BUSINESS LIVE: Spring Budget looms; L&G misses profit expectations; Capita to make extra cost savings

Matt Britzman, equity analyst at Hargreaves Lansdown:

‘Full year results fell short of the Legal & General mark as operating profit was lower than expected. The investment management arm continues to feel the effects of higher interest rates. Average assets under management decreased 12% from a year ago, largely as a result of valuations pressured by rate increases.

‘But Legal & General is a diverse beast, and the retirement business is the biggest driver of operating profits. It is one of the world’s leading bulk annuity providers and is benefiting from a resurgence in the market. Companies with pension plans can pay L&G a lump sum to relieve themselves of their obligations. As rates have moved away from the lows seen in recent history, it has become a more attractive market both for those looking to reduce risk and for those like L&G in the business of assuming these liabilities.

‘The UK is the most mature global market, but L&G has its sights set further afield. Activity in foreign markets such as the United States, Canada and the Netherlands is increasing. Including the UK, there are around $6 trillion in pension liabilities floating around, and the percentage transferred to insurers is barely in double digits. That leaves plenty of room for L&G to continue growing.

“Some may have expected a few more details from the new CEO about his strategy, but investors will have to wait until the announced capital market day in June for more details.”

Outsourcing giant Capita expects to achieve additional cost savings of £100m a year by mid-2025, adding to planned spending cuts announced in November.

The group has already outlined plans to cut £60m a year from early 2024, with around 900 ‘indirect support functions and general functions’ affected.

But Capita said it has now identified “further improvements in materials efficiency which are essential to ensuring our competitive position in the market”.

As a result, this year it will “take steps to achieve a further £100 million of annualized cost savings by mid-2025, which will be partially reinvested in growth.”

Chief Adolfo Hernández said:

‘We have yet to deliver the operational excellence that will allow us to create the right platform for future growth or achieve our full potential for the benefit of shareholders.

‘Looking ahead, we will focus on precision in execution, co-creating solutions with clients and accelerating the use of technology and leveraging our technology partnerships to drive improvement in our operational and financial performance.

‘We need to achieve a rapid reduction in our cost base and are on track to achieve annualized net cost savings of £60 million, starting in the first quarter of 2024, as announced in November. “Today we are announcing £100m worth of further material efficiency improvements to improve our competitive position.”

Legal & General’s profits missed analyst forecasts in 2023 as the British insurer faced “challenging” market conditions, and its investment management business suffered a profit drop of almost a fifth.

Group operating profit rose to £1.75bn for the year, compared with expectations of £1.67bn.

Legal & General Investment Management, which is one of the UK’s largest investors, reported a 19 per cent drop in operating profits to £274 million, while its assets under management fell 3 per cent to £1 .16 billion pounds sterling.

Chief executive Antonio Simoes said: “We are on track to achieve our five-year targets and have demonstrated resilience in challenging markets.”

The economy has taken a turn.

That has been Jeremy Hunt’s mantra as Britain emerges from a recession, and it is likely to be repeated in today’s Budget.

Labour’s charge, however, is that the Conservatives have collapsed the economy.

Indeed, Britain’s resilience has proven the most pessimistic forecasts wrong. However, growth – just 0.1 percent in 2023 – has been nothing to write home about.