UK packaging firm DS Smith agrees £5.8bn takeover by US group

Julia Kollewe
Tue, 16 April 2024

International Paper said it would set up a European headquarters at DS Smith’s base in London.

Photograph: Stéphane Mahé/Reuters

The FTSE 100 UK packaging firm DS Smith is to be taken over by a bigger US rival, International Paper, after the companies agreed a £5.8bn all-share deal.

Tennessee-based International Paper, one of the largest paper and pulp companies in the world, moved in late March to gatecrash a £5.14bn all-share deal put forward by its British rival Mondi, based in Weybridge, that month.

International Paper said it would seek a secondary listing on the London stock market, and set up a European headquarters at DS Smith’s base in London.

The companies recommended the deal to both sets of shareholders, arguing that they will bring together complementary businesses with “industry-leading positions in two of the most attractive geographies of Europe and North America”.

The companies believe the deal will create a global leader in sustainable packaging and create the opportunity for savings by optimising the mill network, supply chains and freight costs. They expect to reap cost savings of at least £413m a year by the end of the fourth year after the takeover.

This includes cutting 400 head office and senior management jobs, equating to 0.6% of the combined workforce. DS Smith employs 30,000 people worldwide, including 4,750 in the UK, while International Paper employs 39,000.

Under the terms of the takeover, which needs the approval of both sets of shareholders, DS Smith investors will receive 0.1285 International Paper shares for each DS Smith share. This values each DS Smith share at 415p based on the closing International share price of $40.85 on 25 March, the last day before the announcement of a possible offer.

Once the deal is completed, International Paper shareholders will own about 66% of the combined company and DS Smith investors will hold the rest.

The DS Smith chief executive, Miles Roberts, is to act as a consultant to the combined company and Richard Pike, the UK company’s financial director, will be paid a retention award of £550,000 to stay on at the new business.

DS Smith was founded in east London in the 1940s by two cousins, David G and David S Smith, as a box-making business, and was named after their grandfather, a Polish immigrant who had set up the original business.

The company listed on the London Stock Exchange in the late 1950s and has grown through a series of acquisitions, carving out a strong position in packaging and paper products. It operates in 30 different countries.

The proposed deal is the latest in a flurry of takeover bids for UK firms in recent weeks.

Private equity and some industry firms have been snapping up British assets considered cheap, as sterling remains weak after Brexit, the Covid pandemic and the Liz Truss government’s disastrous mini-budget in the autumn of 2022.

TGI Fridays acquired by listed UK outfit in rare win for the capital


Jack Mendel
Tue, 16 April 2024 

Hostmore runs TGI Fridays in the UK, and will now own it too

TGI Fridays’ largest franchisee Hostmore has agreed to a £177m takeover of the fast-food dining chain in the UK, in a rare burst of good news for a firm listed on the London Stock Exchange.

The agreement would lead to Hostmore shareholders holding a 36 per cent stake in the enlarged business with TGI Fridays shareholders having 64 per cent.

The “transformational combination” would merge “TGI Fridays’ largest franchisee with the global franchisor”, and is being classed as a reverse takeover.

Hostmore, which is listed on the London Stock Exchange, will buy TGI Fridays for 5.4x its EBITDA, which it said represents a “a highly attractive acquisition”, with a combined revenue of £490m.

It currently operates 89 TGI Fridays across the UK and employs approximately 4,380 staff.

Stephen Welker, Chairman of Hostmore, said the talks “would reunite two businesses that are a natural fit, and were one business until as recently as 2014.”

“Hostmore has made good progress in executing its turnaround strategy over the past year by reducing costs, revising our capital allocation policy to focus on debt repayment and shareholder distributions.

“This acquisition would give us the scale and flexibility to accelerate our existing strategy and enhance the financial outlook for Hostmore and scope for shareholder returns, while also strengthening our ability to provide an exceptional guest experience by harnessing our distinctive, trusted brand as the home of celebrations.”

Rohit Manocha, chairman of TGI Fridays, said the moved marked “an exciting moment for the next chapter of the TGI Fridays story, as we continue to drive forward our brand revitalisation strategy.”

“Bringing together TGI Fridays with our leading franchisee partner in Hostmore, in our largest international market, the United Kingdom, has a compelling and highly complementary strategic logic to it.”

“Our two companies share close ties and have a longstanding, excellent working relationship and mutual respect. A combined group would stand to gain from our focused efforts with the benefit of greater combined scale, efficiencies and flexibility.”

“By joining forces with Hostmore, this would support our long-term organic growth strategy and enable us to better harness (our) global franchising and licensing infrastructure”.

Richard Branson loses more than £2.5bn after the value of Virgin Orbit and Virgin Galactic collapses

Amber Murray
Tue, 16 April 2024 

Virgin Atlantic expects to return to profit in 2024.

Sir Richard Branson and his company, Virgin Group, are household names in the UK. He’s long held the title of Britain’s most famous entrepreneur and owns more than 400 businesses in everything from space to banking to cruise ships.

His net worth in 2022 was nearly £5bn, making him one of the wealthiest businessmen in the UK.

According to the Bloomberg Billionaires Index, it is now closer to £2.5bn

What happened?

What happened to Virgin Group

Virgin Group capitalised heavily on the rise of SPACs in 2021.

SPACs – or Special Purpose Acquisition vehicles – had their moment in the sun during the super-low interest rate environment that prevailed after the pandemic. Hundreds of companies jumped on the bandwagon, netting huge returns for some investors.


SPACs are effectively shell companies used as props to take over private firms and bring them public.

These “blank check companies” were a major driving force behind the 2021 IPO boom. They accounted for 61% of US public listings that year. By 2022, SPACs had already dwindled to 8% of new IPOs, leaving hundreds of underperforming acquisitions and liquidated shell companies behind them.

Virgin used the SPAC boom to take two affiliated companies public, Virgin Orbit and Virgin Galatic. Both were well received by the market.

In 2022, the group had invested over a billion dollars in companies that had listed through these vehicles, according to Bloomberg. These investments, like the rest of the market, have now stumbled.

Satellite launch service Virgin Orbit registered for bankruptcy in 2023, less than 18 months after completing a merger with blank-check firm NextGen. Virgin Group’s stake in the business reached a high valuation of $998m (£800m) in July 2022.

Similarly, Virgin Group Acquisition Corp merged with consumer goods company Grove Collaborative in a $1.5bn (£1.2bn) SPAC deal 2021. The value of Grove has fallen more than 90 per cent since the deal completed. The firm has a market value of just $61m (£49m).

The value of Virgin Galactic’s stake has also plunged from £180m in 2022 to £31m today.

Why did the SPACs fail?

SPACs became popular because they offered lower financial disclosure requirements than traditional IPOs, making the process quicker and simpler.

However, as regulators and courts began to question the SPAC model and interest rates climbed, financial markets turned away from SPACs.

Those that survived found themselves struggling. The average one-year return on a company that went public via SPAC merger in 2021 was -64.2%, according to data from Jay Ritter, a finance professor at the University of Florida.

Risky business strategies, structural flaws in the SPAC process, and higher financing costs meant that many companies struggled to become profitable.

The De-SPAC Index, a basket of companies that completed their tie-ups, has fallen more than 20% this year as many firms. That compares with the nearly 10% rally in the S&P 500 Index.

Is Richard Branson doomed?

The short answer is… probably not.

Branson’s empire is incredibly diversified: assets like a five-star hotel in Mallorca and airline Virgin Atlantic are doing well, while Virgin Group’s licensing arm is making more money than it did before the pandemic.

Virgin Group has also launched new divisions in the hotel and cruise-ship sectors.

What’s more, the billionaire is set to receive a £400m payout from the sale of Virgin Money to Nationwide for £2.9bn.

A Virgin Group spokesperson said: “For more than 50 years, Virgin has built consumer-facing businesses and brands that shake up markets and create a lasting impact. During the past year, the Virgin Group has achieved significant growth and industry firsts.

“From making history with Virgin Atlantic’s Flight100 – which was the first time 100% SAF has been flown in both engines by a commercial airline across the Atlantic – to launching Virgin Hotels in New York and Edinburgh. Virgin Voyages has also achieved exponential growth in bookings and we have opened our exclusive Virgin Limited Edition Son Bunyola property in Mallorca.

“The Virgin Group continues to strengthen post-pandemic whilst successfully financing its evolving portfolio: investing in and growing businesses that demonstrate Virgin’s purpose of Changing Business for Good.”

Richard Branson’s empire has gone through decades of ups and downs: ventures like record seller Virgin Megastore, Virgin Cola, Virgin Vodka, Virgin Vie (cosmetics) and Virgin clothing have all failed or been sold only to be replaced by new enterprises.

Branson’s foray into SPAC-driven investment seems likely to simply be a similar dip in the cycle.

This article was updated to reflect the fact the value of Virgin Galactic has collapsed, not the company itself. The article has also been updated to show Virgin launched its SPACs in 2021, not 2000 and its stake in Virgin Orbit peaked in July 2022.

Rachel Reeves tells the City she wants to close gender pay gap if she becomes first female chancellor


Jess Jones
Tue, 16 April 2024 

Shadow Chancellor Rachel Reeves said Labour is "under no illusions about the scale of challenge Labour will inherit."

Shadow Chancellor Rachel Reeves has said she wants to close the gender pay gap “once and for all” if she becomes the UK’s first female Chancellor after the next general election.

Speaking at a Labour business event on Monday evening, Reeves said a topic that felt “personal” to her was that, although the position of Chancellor has existed for 800 years, it has always been filled by a man.

“So, if Labour win the election later this year, I will be the first ever female Chancellor of the Exchequer,” she declared to rapturous applaud.

“Along with that huge privilege comes an immense responsibility to close the gender pay gap once and for all and to ensure we have proper system of childcare in our country so that all women who want to go out to work and balance family and work contributions can do so.

“That is the difference that a Labour government will make,” she added.

In her three years as shadow Chancellor, Reeves has faced four Conservative Chancellors, including Rishi Sunak, Nadhim Zahawi, Kwasi Kwarteng and current one Jeremy Hunt.

Before entering the world of politics, she worked as an economist at the Bank of England for a number of years.

In her speech at the event, Reeves also said Labour is “under no illusions about the scale of challenge Labour will inherit. The economy is on its knees.”

Her party’s manifesto includes a number of measures to become the “undisputed party of business”. In November last year, it revealed a plan to support small businesses, including revitalising high streets and removing barriers to exports.

On Monday, Reeves also said Labour will invest alongside businesses and in green energy solutions to “take Putin’s foot off our necks” and bring down energy bills.

Labour plans to create a national wealth fund to invest with businesses in carbon capture and storage, green hydrogen, renewable ports, battery factories for electric vehicles.

The event was attended by representatives from a variety of small and medium British businesses, a number of them tech and energy companies.

One of those was Khalid Talukder, co-founder of fintech DKK Partners, who said Britain is home to some of the fastest growing businesses on the planet and a “world class” financial services industry.

“The next government needs to recognise this fact,” he told City A.M., “and work with entrepreneurs to fuel economic growth, helping these firms expand both at home and overseas.”

Also in attendance was Oseloka Obiora, chief of technology at cyber security company RiverSafe. He stressed that SMEs play a “crucial role” in the UK’s economic growth, both in terms of productivity and job creation.

“It was interesting to hear the Shadow Chancellor set her plan of action to support and defend ambitious businesses, as well as workers and entrepreneurs,” he said.

Pret changed subscription app ‘to harvest and sell customer data’, claim experts


Tom Haynes
Tue, 16 April 2024

Pret app

Pret’s attempts to crack down on subscription sharing was partly driven by a need to harvest valuable data from its customers, experts have claimed.

In March, the company announced that members of the Club Pret scheme, which allows them five free drinks a day for a £30 monthly subscription, would have to log into the app every time they claimed the offer.

It was rumoured the change was part of a crackdown on subscription sharing.

Last week the coffee giant admitted it had been forced to offer refunds after customers complained that they had been locked out of their accounts as a result of the change.


Tech experts have suggested the main reason Pret has cracked down on account sharing is to harvest personal data about its customers, which it can then sell to advertisers.

Jake Moore, cybersecurity advisor at internet security firm ESET, said Pret will “have already planned to write off five coffees per customer”, knowing the cost will effectively be offset by data harvested through the app.

Users who access the offer by using a digital wallet or screenshotting a QR code had previously been able to bypass Pret’s attempts to collect information about its customers.

As part of the overhauls to the app, Pret removed compatibility with Apple and Google Wallets, and disabled screenshotting.

Afterwards, customers began reporting that they were unable to log into their accounts, and had been denied rewards known as “Pret Perks”, accrued by spending money at the chain, because of technical glitches.

Mr Moore said: “The reason companies offer freebies is often offset by the data collection and analysis that goes with it but if QR codes are used by others not associated with the app, the data collected can potentially become fruitless.

“Data collection is a currency in its own right – Pret is simply going above other data collections in keeping it specific to their account holders.”

Loyalty schemes have proven lucrative ways for brands to make money by selling customer data.

Britain’s biggest supermarkets, Tesco and Sainsbury’s, make roughly £300m a year from selling information about shopper preferences gathered through membership cards, the Times reported last year.

Third parties can then purchase the data from loyalty scheme providers and use it to create more targeted advertising.

Pret’s cookie policy says data collected by the app can be shared with Google, Meta, and Microsoft unless customers manually opt out.

Chad Teixeira, an entrepreneur and angel investor, believes Pret’s aim in tackling password sharing “was not to crack down on people drinking free coffee, but rather to draw valuable insights to help drive profits and re-engage their customers”.

Pret posted profits of £50.6m in the 2022 financial year – a figure more than double the last time it had been profitable in 2018.

The chain credited its success to the subscription service, first launched in 2020.

Mr Teixeira said: “Subscriptions represent a commitment from customers to repeatedly purchase their products or services but the additional selling of the additional data capture creates a new income stream for Pret.

“By leveraging the customer data they’ve captured on the app their focus will be to shift this to third parties, like Google, to be able to increase ideal customer visibility online.

“Unbeknown to consumers who may just think they’re joining the subscription model for free coffee and a discount, their data will actually be being used for a much larger purpose of tracking purchasing behaviour, understanding customer preferences and eventually increasing profits.”

Pret has been contacted for comment.

Dr Martens chief to exit as shares hit record low after profit warning

Julia Kollewe
Tue, 16 April 2024

Dr Martens issued four profit warnings last year.Photograph: Dr Martens/PA

Shares in Dr Martens plummeted to a new low as the UK bootmaker warned on profits and poor performance in the US, and announced the departure of its chief executive.

The brand, known for its yellow-stitched thick-soled boots, warned sales would fall by a single-digit percentage in the year to the end of March 2025, compared with a year earlier. Profit before tax could be just a third of last year’s £159m in a worst-case scenario.

It was the latest in a string of profit warnings at the brand, which issued four last year, and prompted the shares to plunge by a third on Tuesday to a record low of 62p.

The company expects US wholesale revenues (for shoes sold via other retailers in their stores) to fall in double digits, explaining that its autumn/winter order book, which makes up most of the second half of its US sales, is significantly down year on year. This will result in a £20m hit to pre-tax profits, with a further £35m hit from cost pressures, including wage bills.

“We do not anticipate increasing prices further this year, and therefore this year we are unable to offset cost inflation as we have in prior years,” Dr Martens said.

Analysts at Peel Hunt said the warning was not a surprise, “but the scale of the impact is much greater than feared”.

The chief executive, Kenny Wilson, who has spent six years at the helm, is to leave at the end of the financial year and will be replaced by Ije Nwokorie, who has served as chief brand officer in the past year, and previously worked as a senior director at Apple Retail.

Wilson described the outlook as “challenging”, adding: “The whole organisation is focused on our action plan to reignite boots demand, particularly in the US, our largest market. The nature of US wholesale is that when customers gain confidence in the market we will see a significant improvement in our business performance, but we are not assuming that this occurs in the [current] financial year.”

The boots were first created in 1945 by a young German army doctor, Klaus Märtens, who designed an air-cushioned sole to help his recovery from a broken foot. They made their debut in Britain in 1960 when a Northamptonshire footwear maker started producing them. Their sturdy design made them popular among postal delivery workers and factory staff, and was later embraced by skinheads and punks. These days, Dr Martens is a mainstream bootmaker.

Dr. Martens names new chief executive amid sales slump in the US

Laura McGuire
Tue, 16 April 2024 

An activist investor in boot brand Dr Martens has urged the company to undergo a strategic review and possibly even sell the company.

Dr Martens will see a change at the top as it looks to turn the tide on a miserable couple of years.

Aberdonian Kenny Wilson will step away from the top job after six years to be replaced by the iconic shoe manufacturer’s chief brand officer Ije Nwokorie.

Wilson’s tenure began with a bang, taking the shoe manufacturer public in early 2021 with a near £4bn valuation.

However, operations issues at an LA distribution centre and then weak consumer demand in the States took their toll on the share price, which now sits at around a fifth of the offer price.

Though the share price has slipped, revenues have spiked under Wilson, doubling the numbers of pairs sold during his tenure.

PICTURED: New CEO Ije Nwokorie:

Wilson said the time had come to step away.


“Dr. Martens is an incredible brand powered by our fantastic people. After six years in the role, I feel that the time is right to hand over this year, and I am excited that Ije will be my successor. I have enjoyed working with Ije, both as a Board member and in the executive leadership team in recent months, and I have seen his brand knowledge and passion first-hand. I look forward to working with him closely in the year ahead.”

In a separate announcement, Dr Martens said it was trading in line with expectations but was continuing to be weighed down by lagging sales in its US market.

The iconic shoe maker said for the year ahead USA wholesale revenue is anticipated to be double-digit down year-on-year.

Dr Martens said: “We have recently finalised the Autumn/Winter order book, which makes up the majority of the second half of USA wholesale, and this is significantly down year-on-year.”

The firm said a decline in wholesale has a significant impact on profitability, and could result in £20m hit on profit-before-tax.

America is one of the business biggest markets but it faced a number of challenges in the region, including the hangover from bottleneck issues in its Los Angeles warehouse.

Dr Martens said: “Given the ongoing challenging performance of our USA wholesale business, we expect to continue to require the additional inventory storage facilities in this market through FY25, and therefore the majority of the £15m of additional costs incurred in FY24 are expected to repeat in FY25.”

FY24 results expected to be in line with guidance with profit before tax reaching of £97.4m

It comes after an investment firm, which owns roughly five million shares of Dr Martens, wrote to the board last month and suggested the company would perform better as a private company or as part of a larger, multi-brand holding company.

New York based Marathon Partners Equity Management, LLC argued the company’s stagnant growth and 83 per cent slide in share price since its IPO three years ago have not valued the company at its true worth.

Shares in Dr Martens are down 26 per cent in early trade.

Incoming Bank of England deputy governor rejects calls to scrap OBR

Henry Saker-Clark, 

PA Deputy Business Editor
Tue, 16 April 2024 


The incoming deputy governor of the Bank of England has rejected calls for the UK’s fiscal watchdog to be scrapped and stressed there is “widespread support” for the central bank.

However, Clare Lombardelli, who will join the Bank in July, said she hopes for a shake-up over forecasting at the Bank of England after criticisms in last week’s Bernanke review.

Ms Lombardelli, who will take over from Ben Broadbent, made the comments amid questions from Parliament’s Treasury Select Committee.

It came days after former prime minister Liz Truss said Bank of England governor Andrew Bailey should resign over his response to the 2022 mini budget which triggered market turmoil, and said she wants to “see the back” of the OBR (Office for Budget Responsibility) watchdog.

Ms Lombardelli told MPs on the committee she believes there is “widespread support” for the structure of the Bank of England and the Governor.

She also provided her backing to the OBR, the Government’s official forecaster, describing herself as a “big fan” of the institution, having seen its economic assessments while working in the Treasury.

“It’s very valuable to have that independent expert judgment on fiscal policy,” she added.

The session also came less than a week after a report by former US Federal Reserve chair Ben Bernanke found that models that the Bank of England uses to make economic forecasts had “significant shortcomings”.

Mr Bernanke also found that Bank staff were using “out-of-date” software which had not been properly maintained.

Ms Lombardelli stressed that here will be “a shake-up in response” to the findings in the report.

The deputy governor was also asked about when interest rates – which reman at 15-year high of 5.25% – will next be reduced.

“I’m not going to put a date on when I expect the UK to start to process of loosening monetary policy but is clearly the direction of travel, certainly for European economies,” she said.

UK unemployment rate leaps to 4.2% amid fears of job cuts


Phillip Inman
Tue, 16 April 2024 

The unemployment rate increased to 4.2% in February, well above the 4% expected by City economists.Photograph: John Sibley/Reuters

The number of people out of work rose by more than expected in February, raising concerns that employers are beginning to lay off staff in response to high interest rates.

The Office for National Statistics said the unemployment rate increased to 4.2% in February from 3.9%, well above the 4% expected by City economists.

Analysts said the cooling effects of higher interest rates were leading to more redundancies and discouraging employers from hiring staff.

Related: UK unemployment is rising – and there are worrying signs

Despite rising unemployment, regular pay growth excluding bonuses was stronger than expected at 6% in the three months to February, underlining the dilemma facing the Bank of England over when to start cutting interest rates. Pay growth of 6% was down from 6.1%, but stronger than the 5.8% expected by economists polled by Reuters. Total pay growth, which includes bonuses, was unchanged at 5.6%.
Interactive

Yael Selfin, the chief economist at KPMG UK, said that overall the latest ONS data suggested the Bank would be on track for a summer cut in interest rates.

“The slight easing in regular pay growth will bring some comfort for the Bank of England which has relied on the pay data as a key gauge of domestic inflationary pressure,” she added.

“Moreover, the rise in unemployment rate paints a picture of a less tight labour market. The exact timing of the first rate cut will be a hot debate for the monetary policy committee in the coming months.”

The hospitality sector handed workers an average 8.4% pay raise and City workers secured an 8.1% increase.

When falling headline inflation rates were taken into account, real wages rose at the fastest pace in two and a half years.

Real total pay growth adjusted for consumer price inflation was 1.8%, while real regular pay grew by 2.1% – both were last higher in July to September 2021.

Much of the boost to wages in low-paid sectors such as hospitality came from April’s 9.8% rise in the national minimum wage to £11.44 an hour.

The National Institute for Economic and Social Research said the increase “may keep wage growth elevated” for much of the year.

“Although this is good news for employees the persistence of high wage growth together with the minimum wage hike means inflation may be stickier than previously thought, leading the Bank of England to remain cautious against an early rate cut,” the thinktank said.

Some of the highest-paying sectors were among those to see the biggest falls in pay growth. Employees in professional, scientific and communications roles were at the bottom of the pay league, after an average median salary rise of 3% in the year to February. IT workers had an average 4% pay rise over the same period.

The inactivity rate, which measures the proportion of people aged 16 to 64 who are not working and not seeking or available to work, also increased in February as workers continued to leave the jobs market due to ill-health.

Bank of England officials have said the rising inactivity rate is a worry as it reduces the workforce and forces employers to pay higher wages, pushing up costs and inflation.

There are about 850,000 additional jobless working-age people than before the pandemic began because they are no longer seeking roles or are unable to start.

Economists believe the rise was driven primarily by higher levels of long-term sickness among younger and older workers.

“Today’s jobs figures are surprisingly poor, with a steep fall in employment and a sharp rise in those out of work, including an unexpected rise in unemployment,” Tony Wilson, the director at the Institute for Employment Studies, said.

“However, most concerning is the rise in economic inactivity, which is the measure of those not in work but not looking for work, which is even higher now than it was in the depths of the pandemic.”

Ben Harrison, the director of the Work Foundation at Lancaster University, said the UK workforce was “sicker and poorer”, and “an international outlier”.

A record 2.82 million people are economically inactive due to long-term sickness. Between December 2019 and February 2020 717,000 people had become economically inactive due to ill health, Harrrison said, “and the tide is not turning”.

Red flags: Recruiter Hays the latest to sound alarm on 2024 economy

Elliot Gulliver-Needham
Tue, 16 April 2024

Total fees brought in by Hays dropped 17 per cent compared to last year, the firm revealed in a trading statement for the first three months of the year.

Hays became the second recruiter in as many days to sound the alarm on the hiring market and the state of the global economy this morning, with fees crashing across the world.

The update comes just a day after a similarly downbeat assessment by headhunter peer Pagegroup.

Total fees brought in by Hays dropped 17 per cent compared to last year, the firm revealed in a trading statement for the first three months of the year.

The drop-off was especially bad in Australia and New Zealand, where revenue fell 29 per cent versus a year ago.

However, in the UK and Ireland figures were still dire, with fees declining by 16 per cent. This was also a comparable decline to Germany.

Most regions traded broadly in line with the overall UK business, apart from the Scotland and South West & Wales, which were down 26 per cent and 23 per cent respectively.

London, the group’s largest region, fell by 18 per cent, while Ireland only saw fees drop by 11 per cent.

Hays saw a greater drop in fees from its permanent segment, which saw fees drop 21 per cent, while temporary positions only declined by 14 per cent.

All big recruiters noted a marked slowdown in activity in 2023, with Hays citing a weak December and a poor finish to the end of last year, so it is unsurprising to see the trend continue.

The group saw a two per cent improvement in consultant productivity throughout the quarter, while group consultant headcount decreased by six per cent throughout the quarter and by 16 per cent compared to the start of last year.

Recruiters are often bellwethers for the state of the wider economy.

Hays’ chief executive Dirk Hahn only began in the role from previous CEO Alistair Cox on 1 September 2023, leaving him to cope with a challenging start.

Hahn described market conditions as “challenging throughout the quarter“, and the company said that it expected near-term market conditions to remain challenging “but broadly stable.

“While economic uncertainties remain, we have a strong and clear strategy and will continue to build a more resilient business through greater focus, increased operational rigour and strong cost management,” the CEO added.

“As set out at our H1 results, we are firmly focused on targeting the many structural growth opportunities we see and, over time, rebuilding our conversion rate.”

UK households face second year without improved living standards, says IMF

Larry Elliott 

Economics editor

THE GUARDIAN
Tue, 16 April 2024 

The IMF said the cost of living crisis would not be over until 2025.

Photograph: Tolga Akmen/EPA

Britain’s households will endure a second year without an improvement in their living standards in 2024 as the effects of high inflation take time to abate, the International Monetary Fund has revealed.

In its flagship World Economic Outlook (WEO), the Washington-based IMF said it was forecasting modest 0.5% UK growth this year – but only as a result of a rising population.

Growth per head – one of the key measures of living standards – is expected to remain flat this year after a 0.3% drop in 2023.

Related: Central banks must resist pressure for early rate cuts, says IMF head

The IMF said there would be a pick-up in the economy as 2024 wore on – something the government is banking on to reduce its opinion poll deficit with Labour – but it would not be until 2025 that the cost of living crisis would be over.

Although official figures due out on Wednesday are expected to show a fall in the UK’s annual inflation rate to about 3%, the IMF believes the Bank of England will be cautious about cutting interest rates, and has pencilled in only two 0.25 percentage point cuts in official borrowing costs this year.

The tightness of the UK’s labour market – dating back to before the arrival of Covid – might explain why inflation had been higher than in the US or eurozone after the onset of the pandemic, it said. “Growth in the UK is projected to rise from an estimated 0.1% in 2023 to 0.5% in 2024, as the lagged negative effects of high energy prices wane, then to 1.5% in 2025, as disinflation allows financial conditions to ease and real incomes to recover.”Interactive

Overall, the WEO found a marked divergence between the faster-growing US and the sluggish performance of the UK and other European economies.

While the US is expected to grow by 2.7% in 2024, the eurozone is predicted to expand by 0.8%. Germany is on course to be the slowest growing member of the G7 group of big developed nations, with the IMF projecting growth of 0.2%. France and Italy are expected to grow by 0.7%, Japan by 0.9% and Canada by 1.2%.Interactive

As in the UK, the IMF says growth will be weaker across much of the G7 once population changes are taken into account. US per capita growth is projected to be 2.1%, Germany 0.1%, France 0.5%, Italy 0.8%, Japan 1.3% and Canada -1.1%.

Pierre-Olivier Gourinchas, the IMF’s economic counsellor, said the US overperformance relative to other rich countries might not last, since it was in part due to unsustainable tax and spending policies by the federal government.

“The exceptional recent performance of the United States is certainly impressive and a major driver of global growth, but it reflects strong demand factors as well, including a fiscal stance that is out of line with long-term fiscal sustainability,” he said.

“This raises short-term risks to the disinflation process, as well as longer-term fiscal and financial stability risks for the global economy since it risks pushing up global funding costs. Something will have to give.”

Gourinchas said growth in the eurozone would pick up from “very low levels” during 2024, while China was being held back by the downturn in its property sector.

World output is expected to grow by 3.2% in both 2024 and 2025 – unchanged on 2023. “The global economy remains remarkably resilient, with growth holding steady as inflation returns to target,” Gourinchas said.

The half-yearly WEO was completed before last weekend’s attacks on Israel by Iran, but the report stressed a broader Middle East conflict was one of the downside risks to its forecasts. “The conflict in Gaza and Israel could escalate further into the wider region. Continued attacks in the Red Sea and the ongoing war in Ukraine risk generating additional supply shocks adverse to the global recovery, with spikes in food, energy, and transportation costs,” it said.

The UK chancellor, Jeremy Hunt, said: “The IMF’s figures today show that the UK economy is turning a corner. Inflation in 2024 is predicted to be 1.2% lower than before, and over the next six years we are projected to grow faster than large European economies such as Germany or France – both of which have had significantly larger downgrades to short-term growth than the UK.”

PwC to investigate ‘false allegations’ over collapse of Chinese property titan

Adam Mawardi
Tue, 16 April 2024 

Evergrande

PwC is planning to investigate an anonymous letter containing “false allegations” over how the firm “turned a blind eye” to its audit of Chinese property giant Evergrande.

The Big Four accountancy firm has rejected accusations that senior figures committed failures while auditing the world’s most indebted property developer, which filed for bankruptcy last year.

The letter, written in Chinese and entitled “Who brought PwC into the fire pit of Evergrande?”, claims to have been signed by some unnamed partners at the firm.

PwC Hong Kong said: “We believe the letter contains inaccurate statements and false allegations concerning PwC and certain of our partners. The inaccurate statements and false allegations could tarnish PwC’s reputation and infringe our legal rights.”

“Our firm is treating this incident with high priority and is taking a series of appropriate measures and will fully investigate this matter.”

PwC Hong Kong said it has reported the incident to the relevant authorities.

The anonymous letter claimed that the Chinese property giant’s financial fraud was so serious that PwC “turned a blind eye” to its audit for more than a decade.

It also accused certain senior partners at PwC of refusing to participate in regulatory inspections by Hong Kong and US regulators.

The open letter urged PwC to hire independent experts to review the firm’s governance, culture and accountability.

The anonymous authors purportedly warned they will release a second open letter and relevant audit documents if there is retaliation against any PwC partner.

The Telegraph is unable to verify who wrote the letter and its claims.

It comes after Evergrande was accused last month of fraudulently inflating its revenues by 560bn yuan (£62bn) in the years leading up to its collapse in 2021.

The China Securities Regulatory Commission fined Evergrande 4.175bn yuan (£456m) and its founder, Hui Ka Yan, 47m yuan (£5.1m). Mr Hui was also given a lifetime ban from participating in China’s stock markets.

The anonymous letter comes weeks after reports that Chinese authorities are now scrutinising PwC’s role in the alleged accounting fraud.

Chinese officials are reportedly in contact with some former PwC accountants who audited Evergrande, although no decision has been made on whether to penalise PwC, Bloomberg reported.

PwC declined to comment on the investigation by Chinese authorities.

PwC resigned as Evergrande’s auditor last year following disagreements relating to the developer’s 2021 accounts.

It joined the list of international auditors resigning from heavily indebted Chinese property developers amid concerns over hidden debts.

In January, Evergrande was handed a winding-up order by a Hong Kong court after repeatedly failing to devise a plan to restructure its debts since officially defaulting in 2021.

The Guangzhou-based developer has become a symbol of China’s property crisis, with more than $300bn owed to banks and bondholders.


PwC Hong Kong denies claims about China Evergrande audits in anonymous letter


Ben Lucas
Tue, 16 April 2024 

The Big Four firm has come under scrutiny after Chinese authorities launched one the biggest-ever fraud investigations into Evergrande. (Photo by Getty Images)

PwC Hong Kong has denied claims set out in an anonymous letter circulating on Chinese social media about its audit work for property developer China Evergrande Group.

The letter, according to multiple reports, detailed several allegations of auditing failures by the firm. Many of the reports said they were unable to verify the authenticity of the letter.

PwC Hong Kong said it was aware of the letter, which was purportedly authored by individuals claiming to be partners at the firm, and was investigating the matter.

“We believe the letter contains inaccurate statements and false allegations” concerning PwC and its partners, the firm said in a statement on its website, adding that these allegations “could tarnish PwC’s reputation and infringe our legal rights”.


“We have promptly reported this matter to the relevant authorities and reserve our right to pursue appropriate action,” the firm said.

The Big Four firm has come under scrutiny after Chinese authorities launched one the biggest-ever fraud investigations into Evergrande.

The developer and its founder, Hui Ka Yan, have been accused of inflating its revenue by $78bn (£61.6bn) in the years before the firm defaulted on its debts.

Following an investigation, the China Securities Regulatory Commission last month fined Evergrande’s mainland business, Heganda Real Estate, and its founder, Hui Ka Yan, $580m and $6.5m respectively following the investigation. It also banned Hui from China’s markets for life.

Evergrande and PwC have also been under investigation by Hong Kong’s audit regulator since 2021, while Bloomberg reported last month that mainland Chinese authorities are also investigating PwC’s potential role in Evergrande’s accounting practices. PwC formally resigned as Evergande’s auditor in January last year following disagreements over matters related to the company’s 2021 accounts.