BUSINESS LIVE: Royal Mail services at risk; Abrdn to slash costs; EasyJet losses narrow

EasyJet expects first-half losses to narrow despite a forecast hit of around £40million related to the Israel-Hamas conflict.

The low-cost airline, which is headquartered at Luton Airport, temporarily paused flights to Israel and Jordan for safety reasons after the 7 October attacks in Israel, while bookings to Egypt were also affected.

JD Wetherspoon enjoyed strong sales during the Christmas period, pulling the pub group on track to meet full-year forecasts.

The group’s like-for-like sales have increased by 11.1 per cent year-on-year over the last three months, taking revenue growth for the second half of Wetherspoon’s financial year to 10 per cent.

Battery-powered electric vehicles will never dominate the car market, making up no more than 30 per cent of global sales, according to the world’s biggest car manufacturer.

In a stark warning that raises fresh concerns about the push to go green, Toyota chairman Akio Toyoda said combustion engines as well as hybrids and those powered by hydrogen fuel cells will play a major role in the future.

Brtish services firms have seen another pick-up in growth this month, adding to signs of a modest recovery in the sluggish economy, although struggling factories are now being hit by the inflationary impact of tensions in the Red Sea, a survey shows.

Wednesday’s snapshot of businesses is likely to reassure the Bank of England in the run up to next week’s interest rate meeting that overall inflation pressure is easing, but may add to the case for moving only slowly towards cutting borrowing costs.

The preliminary S&P Global/CIPS UK Composite Purchasing Managers’ Index (PMI), which spans services and manufacturing firms, rose to 52.5 in January, the highest in seven months and up from December’s final reading of 52.1.

Economists polled by Reuters had forecast a slightly smaller increase to 52.2.

It will be shown in the UK, as well as in the US, Canada and Latin America.

The deal also gives Netflix the rights to stream all WWE programmes outside the US, including Smackdown and Wrestlemania.

Royal Mail could cut delivery days from six to five or even three days a week under proposals outlined by regulator Ofcom.

In a consultation on ‘the future of the universal post service’, Ofcom said on Wednesday Royal Mail could achieve a net cost saving of up to £200million if letter deliveries were reduced to five days, while £650million could be saved if reduced to three days.

Ofcom also proposes making changes to the existing First and Second Class system, with ‘most letters’ delivered through a slower service’ taking up to three days

Federation of Small Businesses policy chair Tina McKenzie said:

“Trading essential services for short-term savings is a slippery slope that may compromise the trust small businesses place in Royal Mail. Considering that 25 per cent of them rely on the postal service, these proposals could cause real disruption to our economy.

“They will not just impact the householder waiting for birthday cards or hospital appointments. Many have built their business operations around the postal service, from the cake seller who needs to send a last-minute topper to letterbox flower companies which rely on next-day deliveries.

“These sellers are in a routine and knowing they can deliver things quickly allows them to build a positive relationship with their customer. Similarly, it will also affect the customer who prefers to schedule deliveries on a Saturday when they will be home to sign for it.

‘This will also affect those dependent on supplies through the post. If a self-employed carpet fitter doesn’t get their materials on time, they can’t fulfil their order. Similarly, a jeweller who doesn’t receive metals regularly will struggle to meet their targets. Other couriers charge up to 200 per cent more than Royal Mail to send the same item, and many small firms cannot afford to swallow that extra cost.

‘This all comes at a time where our Small Business Index (SBI) shows retail confidence plunged to -29.8 points in the last quarter of 2023, a fall from the -22.8 points recorded in the last period. We cannot afford to take anything away from the sector.

‘Traditional office-based firms are at risk too – business rates reminders, for instance, are rarely sent electronically. For firms in rural areas, the risk of a sporadic postal system is far greater, with 32 per cent reporting issues with the reliability of their broadband. They will lean on the postal service more than their urban counterparts, and letters arriving late can have unfair consequences.

‘All of these firms have already had to handle Royal Mail cyber-attacks and strike action, highlighting how fragile the post system can be. Trimming things back is not the way to make improvements. Regular post is something deeply integrated into the nation’s routine and Royal Mail is a true British institution. It’s understandable that the overall number of mail volumes has fallen in recent years, but the number of small businesses relying on it has not.

‘The answer, therefore, lies in modernising a service designed in the 1970s to fit the needs and expectations of today’s culture in a sensible way, that doesn’t leave small firms feeling short-changed.’

Adam Vettese, analyst at eToro:

‘It’s fair to say that even a cost of living crisis has not dulled the British appetite for a pint at the pub, especially when the pints are going cheap. Wetherspoons’ jump in sales versus last year illustrates that small luxuries will still be afforded within people’s budgets, even when money is tighter than usual.

‘The pub group has always been centred on value and this is in focus more than ever, albeit with inflation weighing on input costs in recent times.

‘This value focus will have helped the business to carefully balance costs over the last year and with pressures likely to ease up in the months ahead and with rate cuts coming in, Wetherspoons is very well placed to kick on.

‘The firm will also now be pleased to see dry January coming to an end as it looks to meet its forecast for end-of-year numbers being in line with expectations.’

Abrdn plans to slash hundreds of jobs as part of a multi-million-pound cost-cutting drive.

The FTSE 250 asset manager is expected to announce a batch of redundancies as soon as today alongside a trading update that may show it suffered billions of pounds of outflows from its funds in the second half of last year.

Everyman is pinning its hopes on a host of films this year including Paddington In Peru, Dune: Part II and Gladiator 2.

The cinema chain, which has 44 sites with 152 screens around the country, said it expects business to be boosted through 2024 by ‘the continuously improving film slate’.

J D Wetherspoon sales jumped in the second half of 2023, lifted by strong demand for its drinks and food during the festive season.

The group reported 10.1 per cent growth in like-for-like sales for the 25-week period ended 31 January.

The final 12 weeks of the period, which included the Christmas holidays, witnessed an 11.1 per cent jump from a year earlier.

Wetherspoon chairman Tim Martin said:

‘Wetherspoon, like the hospitality industry, has seen a consistent but slow recovery, following the pandemic.

‘Although inflation is, in general, reducing, labour and energy costs are far higher than pre-pandemic.

‘A main issue for the pub trade is that labour costs are around 30% of sales, compared to around 10% for supermarkets.’

Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown:

‘Geopolitical conflict can spook many industries, especially airlines. Broader softness was seen at the outbreak of the Middle East conflict in October, and easyJet is counting the lost pennies from paused flights to the tune of £40m. Shutting down routes is a very expensive undertaking and it’s unclear when things will normalise.

‘Looking further into the year, summer bookings look robust, in a sign that travel remains a priority for consumers. There is some uncertainty about how long these trends can hold though.

‘Lower earners have run out of road when it comes to trimming costs amid cost of living pressures, according to the HL Savings & Resilience Barometer. However, higher earners have seen their financial resilience improve over the last couple of years, and the net effect of these changing circumstances is an unknown for the likes of tourism stocks.

‘Investors will be more concerned about the group’s ability to maintain the newly reinstated dividend. At this stage it seems unlikely easyJet will scrap its plans to increase the payout to 20% of post-tax profits this year, but that will depend on the resilience of forward bookings.’

Housebuilders warned of further perils this year despite easing mortgage rates boosting demand from buyers.

FTSE 250 developer Crest Nicholson, which yesterday reported a 70pc drop in profits for last year, said it was ‘too early to gauge customer behaviour’ although it has seen an uptick in enquiries.

The Surrey-based construction group, which also announced the departure of its chief executive after five years, said earnings plunged from £137.8million to £41.4million in the year to the end of October.

EasyJet expects smaller losses in the first half of the year, despite a direct hit of about £40million from the conflict in the Middle East.

The London-listed airline reported a narrower first-quarter headline loss before tax of £126million, compared with a loss of £133million a year ago.

‘We see positive booking momentum for summer 2024 with travel remaining a priority for consumers,’ said chief executive Johan Lundgren.

Abrdn is planning to cut £150million in costs by 2025 as the embattled British investment house struggles against waves of outflows from its funds.

Around 500 jobs, or 10 per cent of Abrdn’s workforce, is at risk as a result after the group suffered £12.4billion in net outflows in the second half of 2023.

CEO Stephen Bird said: ‘Market conditions have remained challenging for our mix of business, and this is reflected in our year-end AUMA, flow numbers, and margins. The Board and I are committed to taking these significant cost actions now to restore our core Investments business to a more acceptable level of profitability.

‘Although our business model benefits from the diversification that comes from operating three businesses, we will not rest until all of them are contributing strongly to group profitability, as Adviser and interactive investor have done in 2023.

‘The new transformation programme announced today, when completed, will deliver a step change in our cost to income ratio. We exceeded our £75m cost reduction target for 2023 for Investments, but we recognise more needs to be done.

‘After a root and branch review, we are now re-engineering and simplifying our business model to remove at least £150m of costs – mostly from group functions and support services. The programme will largely be implemented in 2024, completing in 2025. These changes will allow us to continue our focus on building a growth business.’

The owner of Royal Mail rose for a second day amid hopes incoming proposals from the UK’s postal watchdog could help alleviate pressure on the struggling business.

Shares in International Distributions Services (IDS), which owns Royal Mail and overseas post firm GLS, gained 3 per cent, or 7.6p, to 261.9p. That followed a 3.4 per cent rise in the previous session.

The mini-rally came ahead of the publication of an Ofcom review into options to reform the group’s legal obligations for delivering letters, which is widely expected to appear today.

Royal Mail letter deliveries could be slashed to just three days a week as part of an Ofcom shake-up, with the communications watchdog warning the postal service ‘must modernise’.

Ofcom estimates Royal Mail could achieve a net cost saving of up to £200million if letter deliveries were reduced to five day, while its owner International Distribution Service could save up to £650million from a three day week.

Letter volumes have halved since 2011, regulator Ofcom said, increasing the risk that the universal postal service, which offers nationwide delivery six days a week, will become financially and operationally unsustainable.

Ofcom boss Melanie Dawes said: ‘Postal workers are part of the fabric of our society and are critical to communities up and down the country.

‘But we’re sending half as many letters as we did in 2011, and receiving many more parcels. The universal service hasn’t changed since then, it’s getting out of date and will become unsustainable if we don’t take action.’