UK MIDDAY BRIEFING: Tesco's Answer Is Even More Price Cuts

LONDON (Alliance News) - The UK's biggest retailer, Tesco, Wednesday reported a second consecutive decline in its annual trading profit as it was hit by lower sales in both the UK and Europe, and said it would respond to the growing encroachment by the discount retailers by investing more in lowering its prices.

It said it will respond to the growing threat from Aldi and Lidl by investing even more in UK price cuts than the GBP200 million it had detailed in February, although it didn't say how much more.

"GBP200 million was just the start, and you will see more coming. We have a big and bold plan, and customers will be getting better value in 2014," Chief Executive Philip Clarke said Wednesday.

Otherwise its strategy is more of the same: Tesco will continue revamping its out-of-favour giant stores known as Tesco Extra, opening more convenience stores, and investing in its highly successful online business.

In the busiest day of the first quarter reporting season so far, mining giant BHP Billiton raised its full-year production outlook for iron ore and metallurgical coal after production of the commodities during the third quarter rose 23% and 28%, respectively. However, the mining giant's copper production for the third quarter declined 5% from last year.

Weir Group has said there is no guarantee it will change the terms of its takeover approach to Metso Oyj, after the Finnish company rejected the approach, saying it wouldn't be in the best interests of its shareholders.

Metso said it doesn't see any reason to begin talks with Weir about a combination, and it remains confident in its standalone prospects.

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FTSE 100: Up 0.5% at 6,570.95
FTSE 250: Up 0.7% at 15,699.33
AIM ALL-SHARE: Up 0.3% at 820.46
GBP-USD: Up at 1.6791
EUR-USD: Up at 1.3840
GOLD: Up at USD1,303.96 an ounce
OIL (Brent): Up at USD110.05 a barrel

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Key UK Corporate News

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FTSE 100: Reckitt Benckiser posted lower first-quarter revenue as it was hit hard by currency fluctuations, but it reiterated its revenue target at constant exchange rates for 2014 as it hit the top end of the target range. Bunzl said its pre-items operating profit was up 10% in the first quarter of the year, driven by a 5% rise in revenue at constant exchange rates and higher operating margins in three of its four businesses. It said that, while it had been hit by fluctuating exchange rates, its underlying revenue growth was at a similar level to that of the first quarter of 2013. Aviva has moved to further simplify its Italian business, building on the sale of its stake in Eurovita, by agreeing changes that will restructure its life joint ventures in the country in a transaction that that will require a GBP25.0 million balancing payment. Burberry total revenue rose 16% in the second half of its year, with growth continuing to be driven by strong sales of its outerwear and leather goods, particularly in Asia. However, the retailer warned that the strength of sterling hit profits across the business, and is expected to continue to do so in the year ahead. Persimmon has now sold around 5,000 new homes through Help to Buy. Its new financial year has started well, with visitor levels to its sites up 10% on the prior year during the initial 15 weeks of trading, while cancellation rates are down to 14%. Rolls-Royce Holdings has reached an agreement with Daimler which puts a fair market value of EUR2.43 billion on the 50% stake in the companies' joint venture that the UK engine maker is buying from the German car maker. Hargreaves Lansdown reported GBP1.83 billion in net inflows over the third-quarter, which helped to propel its assets under administration to GBP45.7 billion, boosted by an influx of new clients and accounts. RSA Insurance Group said the Chief Executive of the business which houses its troubled Irish operations has resigned in order to become Executive Chairman, underwriting and distribution, at business partner A J.Gallagher. Adrian Brown has resigned from the board but will carry on in his executive role until a successor is found. No departure date is currently set in stone but RSA said it expects Brown to leave in the second-half after 25 years at the FTSE 100 insurer. Fresnillo said total silver production increased in its first quarter as Silverstream production jumped but gold production fell compared to the previous year as a result of explosion permit problems and stoppages. HSBC Holdings said its Oman subsidiary has agreed to sell its banking business in India to Doha Bank QSC.

FTSE 250: Xaar said it remains confident that it will meet its expectations in 2014, after trading met its hopes in the first few months of the year. The company said its operating margin fell as expected in the first quarter, due to revenue seasonality and the investment it is making in expanding the capacity of its Huntingdon facility, as well as research and development spending. Evraz said its crude steel production fell in its first quarter due to scheduled maintenance, and average selling prices fell in Russia for its steel products compared to the previous year. Grainger has acquired a tenanted residential property portfolio in London for GBP160 million from Property Investments Chelsea Ltd. Hunting said trading in its first quarter has been slower than expected due to adverse weather conditions in North America and projects delays in the Asia Pacific region. Lancashire Holdings founder and Chief Executive, Richard Brindle, is to retire at the specialty insurer and reinsurer's annual general meeting at the end of April, with Chief Underwriting Officer Alex Maloney succeeding him.

AIM All-Share: Belgravium Technologies is a big gainer after it won a GBP1.1 million contract from rail operator First Great Western to provide a retail IT system on-board its fleet of trains. All of First Great Westerns trains will be hard-wired for Wi-Fi and GPRS communication which will allow the new system to communicate in real-time with stock control, sales and marketing systems. Dekeloil Public is doing well after it said its recently commissioned crude palm oil extraction mill in Sierra Leone achieved operating profitability in its first full month of operation and its gross sales margins were at the high end of company estimates. It said the 60 tonnes an hour mill produced 1,617 tonnes of crude palm oil and 189 tonnes of kernels during March after the plant started production towards the end of February. Snoozebox Holdings is a big faller after it said it plans to raise up to GBP11 million by way of a firm placing and up to GBP1 million in an additional placing at a price of 10 pence a share, money it will use to build its next generation of hotel rooms and new hospitality suites. The portable hotel accommodation and services provider said its loss widened in 2013, during a turbulent period which saw changes in its management team. It posted a pretax loss of GBP9.4 million in 2013, compared with a profit of GBP4.2 million in 2012, despite revenue rising to GBP6.7 million, from GBP3.8 million. It said that although it achieved repeat bookings, the operating costs and deployment time for short-term events were too high. Revenue was boosted by strong sales for its events and hotels business.

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Top Economics And General

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The UK unemployment rate declined below the 7% threshold during three months to February, data from the Office for National Statistics showed. The jobless rate was 6.9% of the labor force, down from 7.1% in the September to November period, and below the 7.9% rate in three months to February 2013. Last year, the Bank of England pledged not to hike interest rate until the jobless rate hit 7%. As the unemployment started falling faster than estimated, the BoE then assured markets that interest rates will not be raised before the second quarter of 2015.
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China's gross domestic product gained 7.4% on year in the first quarter of 2014, the National Bureau of Statistics showed. That topped expectations for 7.3%, but was down from the 7.7% gain in the previous three months. Among sub-industries, primary industry added 3.5% on year, while secondary industry jumped 7.3% and tertiary industry climbed 7.8%. On a seasonally adjusted quarterly basis, GDP added 1.4%, shy of expectations for 1.5% and slowing from 1.8% in the three months prior.
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A Ukrainian army formation in the eastern city of Kramatorsk has reportedly defected to join pro-Russian separatists, video footage posted on espreso.tv showed. The video shows the formation, which includes at least 10 armoured tanks, driving through the city bearing Russian flags. "Now the Donetsk People's Republic has its own army, has its own paratroopers," said Miroslav Rudenko, a leader within the pro-Russian movement. Russian state television reported several similar incidents in the neighbouring city of Slavyansk. The broadcaster said that forces had been deployed as a part of an "anti-terror operation" to contain separatist efforts that had switched sides.
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Two people have died and more than 290 people are officially missing in the sinking of a South Korean passenger ferry, national media reported. Dozens of ships and aircraft were involved in rescue efforts for the 477 people who were aboard the Sewol ferry, which sank off the country's southern coast, South Korea's Yonhap News Agency reported. The ship completely sank two hours after first experiencing problems, the report said. The two dead were reportedly a 27-year-old female crew member and a high school student.
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Afternoon Watchlist (all times British Summer Time)

13:00 US FOMC Member Stein Speech
13:30 US Housing Starts
14:15 US Industrial Production
15:30 US EIA Crude Oil Stocks change
16:30 US Fed's Lockhart speech
17:15 US Fed's Yellen Speech
19:00 US Fed's Beige Book

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Thursday's Key UK Corporate Events

Ferrexpo Interim Management Statement
Diageo Interim Management Statement
Lavendon Interim Management Statement
Taylor Wimpey Interim Management Statement
NCC Group Interim Management Statement

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Thursday's Key Economic Events (all times British Summer Time)

01:30 Japan Bank of Japan Governor Kuroda Speech
06:00 Japan Consumer Confidence Index
07:00 Germany Producer Price Index
09:00 EU Current Account
13:30 US Initial Jobless Claims
15:00 US Philadelphia Fed Manufacturing Survey
15:30 US EIA Natural Gas Storage change
20:00 US American Petroleum Institute Monthly Report

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By Steve McGrath; steve.mcgrath@alliancenews.com; @stevemcgrath1

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