Business review of 2014: Tescopoly no more - Britain’s year of corporate turmoil

Seven years on from the onset of the credit crunch hopes were high for the economy in 2014

Jamie Dunkley
Thursday 25 December 2014 23:32
In 2014, Tesco lost half its value
In 2014, Tesco lost half its value

With Britain’s economy in recovery, the FTSE 100 at its strongest since the financial crisis and England still in possession of the Ashes, City workers had every reason to enjoy the 2013 festive season.

Spirits were high as the new year dawned, yet within weeks Alastair Cook’s men had not only surrendered the urn to Australia in a crushing 5-0 defeat but it was becoming clear the next few months were going to be filled with economic and corporate turmoil.

Seven years from the onset of the credit crunch, hopes were high across the Square Mile that the economy would roar ahead in 2014. The bets were on when the Bank of England’s Governor, Mark Carney, would raise interest rates from record lows of 0.5 per cent.

However, even with GDP expected to grow 3.4 per cent, Mr Carney was full of caution in February when he warned rates could stay low until 2020. “The Bank rate may need to stay at low levels for some time to come,” he said at the time. “Our monetary committee will not take risks with the recovery.”

His words proved to be telling, with Britain contending with headwinds at home and abroad throughout the year. Europe’s economy has struggled – and although Mario Draghi, president of the European Central Bank, promised stimulus, he has faced opposition from Germany. The region’s problems look set to rumble on for some time.

Further afield, the US Federal Reserve called time on its $4.5 trillion bond-buying programme in October. However, Japan slipped back into recession in November, and Russia ended the year in crisis. Falling oil prices – more on this later – coupled with economic sanctions from the West have hit the value of the rouble. In the UK, the Scottish referendum ended up being much closer than some had expected, even though financial services companies such as Standard Life came out in support of the Union. The eventual 55 per cent “No” vote was greeted with relief by the financial markets.

Against this backdrop, the FTSE 100 was never likely to break through the 7,000 point barrier in 2014 as some experts predicted. And that’s before even taking into account the problems suffered by some of Britain’s largest firms. The past few months have, once again, proved a nightmare for Britain’s banks. Standard Chartered, the emerging markets lender, parted company with its highly regarded finance director Richard Meddings in January and, three profit warnings later, chief executive Peter Sands could be set to follow.

Investors in the bailed-out lenders Lloyds Banking Group and Royal Bank of Scotland started the year hoping they would start paying dividends again. However, scandals, such as foreign exchange rigging – it also embroiled Barclays and HSBC – hit the sector, which star fund manager Neil Woodford said he would avoid because of “fine inflation”.

This all pales in comparison to the woe suffered by Britain’s largest retailer, Tesco, which is worth about 50 per cent less than it was at the start of the year, after the rise of discount retailers such as Aldi and Lidl and the discovery of a £263m black hole in its accounts for overstating profits.

Having grown rapidly since the 1990s, the company was once known as “Tescopoly” because of its remorseless growth at the expense of rival grocers but ran into difficulties under former boss Phil Clarke. He was sacked in the summer, on the same day he was due to celebrate 40 years with Tesco, after a torrid couple of years in charge that coincided with Tesco’s first profit warning for 20 years, a £1.2bn write-down from exiting the US and, finally, the accounting scandal.

Earlier this month, his replacement, Dave Lewis, used his 100th day in charge to warn the City that profits will be about 57 per cent lower next year, sending shares spiralling to their lowest this century. A Serious Fraud Office investigation is ongoing with nine senior directors suspended.

Other retailers feeling the heat in 2014 included Sainsbury’s, which bid farewell to popular boss Justin King in January and Morrison’s. Luxury brand Mulberry has also been battered after an ill-fated attempt to move upmarket.

It hasn’t all been doom or gloom, with companies listing in London raised £14.8bn in the first 11 months of the year despite economic turmoil and flotation fatigue among investors. High profile flotations this year included takeaway service Just Eat, TSB and Poundland. However, a glut of potential listings and the poor performance of others, such as Saga, has cooled investor demand going into 2015.

Investment bankers have also been busy doing deals. Carphone Warehouse and Dixons’ £3.8bn merger caught the spotlight along with Aviva’s shock £5.6bn move for Friends Life and BT’s £12bn tie-up with EE. AstraZeneca’s decision to rebuff a £63bn bid from US rival Pfizer evoked memories of Kraft’s pursuit of Cadbury’s. Pfizer was one of a number of US companies looking to lower their tax bills by moving abroad – a loophole US regulators have now closed.

In recent weeks, oil prices have dominated the headlines with the price of “black gold” down about 40 per cent to $60 a barrel due to shale gas production in the US and Opec members refusing to cut supply in response. Great for motorists, it has proved disastrous for oil exporters like Russia and fears are growing in the UK that up to 40,000 jobs could be cut next year across the industry.

As the year draws to an end, predictions for 2015 are more pessimistic than 12 months ago and with one, or even two general elections on the horizon, expect more uncertainty.

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