year.
The announcement follows a trading update in August which warned that Crest would have to start reducing its overhead costs.
Chief executive Peter Truscott said:
“Given the challenging trading backdrop we have experienced this year, the group has acted decisively in streamlining its operations to align our cost base with the operating environment.
“These are difficult decisions to take but will ensure the group is well positioned to recover strongly as more supportive market conditions return.
“I would like to thank all Crest Nicholson colleagues for their efforts this year and their professionalism in dealing with the changes we have made.”
Rivals such as Persimmon, Taylor Wimpey, and Bellway have all cut jobs this year too.
Walmart warns consumer health is weakening
Over in the US, shopping giant Walmart has warned that consumer spending has weakened this autumn.
Shares in Walmart have dropped over 5% in pre-market trading, after it struck a cautious tone with its outlook after reporting financial results today.
In an interview with CNBC, chief financial officer John David Rainey said consumers are “leaning heavily” into major promotions as they watch their spending and search for deals.
Customers are holding out for lower prices, meaning Walmart has seen a drop in purchases before and after a sales event.
“Our events have been strong,” Rainey said, adding:
“We’ve been pleased with those. Halloween was good overall. But in the in the last couple of weeks of October, there were certainly some trends in the business that made us pause and kind of rethink the health of the consumer.”
WALMART CFO: "Halloween was good overall. But in the last couple of weeks of October, there were certainly some trends in the business that made us pause and kind of rethink the health of the consumer."@CNBC $WMT @melissa_repko https://t.co/wJysHsg7bj
— Carl Quintanilla (@carlquintanilla) November 16, 2023
Data yesterday showed a small drop in US retail spending in October.
Updated
Young’s to buy rival City Pub Group for £162m
In another takeover deal today, Young’s has agreed a £162m deal to buy London-based rival City Pub Group.
The move will bring a further 50 pubs into the Young’s business, taking its total estate to 279 pubs and bolstering its position as one of the biggest operators in London and the South East.
It comes against a challenging backdrop for pubs and the wider hospitality sector, amid pressure from higher borrowing costs and tighter customer budgets.
Young’s has said it will seek to benefit from “synergies” as part of the deal, particularly linked to overlapping jobs across the two firms.
Updated
Pound hits six-month low against euro
In the currency markets, the pound has hit its lowest level against the euro since May, as traders anticipate cuts in UK interest rates.
Despite Megan Greene’s insistance that it’s too early to consider cuts, sterling is down 0.3% against the euro today at €1.142.
The pound earlier fell as low as €1.1396, its weakest level since May 4th.
That highlights that yesterday’s drop in UK inflation, to 4.6% from 6.7%, has helped cement expectations that rates have peaked.
Jim Reid, strategist at Deutsche Bank, says the inflation report “saw investors grow in confidence that the Bank of England was finished hiking rates, with only a 11% likelihood of a further hike now priced in”.
The fact Mars is willing to pay a 170% premium for Hotel Chocolat’s shares is remarkable on two accounts, says AJ Bell investment director Russ Mould:
First, bid premiums are typically in the 25% to 50% range so Mars paying so much more would suggest it has taken a long-term view of what the business is worth.
Second, it suggests that Mars has spotted an opportunity and there is no way it wants to waste time with a low-ball bid. This looks like going in with its best offer with the hope of wrapping up the transaction as quickly as possible.
“Mars doesn’t have to worry about sales of its eponymous chocolate bar, but it does have to think about the evolution of the business and tapping into parts of the market who are looking for a higher quality product.
Hotel Chocolat ticks the right boxes and while its international expansion strategy hasn’t gone to plan, perhaps Mars thinks it has the necessary skills to make a good job of turning the UK chocolatier into a global name. It is hard to imagine shareholders turning down such a generous offer.
Mr Kipling maker plans price cuts as cost inflation eases
Mr Kipling and Ambrosia maker Premier Foods has said it will start reducing prices across some of its products after seeing a drop in cost pressures.
Premier Foods told the City this morning that its imput cost inflation has slowed, meaning it can pass this onto consumers.
Alex Whitehouse, chief executive officer at Premier Foods, says:
“We know how challenging the past year has been for many consumers and so it’s good to see the rate of input cost inflation falling.
This has now given us the opportunity to lower promotional prices across a number of our major branded products such as Batchelors Super Noodles and Mr Kipling Slices.”
This means a cup of Super Noodles – a popular student snack – will cost less than a pound again, the Evening Standard says.
Food ingredients, and energy costs, surged after the invasion of Ukraine in March 2022. But global food prices have since fallen back to a two-year low.
Premier Foods has also reported a 17.7% increase in revenues in the first half of the financial year, to 30 September, with pre-tax profits up 38%.
Trading profits rose 19%, with profit margins in line with prior year, the company added.
Mars’s takeover of Hotel Chocolat is likely to add to concerns about an exodus from the London stock market, says Susannah Streeter, head of money and markets at Hargreaves Lansdown.
Streeter says:
The Mars owner clearly sees Hotel Chocolat as an appetising addition to its shelf of confectionery brands, providing an upmarket option to sit alongside Snickers, Twix, M&Ms and the ubiquitous Mars bar.
The price being paid is at a hefty premium to the share price at the close of trading yesterday but given the weakness of the pound would have helped fuel hunger for the acquisition. Hotel Chocolat has a loyal customer base of cocoa lovers, helped by its tasting club and its strategic locations across the travel network.
Although the company posted two profit warnings earlier this year, the recent update has been more encouraging, showing a turnaround bearing fruit, with stronger sales particularly at its new shops. International expansion however has proved super tricky for Hotel Chocolat, with its Japanese joint venture forced through insolvency.
The clout of the Mars operation, should help ensure Hotel Chocolat’s future ventures are far slicker, and the company clearly sees great opportunity for the brand’s expansion into other markets, particularly in the airport retail sector.’’
Updated
Although Hotel Chocolat’s shares are still up 160%, near to Mars’s offer, the wider stock market is more subdued.
Britain’s blue-chip FTSE 100 index is down 40 points, or 0.55%, at 7446 points, after three days of gains, while the FTSE 250 index of medium-sized companies is down 08.%.
Kyle Rodda, senior market analyst at Capital.com, says markets have been hit by US president Joe Biden calling Chinese president Xi Jinping a “dictator” at a press conference today.
Rodda explains:
Risk assets were already on the back foot in Asian trade. However, the comments gave the market an extra nudge in the bearish direction, as the tone of what had otherwise been a constructive visit to the US by the Chinese President soured. The White House hasn’t publicly retracted the comments or clarified yet. Whatever the outcome, it’s a stark reminder that geopolitical risks are never too far away from being a volatility driver in this market.
Futures are implying a soft open for the markets tonight, as Wall Street looks poised to take a breather following a ripping run through November. US jobless claims are released and expected to show a slight uptick in the number of Americans seeking unemployment benefits. At the same time, industrial production and the Philly Fed Manufacturing Index is tipped to decline.”
Mortgage lenders slashed more fixed rates to sub-5% this week
A string of UK lenders have cut their mortgage rates this week, as the financial markets have concluded that Bank of England interest rates are now at their peak.
Data provider Moneyfacts reports that Halifax, HSBC, Yorkshire Building Society, Virgin Money, Bank of Ireland UK and Bank of Ireland UK for Intermediaries have all revealed new sub-5% two-year fixed mortgages this week.
There are now 27 lenders offering a sub 5% fixed mortgage, Moneyfacts reports, up from 13 at the start of October.
At the start of November only Danske Bank was offering two-year fixed mortgages priced below 5%, with no lenders offering this at the start of October.
Rachel Springall, finance expert at Moneyfactscompare.co.uk, says:
“It’s encouraging to see cheaper mortgages on the market for borrowers, particularly the return of two-year fixed mortgages priced below 5%. This is great news for those who do not want to commit to a longer-term fixed deal. Several large lenders have slashed fixed mortgage rates and there is much anticipation for more cuts in the coming weeks.
As we head ever closer to the year-end, lenders will be weighing up both the current competition and their own lending targets, so it’s a promising market for consumers looking for a new deal.
Expect light trims before Christmas followed by a tentative cut next year, but restyling rates won’t kick in till there is inner confidence in taming inflation. Expectation; post election https://t.co/kEfpkRIs51
— Emma Fildes (@emmafildes) November 16, 2023
Hotel Chocolat’s swoon into the hands of chocolate giant Mars comes seven years after it floated on the London stock market.
That float, at 148p per share, valued the company at £167m, with founders Angus Thirlwell and Peter Harris recieving £20m each in 2016.
At the time, Thirlwell insisted that “Anyone who knows me knows that I am not really motivated by money”.
He and Harris each still own 27% of the company, so will pick up another £144m each through the sale to Mars.
Although Mars is paying a chunky premium of 170% to last night’s share price, today’s takeover offer is still below the peak of Hotel Chocolat’s value in 2021 (when shares hit 540p, valuing the firm at £740m).
EY picks Janet Truncale as the first woman to lead a Big Four firm
In the accountancy world, EY has become the first Big Four firm to appoint a woman as chief executive.
Janet Truncale, currently the head of EY’s financial services business in the Americas, will replace Carmine Di Sibio, who is retiring in June.
Partners were informed of the move yesterday in an email, in which Di Sibio said:
“Truncale is an exceptional leader, with a strong foundation in serving clients across all EY’s businesses.”
Truncale’s appointment comes just months after EY scrapped its planned breakup, which included a plan for the company to spin off its consulting business and much of its tax practice into a stand-alone public company.
The FT says Truncale beat early favourites including the British partner Andy Baldwin, who helped craft the spin-off plan, and Jad Shimaly, who runs EY’s business in Canada.
Updated
Megan Greene then warned that global investors have not fully grasped the message that central bank interest rates may have to stay at restrictive levels for some time.
BoE policymaker Greene told Bloomberg TV that there had been structural changes in major economies over recent years that pointed to a need for higher interest rates.
She says:
“I think markets globally haven’t really clocked onto this.”
Investors are expecting several cuts to UK interest rates next year, bringing them down to 4.5% by the end of 2024, down from 5.25% today.
Here’s another clip from Megan Greene’s interview this morning:
Recent UK economic data on inflation and the labor market is "good news," says new Bank of England rate-setter Megan Greene
— Bloomberg TV (@BloombergTV) November 16, 2023
But she identifies some "reasons to worry" about the persistence of UK inflation https://t.co/kJ5epHpsrN pic.twitter.com/SUvoriirYE
BoE's Greene: Too early to think about interest rate cuts
Bank of England policymaker Megan Greene has hailed yesterday’s fall in inflation to 4.8% as ‘good news’, but warned that it’s too early to consider cutting interest rates.
Speaking on Bloomberg TV, Greene – a member of the Monetary Policy Committee – said that UK wage growth was still “incredibly high”, and that there are reasons to worry about the persistence of inflation in the UK.
She says:
The recent data is good news.
Inflation came down pretty significantly, in both headline and core, but the biggest contributor was energy.
Greene is one of three MPC members who wanted to raise UK interest rates to 5.5% last month, but were outvoted by the other three committee members.
She says the Bank’s current monetary stance is restrictive, but the question is whether it is restrictive enough to bring inflation down to the 2% target.
She says she is not thinking about cutting interest rates at the moment, adding “I don’t think that’s where we are.”
The money market, through, are anticipating a rate cut, down to 5%, by next May.
"Fran, I'm not thinking about cuts at the moment"
— Bloomberg UK (@BloombergUK) November 16, 2023
New Bank of England official Megan Greene responds to market speculation about rate cuts in 2024, telling @flacqua: "I don't think that's where we are right now" https://t.co/DWgBoW3oyo pic.twitter.com/WqhRZKMYao
Yesterday, the UK’s inflation rate fell from 6.7% to 4.6%, down more than half from its peak last autumn. Wages are rising faster, with total pay up 7.9%.
Greene argues that bringing inflation down from 10% to 5% is easier than the journey from 5% to 2%.
October’s inflation data included the drop in energy prices last month, after Ofgem lowered the price cap. That means energy disinflation has now largely come through in the data, so the Bank of England will be relying on goods and services inflation slowing, she explains.
Updated
Ofgem launches review of standing charges
In the energy sector, regulator Ofgem has launched a review into the ‘standing charges’ levied on customers by suppliers.
Standing charges cover cost such as maintaining the energy supply network and taking meter readings, and also support help schemes for people that cannot afford energy, and environmental schemes.
But they are controversial, as customers pay them regardless of how much, or little, energy they use.
Peter Smith of fuel poverty charity National Energy Action (NEA), says the system needs overhauling.
‘For years, there has been growing alarm about increases to standing charges. Many people rightly feel they are now too high and the current approach is unfair.
How can it be right that someone who can’t afford any energy for their home, still pays a daily charge that is the same or more than someone in a mansion? An overhaul of the system is long overdue.’
Rail strikes: Aslef announces industrial action in December
The train drivers’ union, Aslef, will stage a series of one-day strikes and call an overtime ban across England’s operating companies at the start of December, ratcheting up the national rail dispute again.
Drivers at each company will strike for 24 hours on dates between Saturday 2 and Friday 8 December, and will refuse to work overtime between Friday 1 and Saturday 9 December, causing more disruption for operators that rely on rest day working.
The move comes days after the RMT union and employers signalled a possible breakthrough, with an agreement on pay to be ratified in a members’ vote.
The fresh strikes appear to have been partly provoked by remarks made by the transport secretary, Mark Harper, at a select committee hearing on Wednesday, which the union described as “disingenuous”. Harper said Aslef should put an offer rejected as “risible” by the union in April to drivers. The union said the offer was no longer on the table and had in effect been rejected in further votes for strikes.
More here.
Analyst: the shine is dimming on the luxury sector
Burberry’s warning that it could miss its revenue target shows that “the shine is dimming on the luxury sector as even higher end consumers tighten their belts”.
So explains Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, who adds:
Heralded as a more resilient corner of the economy, suggestions of missing targets and lower-end profits aren’t what investors have come to expect and that has consequences for valuations. Specifically for Burberry, it doesn’t have a basket of other brands or products to help diversify risk in this scenario.
The work the group’s done to become a more premium luxury house is to be commended and will improve strength in the long-term, but there’s no getting away from the fact that particularly aspirational, younger shoppers are thinking twice before swiping their cards. There could be further pressure to come before things improve, especially if a broader pull back in spending comes through in 2024 after the glut of festive trading.
The UK’s decision to halt VAT refunds is denting demand in the important UK market, Lund-Yates adds:
The scheme was an important pull to encourage tourist spending and this revenue-cow now has no more to give. The wider European region is seeing an increase in tourist spending overall which is the shift Burberry wanted to see – American and Asian tourists splashing the cash while taking in Europe’s sights is a cornerstone of the business model.
Burberry has done pretty much all it can to place itself in a better position, both operationally and creatively. The issue is that while it’s a slicker and bolder beast, Burberry is currently residing in a hostile environment outside of its control.”
The huge, 170%, premium which Mars is prepared to pay for Hotel Chocolat suggests the stock market had rather undervalued the business.
Retail analyst Nick Bubb says Mars’s move is a ‘shock takeover’, explaining:
Well, Hotel Chocolat has had its problems recently, not least with its Overseas expansion, but even so the disconnect between financial market valuations and takeover valuations shows through in the huge premium that Mars has been willing to pay for the business…
Updated
Hotel Chocolat shares surge 164% towards takeover offer
Boom! Hotel Chocolat’s shares have surged by 164% this morning.
They’ve jumped from 139p to 369p in early trading, to just below Mars’s offer of 375p in cash.
Key event
Ouch. Shares in Burberry have tumbled almost 10% in early trading, to the bottom of the FTSE 100 leaderboard.
Burberry hit by slowdown in luxury spending
Another UK brand, Burberry, has been hit by a slowdown in luxury spending.
Burberry told shareholders this morning that “the slowdown in luxury demand globally” is having an impact on current trading.
If the weaker demand continues, Burberry says it is unlikely to achieve its revenue guidance for the 2024 financial year, and operating profits would only come in towards the lower end of the current consensus range (£552m-£668m).
Jonathan Akeroyd, Burberry’s chief executive officer, says:
We made good progress against our strategic goals, executing our priorities at pace. We continued to build momentum around our new creative vision with the launch of our Winter 23 collection in September, the first designed by Daniel Lee.
While the macroeconomic environment has become more challenging recently, we are confident in our strategy to realise our potential as the modern British luxury brand, and we remain committed to achieving our medium and long-term targets.”
Burberry has reported a 4% rise in revenues in the six months to the end of September (the first half of its financial year) but a 15% drop in operating profits.
It says sales in mainland China increased 15% in the half, but fell 8% in the second quarter (July-September) “as spending shifted offshore”.
Sales in the Americas fell by 9% in the half – a sign that US consumers may be cutting back.
Burberry says:
While the American customer has remained weak overall, we are pleased with the progress made with our customer acquisition programme with an increased share of higher income female clients.
Updated
Introduction: Mars to buy Hotel Chocolat in £534m deal
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
UK chocolatier Hotel Chocolat has agreed to be taken over by food giant Mars in a £534m deal.
The takeover, announced to the stock market this morning, will help Hotel Chocolat expand internationally, the companies say.
And Mars is paying a steep premium to get its prize. It will pay 375p per Hotel Chocolat share, a hefty 170% premium to last night’s closing price of 139p.
Mars, which employs around 10,000 people in the UK, says the deal will bring a “much-loved brand into its portfolio” and deepen its relationships with consumers.
It adds:
The UK has been an important market for Mars, and it expects this to be complemented by the acquisition of Hotel Chocolat, with its distinctive capabilities in product development, luxury gifting and immersive brand experiences.
Hotel Chocolat’s directors say the offer is fair and reasonable, and are recommending shareholders back it (the directors hold about 54% of the stock).
Angus Thirlwell, chief executive officer of Hotel Chocolat, argues that teaming up with Mars makes sense for his company.
Thirlwell says:
We know our brand resonates with consumers overseas, but operational supply chain challenges have held us back. By partnering with Mars, we can grow our international presence much more quickly using their skills, expertise and capabilities.
The pillars on which we have built the Hotel Chocolat brand - originality, authenticity and ethical trading, is precisely what brought Hotel Chocolat and Mars together and our intention is to strengthen and invest behind these. I’m excited about the future of the business and in Mars we have found an excellent long-term steward of the Hotel Chocolat brand and everything we stand for.”
The agenda
9.30am BST: Latest realtime economic data on UK economy
1.30pm BST: US weekly jobless figures
2.15pm BST: US industrial production stats for October
3.45pm BST: Bank of England deputy governor Dave Ramsden speaks at the 7th Annual Conference of the European Systemic Risk Board ‘Financial stability challenges ahead: emerging risks and regulation’
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