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The business news that matters
A scheduling note: There will be no Off to Lunch on Friday or Sunday this week. Off to Lunch will be back on Monday
Hello and welcome to the latest Off to Lunch…
One company that will be grateful for the political and media attention on Natwest is Centrica, the owner of British Gas. This morning Centrica has reported that underlying operating profits for British Gas grew by almost ten-fold to £969 million in the first-half of 2023. That is a record for British Gas for the first-half of a year (the previous record was £585 million in 2010) and compares to profits of £98 million last year. Profits for Centrica as a whole rose 55 per cent to £2.1 billion, which is also a record.
Centrica’s profits have been boosted by the rise in energy prices since Russia invaded Ukraine last year. But these half-year results also got a one-off boost from an increase in the energy price cap by Ofgem, the energy regulator, which was designed to compensate energy suppliers for the cap being too low previously. Centrica said this one-off benefit amounted to approximately £500 million in the first half of 2023.
The price cap is currently set at £2,074-a-year for households on a dual-fuel electricity and gas deal. That is down from £4,279 for the first three months of the year and £3,280 for the second quarter, although the government’s support scheme means household bills were capped at £2,500, with the state paying the difference.
Centrica has said today that it is offering £100 million of support to struggling customers, double what it was offering previously. It has also announced a 33 per cent rise in its interim dividend payment to 1.33p per share and £450 million of share buybacks. Shares in Centrica are up more than 5 per cent on the announcement. This is the company’s share price graph over the last five years…
Chris O’Shea, Centrica’s chief executive, said of the company’s results:
"To be sustainable and stable you have got to make a profit.”
Not everyone in the UK sees it that way, however….
Centrica is one of a slew of UK companies that have reported results this morning. Shell is another. The oil giant reported that underlying profits in the second quarter of 2023 fell by 47 per cent to $5.1 billion, a reflection that oil prices have dropped. Shares in Shell have fallen by just over 1 per cent on that news. You can find Centrica’s results here and Shell’s here
Centrica and Shell would likely be getting more attention today without the drama at Natwest and the departure of chief executive Dame Alison Rose, a story which continues to reverberate around the business world. Here are the latest developments on that:
-Andrew Griffith, the City minister, sent a Whatsapp message to journalists saying “Victory” after it was announced that Dame Alison was standing down, according to The Daily Mail. Meanwhile, Jeremy Hunt, the chancellor, was “flabbergasted” and Rishi Sunak, the prime minister, was “furious” when they were told that the Natwest board planned to stand-by Dame Alison. Piece here
-An executive at a rival bank has told the Financial Times that the board of Natwest made an “extraordinary misjudgement” not to remove Dame Alison after she admitted speaking to Simon Jack, the BBC business editor, about Nigel Farage. The board had to meet again hours later after the government made it clear that Dame Alison should go. “One of the most humiliating U-turns the City has ever seen,” the executive adds. The same piece quotes allies of Dame Alison as saying the former Natwest boss has been “extraordinarily poorly treated”. Piece here
-Mark Kleinman writes for City AM that Dame Alison had shown “autocratic behaviour” at Natwest and “sought to exert a level of control that was faintly reminiscent of the most famous RBS CEO of all: Fred Goodwin”. He says there were rumours of tension between Dame Alison and Sir Howard Davies, the chairman. Piece here
-The Guardian reports that officials at the Treasury and the Financial Conduct Authority are concerned that the anonymous government briefings that pushed the board of Natwest into removing Dame Alison have damaged UK plc. Piece here
-The Daily Telegraph says that Natwest faces an investigation by the Information Commissioner's Office for breaching Farage’s privacy. It also reports on the pressure on Sir Howard and the rest of the Natwest board to also resign. Sir Howard is already due to stand down as chairman next year. Story here
-Sir Paul Marshall’s hedge fund Marshall Wace has a short position in Natwest and therefore benefits from a fall in the bank’s share price. Sir Paul is also an investor in GB News, for which Farage is a presenter. Marshall Wace’s short position in Natwest shares was first disclosed in March as concern about the banking system grew following the demise of Silicon Valley Bank and Credit Suisse. That 0.61 per cent short position was the biggest short-position reported in Natwest since records began in 2012. However, Marshall Wace has trimmed its position in recent weeks and it was a “mostly computer-driven” bet, according to a story on all this by The Daily Telegraph here
Other stories that matter…
1. The Federal Reserve has increased interest rates in the US again, this time by 0.25 percentage points to a range of 5.25 per cent to 5.5 per cent, the highest level for 22 years. That could be the end of interest rate rises in the US for this cycle. However, in the UK there is growing concern that the Bank of England will push rates up too far and spark a recession. The majority of the chancellor’s Economic Advisory Council (which is made up of seven experts, including Andy Haldane, the former chief economist of the Bank of England) thinks the Bank should slow down, according to a story by Bloomberg here. The Bank will announce its latest decision on rates next Thursday. Rates are currently 5 per cent.
2. A global trial of a four-day working week has found that after a year of working at reduced hours businesses are reporting productivity has been maintained at previous levels and staff retention has improved. Times story here and details of the trial, which includes UK businesses, here. On a not entirely unrelated note, check-out Simon Kuper’s piece in the Financial Times about the rise of the workcation this summer. You can read that here
3. Meta, the owner of Facebook, has reported its biggest rise in quarterly revenues for two years (up 11 per cent) and said that the advertising market is showing signs of improvement. Results here. ITV said this morning that total advertising revenues fell by 11 per cent in the first half of 2023. Results here
4. For all the talk about how to build new homes and big new regeneration projects in the UK, a reminder that a successful scheme is still going after more than a decade. Planning approval has just been granted for the final £600 million phase of the East Village neighbourhood in the Queen Elizabeth Olympic Park, which is where athletes stayed during the London 2012 Olympics (an event that started 11 years ago today). This development is already home to more than 6,500 people and has 25 acres of public space for the community. Construction work at the Queen Elizabeth Olympic Park is due to continue into the 2030s with more than 30,000 new homes eventually built. An entirely new area of London has emerged from what was a contaminated railway goodsyard. Story here
5. A reminder that even useful technologies can create stock market bubbles. The UK got caught-up in a bicycle mania in the 1890s as new technology turned the penny-farthing into the bikes we recognise today. More than 600 bicycle companies floated in the space of two-and-a-half years, according to a new newsletter called Market Memoirs. Shares for these companies went up, but then crashed. You can find more details about this and a link to a study by Queen’s University Belfast here (it’s under the section Chart #3)
Podcast
The new season of our Business Studies podcast has launched with the story of how Richard Harpin built Homeserve into a company that was sold to Canadian company Brookfield for £4.1 billion in 2022. It is a story that involves unexpected twists, setbacks and lessons about how you really build a business. You can listen on Substack here, Apple here and Spotify here
And finally…
The Times has asked chefs and hospitality experts to pick their favourite local pubs in popular holiday destinations across the UK. The result is a list of 45 summer pubs. Check-out the setting and the views from the Pentre Arms in Llangrannog, Wales, the Anchor Inn in Seatown, Dorset, and The Royal Hotel in Runswick Bay, Yorkshire (pictured below and a personal favourite). You can find the full piece here
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Best
Graham