the times | Thursday April 28 2022 2GM 37
Business
JOHN SHEARER & RANDY SHROPSHIRE/GETTY IMAGES; SPOTIFYF
ew people get the chance to
train Lloyds Banking
Group’s famous black horse.
And those who do haven’t
always been a wild success.
Who can forget how Eric Daniels
managed to mate the nag with some
bucking bronco called HBOS? Or
how Sir António Horta-Osório’s
myriad achievements included
pocketing £60 million in pay while
leaving investors with a £22 billion
PPI bill and a lower share price than
when he came in?
So shareholders can be forgiven
for wondering if the latest chap in
charge of the stables, Charlie Nunn,
really is someone to bank on. He
took charge last August, with the
shares at about 46p, having been
poached from HSBC, where he was
running the wealth management
and personal banking wing.
His background provided a bit of
a clue, too, into the sort of strategic
revamp he had in mind. But when
he unveiled his plans in February
alongside the full-year results, the
shares fell 11 per cent, with investors
more focused on missed forecasts,
Putin’s invasion of Ukraine and a
further £600 million hit for HBOS’s
Reading fraud.
It upped the pressure on Nunn for
the first-quarter update, not least
with the UK-focused bank a
yardstick for Britain’s cost of living
crisis. How bad was the black horse’s
performance going to be? Short
answer: better than expected
(Report, page 40). Yes, pre-tax
profits fell 14 per cent to £1.62 billion,
but they were about £200 million
above forecasts, while Nunn’s also
raised guidance — not least with
the bank shooting for a 2022 return
on equity of 11 per cent, up a point
from February’s forecasts.
Naturally, Nunn cautioned about
the “uncertain” UK economy,
“particularly with regards to the
persistency and impact of higher
inflation” — a point underlined by
the bank setting aside £177 million,
partly for potential loan losses.
Finance chief William Chalmers
also related how, with a squeeze
now on, 1.2 million customers had
cancelled subscriptions to the likes
of Netflix and Spotify as well as gym
memberships. But the corporate nag
is still taking things in its stride, with
higher interest rates giving the net
interest margin a useful kick.
The bigger question is whether
Nunn can deliver on his promised
growth: a more explicit push than
under Horta-Osório, whose tenure
was focused on saving the steed
from the glue factory, getting it race
fit and cantering off somewhere
digital. Lloyds has 26 million
customers, 18.5 million of whom are
online, but it’s already got 26 per
cent of credit card balances, 23 per
cent of deposits, and 19 per cent of
mortgages and small business loans.
So, there are limits to growth there.
Nunn’s plan? A £4 billion spend
over five years that he says will add
£1.5 billion revenues by 2026. He
wants to deepen relations with
customers and bring in half the
extra sales via fees, reducing Lloyds’
dependence on interest income. It
involves such things as tapping into
the “mass affluent” — customers
with a nice £75,000 stash — via
wealth management and insurance,plus more corporate business with
bigger clients. It sounds ominously
like cross-selling, though maybe
that’s different in a digital world.
Whatever, investors will expect a
return on Nunn’s investment. The
shares trade at a discount to 56½p
book value. And, though it’s early
days, so far they’ve gone nowhere
on his watch, down 0.25 per cent on
the latest update to 45¾p. That’s a
Lloyds habit Nunn has to change.Burning issue
A
nother victory for Cop26. Six
months on and the
government’s badgering
energy groups to keep their coal-
fired power plants burning — more
proof of Britain’s failure to have
anything resembling an energy
policy for most of this century.
Yes, Putin’s assault on Ukraine
makes it a pragmatic choice, not
least with gas prices rocketing by as
much as 20 per cent yesterday after
Gazprom suspended supplies to
Poland and Bulgaria. But it’s quite a
change of stance after a green
jamboree billed as the “world’s best
last chance to get runaway climate
change under control”.
EDF, Drax and Uniper were doing
their bit, with plans to shut coal-
fired plants in September. But, as
Drax has just disclosed, it’s “been
asked by the UK government to
consider options for a limited
extension of its coal operations”: an
issue that remains “under review”
for the Yorkshire-based group.
Rivals in Nottinghamshire — EDF’s
West Burton A plant and Uniper
units at Ratcliffe-on-Soar — are
considering similar requests.
You’d think they could name their
price, what with the plants serving
millions of homes facing a big
winter jump in energy bills. And not
least Drax, which has converted
four of its six plants to biomass and
is planning to use part of the site
occupied by the two coal units for
BECCS, its bioenergy with carbon
capture and storage project. As
Drax boss Will Gardiner points out,
the technology delivers “negative
emissions”, generating “renewable
electricity while removing millions
of tonnes of CO 2 from the
atmosphere”. He wants “government
support” for the project. A bit more
coal-burning should do the trick.Twittering away
J
ust $1 billion. What’s that to
Elon Musk? The termination
fee for his $44 billion Twitter
deal doesn’t look much of a
deterrent, should the world’s richest
man find some way to walk. It’s one
explanation, maybe, for Twitter
shares dropping another 2 per cent
to $48.53 — a chunky 12 per cent
discount to Musk’s $54.20 offer
price. Yes, the entrepreneur could
calm nerves by disclosing where he’s
getting $21 billion of equity —
notably, there was no rally in Tesla
shares, still around $880 and down
19 per cent in a month. Musk’s yet to
end all scepticism that his Twitter
bid will fly.[email protected]business commentary Alistair Osborne
Retail spending dips as inflation bites
Shoppers cut back on spending this
month as fears over rising inflation and
energy prices continued to squeeze
households.
The CBI’s monthly measure of retail
sales fell to a 13-month low after big
drops last month following the
outbreak of war in Ukraine.
The measure of retail sales fell by one
point to -24, far below economist
expectations of -5.
The survey, of 108 companies includ-
ing 51 retailers, is the latest data to show
a pronounced slowdown in consumer
spending after last year’s strong
recovery on the back of the easing of
Covid-19 restrictions.
Consumers are facing 30-year high
inflation driven by food and energy
prices, which economists predict will
get worse before it gets better later this
year. “Rapid inflation means that the
cost of living crisis is going nowhere
soon,” Martin Sartorius, lead econo-
mist at the CBI, said.
“Retail sales were below seasonal
norms in April as consumer spending
continued to shift back towards
services and rising prices impacted
households’ spending power.”Businesses are also suffering from
further supply chain disruptions
caused by Russia’s invasion of Ukraine
and the recovery from the pandemic.
The survey showed that suppliers
registered their first monthly fall in or-
ders for more than a year. Retailers said
they had been suffering from low stocklevels this month. The Office for Bud-
get Responsibility has warned that Brit-
ons are facing the worst cost of living
crisis since the end of the Second World
War, with real incomes due to drop
2.2 per cent this year as a result of
higher inflation and rising taxes.
One factor that could prop up spend-
ing despite record inflation is if house-
holds draw on the savings they accu-
mulated during the pandemic, Gabriel-
la Dickens, UK economist at Pantheon
Macroeconomics, said.
However, she warned that a looming
slowdown in growth and falling
consumer confidence meant that most
households “will act with caution when
deciding how much to draw upon their
savings”.
Dickens added: “Evidence also sug-
gests that consumers are more likely to
put these excess savings towards a
house deposit or their pension pots.”
Cost of living; leading article, page 31Mehreen Khan Economics Editor
2.2%
Expected drop in real incomes this year
Source: Office for Budget ResponsibilityPlea to end Shanghai office lockdown
A leading lobby group for global finan-
cial services firms has pleaded with
Shanghai authorities to let hundreds of
exhausted employees go home after a
month-long Covid lockdown that has
kept them in office buildings.
The Asia Securities Industry and
Financial Markets Association said in a
letter that the city’s authorities should
let financial firms rotate staff who
needed to work from offices.
More than 20,000 bankers, traders
and other workers have had to sleep in
office towers in Shanghai’s Lujiazui
district as they sought to keep China’s
giant financial hub running during
lockdown.
Restrictions have kept most of the
26 million residents of China’s most
populous city housebound since April 1
and also halted production at thou-
sands of factories, causing disruption to
supply chains and weighing down the
national and global economy.
Staff sleeping in offices were given air
mattresses, pillows and blankets, and
had to rely on limited facilities. They
have not been able to step outside since
March 28, when Shanghai started im-
posing lockdown curbs on areas east of
the Huangpu river.
“There are hundreds of employees
from financial services firms who have
been trapped in their office buildings
for several weeks and separated from
their families,” the association said in
the letter, the contents of which were
reported by the Reuters news agency.
“Not knowing how long this out-
break will last, or if future outbreaks
might lead to additional lockdowns, we
seek solutions for rotational support to
help build a sustainable model and to
promote stability of the financial
markets.”
Factories in China’s commercial hub
are returning to life after the partial
relaxation of restrictions for critical in-
dustries. The Shanghai authorities last
week gave 666 key factories, includingthe car manufacturers Tesla and
Volkswagen, drug companies and
chipmakers, the green light to restart if
they could operate under Olympic
Games-style “closed loop” quarantine
measures.
About two thirds of factories have
since restarted some operations, albeit
at far reduced capacity, as officials
battle to contain the country’s worst
outbreak of the coronavirus since the
start of the pandemic.
A memo reportedly circulated at
Tesla told employees that they would
have to sleep at the factory, with the
company providing sleeping bags, mat-
tresses and daily meals.
SAIC Motor, the country’s largest
carmaker, has resumed production at
some of its Shanghai plants, although
output is far short of full capacity.
Its factory in the Pudong district re-
sumed work on April 18, with the first
car rolling off the line the following day,
according to state newspaper the
People’s Daily.Didi Tang, James Hurley
end of the next
quarter, it expects its
audience to expand to
428 million.
Spotify, which is
based in Stockholm,
Sweden, launched in- Its audio
streaming platform,
which boasts
82 million songs and
4 million podcasts, is
available across 183
markets. It makes its
money through adverts
and subscriptions for
users who want to
avoid advertising. The
group listed in New
York in 2018.
Netflix, once the star
of streaming services,
has been losing
subscribers for the first
Daniel Ek, 39, co-
founder and chief
executive, rejected
comparison with
Netflix. “It’s just vastly
different businesses,”
he said. Spotify has
invested hundreds of
millions of dollars in
podcasts, acquiring
titles including The Joe
Rogan Experience in a
bid to branch out
beyond music. Ek
described consumption
of shows as “strong and
increasingly sticky”.
Barack and Michelle
Obama, who signed a
partnership with
Spotify in 2019, are
said to be speaking to
other platforms about
striking a new deal.time in a decade,
prompting Wall Street
to reassess the long-
term potential of the
premium streaming
business model.
Spotify’s shares,
which surged during
the early stages of the
pandemic, had already
halved this year before
yesterday’s update.
Revenue at Spotify
grew by 24 per cent to
€2.66 billion in the
three months to March
31, with net income up
from €23 million to
€131 million. It finished
March with 182 million
paying subscribers, up
15 per cent on the year
but just 1 per cent on
the previous quarter.Spotify boasts about
82 million songs by
artists including
Camila Cabello, main
picture, and four million
podcasts. Barack and
Michelle Obama, left,
who signed an exclusive
partnership with Spotify
in 2019, are said to be
speaking to other
platforms about
striking a new dealBlack horse trainer
must find form