HSBC first-half profits hampered by expenses and settlement
HSBC Holdings Plc (LON:HSBA) have seen their share price dip in morning trading, as first half profits are crimped by investment on expansion and legal settlement costs.
This morning, the bank reported that pre-tax profit for the first half had jumped 4.6% to $10.7 billion on year, and revenue had jumped 4% to $27.3 billion. these figures come after good performance thus far in 2018 for HSBC’s retail banking and wealth management services.
‘Retail Banking and Wealth Management, and Commercial Banking were again our strongest performing businesses. Both continued to gain from a positive interest rate environment, and used the benefits of past investment to grow lending and deposit balances, particularly in Asia and the UK,’ said John Flint, Group Chief Executive.
However, in addition to unadjusted profit figures, the firm’s operating expenses also grew 7% to $17.5 billion. This came as HSBC adjusted their strategy to one based on investment and growth of their global empire, after years of cutting back and shrinking. Such restructuring has so far posed a challenge to the firm, with its share price dipping in the wake of questions rising over the company’s management strategy.
“HSBC is struggling to convince that its current restructuring to pivot the group toward Asia is delivering the hoped for pick-up in growth,” said Steve Clayton, Manager of the Hargreaves Lansdown UK Income Shares fund.
HSBC have plans to continue expansion in China, the US and the UK mortgage market, though they have recently taken another hit after having to pay a $765 million settlement for alleged mishandling of US mortgage securities.
The firm’s shares are currently trading at 712p, down 3.8p or 0.53% since trading began. Analysts from Goldman Sachs have reiterated their ‘neutral’ stance on HSBC stock, while Shore Capital analysts have reiterated their ‘sell’ stance.
House of Fraser to go ahead with closure of 31 stores
House of Fraser announce the closure of 31 stores of its 59 stores, as it looks to settle a legal row with landlords, and find a potential investor.
The struggling department chain reached the settlement with landlords to close over half of its locations, as it looks to strengthen its position to negotiate a rescue deal.
Last week, talks between C.banner, the owner of Hamleys, and House of Fraser collapsed.
Amid a difficult retail trading environment, House of Fraser is seeking £50 million to avoid collapse, which would place approximately 17,000 jobs under threat.
House of Fraser commented that is “focused on concluding discussions with interested investors” and the out-of-court settlement with the landlords had removed “any risk to those discussions”.
In a statement released by their legal team, the landlords said: “Although we will not have our day in court, we are pleased with the outcome and hope that our landmark legal challenge sends a clear message to any other companies considering a CVA, on the importance of transparency and fair treatment for all creditors throughout a CVA process.
“Landlords are always willing to enter into a proper dialogue with companies and their advisers with the aim of rescuing a business. However, the retail CVA process in the UK has become increasingly misused and prejudiced against landlords and needs correcting. CVAs were designed as a means to rescue a business, not simply a tool to shed undesirable leases for the benefit of equity shareholders.”
Currently, House of Fraser has 59 stores across the UK and Ireland, employing 6,000 staff, alongside 11,500 concession staff. In 2014, the high street giant was acquired by Sandpower, which is owned by Chinese businessman Yuan Yafei. House of Fraser is one of many UK high street brands to feel the pinch of economic uncertainty and high inflation hitting the retail sector.Barclays reports 29pc fall in half-year profits
Barclays has announced a dent in half-year profits following a major US settlement and miss-selling provisions.
Profit for the lender fell by 29 percent from £2.3 billion to £1.7 billion for the six months to 30 June.
The lender paid a £400 million PPI fine and a settlement of £1.4 billion with US authorities over its sale of mortgage-backed securities.
“It was the first quarter for some time with no significant litigation or conduct charges, restructuring costs or other exceptional expenses which hit our profitability,” said the chief executive, Jes Staley.
“In effect then, it is the first clear sight of the statutory performance of the business which we have re-engineered over the past two-and-a-half years – Barclays’ transatlantic consumer and wholesale bank – and it is a positive sight.”
Staley said that the bank’s performance showed its “true potential and value”.
“The numbers we have posted strengthen our confidence that Barclays can deliver attractive and sustainable profits, and in our ability to return a greater proportion of those profits to shareholders over time.”
Pre-tax profits for the second quarter were a total of £1.9 billion. This was up from £659 million during the same period in 2017.
Shares in Barclays (LON: BARC) closed down 2.7 percent at 186.5 pence.
IAG shares fall despite profit hike
The British Airways owner, IAG (LON: IAG), has reported a six percent rise in quarterly profit to €835 million (£742 million).
Despite the increase in profits, the group did not meet analyst expectations and shares fell almost five percent on Friday morning.
The airline operator has warned of air traffic control strikes in France and how these are weighing on its finances.
IAG has said that months of industrial action has led to thousands of flight cancellations. Airlines including Ryanair (LON: RYA) and EasyJet (LON: EZJ) have complained to European officials.
The IAG Chief Executive Officer, Willie Walsh, said: “We’re reporting another good set of results in quarter two with an operating profit of €835 million before exceptional items, up from €790 million last year.”
“There was a strong performance in both unit revenue and costs. At constant currency, our passenger unit revenue increased by 2.3 percent while non-fuel unit costs went down 2.0 percent.”
“Unfortunately, French Air Traffic Control strikes continued to challenge our airlines’ operations causing disruption to our customers. Vueling was particularly affected and incurred an additional €20 million of disruption costs in the quarter. These strikes are also having a significant negative impact on the Spanish economy and tourism,” he added.
IAG has said that it expects operating profits to grow in 2018.
The British Airways owner has approached budget airline Norwegian for a merger but Norwegian airline has rejected two offers, saying that IAG “devalued” the company.
George Salmon, equity analyst at Hargreaves Lansdown said: “There’s clear upside to combining the two groups, but as ever, whether it’s a good idea or not will depend on price. IAG has been rebuffed twice before, so it’s unlikely to get Norwegian on the cheap. That heightens the risk of overpaying.”
Shares in IAG are currently trading at 661.20 (1029GMT).
Apple becomes first trillion dollar company
Apple (NASDAQ: AAPL) became the first company worth one trillion dollars (£767 billion) on Thursday.
The tech giant reached the landmark after it released strong financial results and shares hit a high of $207.05.
Apple beat rivals Amazon (NASDAQ: AMZN), Alphabet (NASDAQ: GOOG) and Microsoft (NASDAQ: MSFT) to become the first public company to reach the $1 trillion valuation.
Amazon is currently worth $875 billion, Alphabet is valued at $850 billion and Microsoft $823 billion.
“Growth was strong all around the world,” said Apple’s finance chief, Luca Maestri.
Founded in 1976, it took the group 42 years reach the one trillion mark.
The company experienced higher than expected profits for the most recent quarter due to strong sales. Profits reached $11.5 billion in three months on the back of $53.3 billion worth of sales.
Sine the first iPhone sale in 2007, shares in Apple have increased by 1,100 percent and have soared by almost a third in the past year.
The good news for the trillion dollar company was met by bad news for Facebook, who last week suffered the worst day for a single company in US stock market history. The group lost over $120 billion from its value as shares fell over 20 percent.
PetroChina, the world’s fourth biggest oil company by revenue, passed the one trillion dollar mark in 2007. However, the record worth was short-lived due to the collapse in oil prices. Today the group is worth about $220 billion (£167 billion).
RBS pays first dividend in decade, shares rise
The Royal Bank of Scotland is to pay its first dividend since the financial crisis ten years ago.
The bank will pay two pence a share as an interim dividend once its provisional $4.9 billion settlement with the US Department of Justice is completed.
“The turnaround of the bank is almost complete,” said Ross McEwan, the group’s chief executive.
“We still have a lot more to do to achieve our ambition of being the best bank for customers in the UK and Republic of Ireland. “However, with our major legacy issues largely behind us, we are able to fully focus on closing this gap,” he added.
The treasury will receive £149 million from the £240 million dividends as the bank is still 62 percent owned by the UK government.
RBS reported its first annual profit in ten years in February.
“RBS has made tremendous progress in addressing legacy issues over the past 12 months such that it is now in a position to resume dividend payments and plan additional capital distributions to shareholders,” said Gary Greenwood, an analyst at Shore Capital.
“Despite this positive progress, the shares have been weak of late and are beginning to look more interesting to us,” he added.
The bank has made no comment over its controversial Global Restructuring Group (GRG), which was criticised over its treatment of small and medium-sized business customers.
The Financial Conduct Authority has said that no action would be taken against RBS over the controversy.
The bank has offered a total of £125 million to the victims of GRG.
“It is important to recognise that the business of GRG was largely unregulated and the FCA’s powers to take action in such circumstances, even where the mistreatment of customers has been identified and accepted, are very limited,” said Andrew Bailey, the FCA chief executive.
Shares in the group (LON: RBS) rose three percent to 257.6p in early trading.
Next shares dip despite impressive first half
Home wares and clothing retailer Next (LON:NXT) saw their share price dip following reports of over-achievement in the first half of the year.
This came as the firm announced it would leave its full-year profit projections from May unchanged, despite an impressive spell of summer sales. It is believed that full-year profits will still be down 1.3% on last year, as impressive first half performance has been put down to impressive on-year figures for Q1, in comparison to a disappointing first quarter in 2017. Also, Q2 sales have soared as it has been noted that the hot weather has pulled the summer spending spree forward into July.
Next CEO Simon Wolfson said, “Full price sales in the second quarter were up 2.8% on last year and ahead of our guidance. We believe that this over-achievement in sales was due to the prolonged period of exceptionally warm weather, which greatly assisted the sales of summer weight product. It is almost certain that some of these sales have been pulled forward from August, so we are maintaining our sales and profit guidance for the year to January 2019.”
AJ Bell Investment Director, Russ Mould, reiterated Wolfson’s comments, “Despite enjoying better than expected trading in the second quarter thanks to the warm weather, the company’s full year guidance remains unchanged. Wolfson and his management team prudently judging that spending may have been pulled forward from a traditional splurge in August.”
“Investors seem to be taking this warning to heart, although it is worth noting the company upgraded guidance after the better-than-expected first quarter performance announced in May.”
Thus, the Next CEO’s cautious approach in the quarterly sales update was not well received by investors, but one should note that such an approach is typically in character for Lord Wolfson.
Despite high street retail sales dipping by 5.3% in the first half, Next’s online sales cancelled out this drop with a 15.5% increase. Following yesterday’s sharp dip, Next’s share price has increased 0.73% or 40p since markets opened this morning, to 5552p. Analysts from Liberum have reiterated their ‘Hold’ stance on Next stock.
Crowdcube reports record-breaking second quarter
Crowdcube have seen their most successful quarter, with a hike in on-year revenue and the most funds raised in a single quarter.
The firm are the world’s first and largest equity crowdfunding platform, giving entrepreneurs the opportunity to cut out banks and pitch their ideas to the general public, in return they have direct access to the capital they raise.
The firm was founded in 2011 and has since gone on to collect a total of £490 million in funds from the general public, with 560,000 registered investors and involvement with 700 different companies.
Crowdcube’s recent success saw the firm raise a total of £47.4 million for 58 businesses in the second quarter. Additionally, Q2 revenues were up 43% on-year to £1.6 million. Adding this to the impressive figures form the first quarter, Crowdcube achieved a record-breaking first half, with total revenues reaching £2.67 million, up 32% on the year before.
The successful start to 2018 has largely been attributed to Crowdcube’s intelligent business model, based on efficient spending and structural investment on personnel and technological expansion. Such investment began towards the end of 2017 and has extended to 2018, with the firm’s Q1 introduction of the ‘entrepreneur dashboard’ and Q2 introduction of an insight process which allows businesses to see performance statistics for their crowdfunding and marketing campaigns, as well as the source of any investment being made.
Luke Lang, co-founder of Crowdcube, said “Our two consecutive record quarters are a reflection of real progress over a long period by the team. By investing in the business, we’ve been able to develop our technology and our processes to enhance the fundraising experience, allowing us to attract and support more companies and accelerate our revenue growth, while improving efficiency and productivity to manage costs. We’re getting fitter as a business while providing more companies with access to finance and bringing more investment opportunities to investors.”
The recent triumphs for Crowdcube come on the back of opening up innovative investment opportunities to the general public, when traditionally, such opportunities would have been reserved for corporate bodies.
The platform has had an integral role in raising funds for businesses such as Brewdog, Monzo, Zing Zing, The Eden Project, eMoov, Parcel2Go, Freetrade, Pod Point, JustPark, Mindful Chef, Innis and Gun, Grind and Revolut.
The last opportunity listed above represents an instance of success for all parties involved. Revolut is a fintech firm that provides a digital banking alternative, and has grown exponentially since its Crowdcube campaign in 2016, where it raised £1.01 million. Since being worth £42 million in 2016, Revolut has gone on to become the second member of Crowdcube’s Unicorn Club – after Brewdog – which is reserved for businesses worth over a billion dollars. In 2016, Revolut’s crowdfunding venture offered investors the chance to invest up to £5000 in the firm, and as of today, they were given the choice to either keep their stake in the company or sell it back to Revolut. Those that chose to sell, have seen a 1900% return on their original investment.
Bank of England raise interest rates
The Bank of England has raise UK interest rates to 0.7 percent, marking the highest level since March 2009.
The Bank decided to raise the rate by a quarter of one percent, from 0.5 percent, marking the second raise in a decade.
The monetary policy committee reached the decision unanimously , after concluding that the economy had shown signs of recovery after extreme winter weather conditions.
Looking ahead, the Bank anticipate “modest” economic growth to continue at around 1.4 percent for the year, increasing to 1.8 percent next year.
Unemployment is expected to fall further from 4.2 percent and wage growth is expected to pick up.
Inflation is forecast to fall back down to 2 percent, by 2020, in line with the Bank of England’s target.
Nevertheless, this has prompted concerns from economists in the event of a no-deal for Brexit.
However, the BoE Governor, Mark Carney could opt for an emergency rate cut should no deal be reached.
The hike had been widely expected after the committee delayed raising rates back in May, nevertheless a unanimous decision was not expected.
Rolls-Royce profits on track despite costs of engine problems
Rolls-Royce (LON:RR) shares rose around 3 percent on Thursday morning, after the British engine-maker said it expected full year profit to come in at the higher end of expectations.
Underlying operating profit rose to £205m in the first half of the year, up from £141 million in the same period of 2017. This came despite the group taking a £554 million charge to cover costs relating to problems with its Trent 1000 engine.
The engine, which is used in Boeing’s Dreamliner range of aircraft, has experienced problems with its turbine blades, and airlines have been forced to take aircraft out of use whilst Rolls-Royce fixes the problem.
“We continued to make good progress in the first half. Financial results were ahead of our expectations, with strong growth from civil aerospace and power systems, and we achieved a number of operational and technological milestones,” chief executive Warren East said.
The expected cost of fixing the problem will be around £450 million this year, £450 million in 2019 and £350 million in 2020. The work is set to be totally complete by 2022.
Shares in Rolls-Royce (LON:RR) are currently trading up 3.31 percent at 1,020.50 (1301GMT).