BUSINESS LIVE: Royal Mail services at risk; Abrdn to reduce costs; EasyJet’s losses are shrinking

JD Wetherspoon’s sales rose in the second half of 2023, thanks to strong demand for its drinks and food during the festive season.

The group reported 10.1 percent growth in like-for-like sales for the 25-week period ending January 31.

The last twelve weeks of the period, including the Christmas holidays, showed an increase of 11.1 percent compared to a year earlier.

Wetherspoon chairman Tim Martin said:

‘Wetherspoon, like the hospitality industry, has had a consistent but slow recovery from the pandemic.

“Although inflation is declining overall, labor and energy costs are much higher than before the pandemic.

‘An important problem for the catering industry is that labor costs amount to around 30% of turnover, compared to around 10% for supermarkets.’

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

“Geopolitical conflicts can frighten many industries, especially airlines. A wider softness was seen at the outbreak of conflict in the Middle East in October, and easyJet is counting the lost money from paused flights to the tune of £40 million. Closing routes is a very expensive undertaking and it is unclear when things will return to normal.

‘Looking further into the year, summer bookings look robust, a sign that travel remains a priority for consumers. However, there is some uncertainty about how long these trends may last.

According to the HL Savings & Resilience Barometer, lower earners have lost their way when it comes to cutting costs amid cost-of-living pressures. However, upper income earners have seen their financial resilience improve in recent years, and the net effect of these changing conditions is unknown for tourism stocks, for example.

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

Homebuilders warned of further dangers this year despite the easing of mortgage rates, which boosted buyer demand.

FTSE 250 developer Crest Nicholson, which yesterday reported a 70 per cent drop in profits over last year, said it was ‘too early to measure customer behaviour’, although it has seen an increase in inquiries.

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

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

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

“We see positive booking momentum for summer 2024, with travel remaining a priority for consumers,” said CEO Johan Lundgren.

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

Around 500 jobs, or 10 percent of Abrdn’s workforce, are at risk after the group suffered £12.4 billion in net outflows in the second half of 2023.

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

‘While our business model benefits from the diversification that comes from operating three businesses, we will not rest until they all contribute strongly to the group’s profitability, as advisor and interactive investor have done in 2023.

“The new transformation program announced today, when completed, will deliver a step-change in our cost-benefit ratio. We have exceeded our 2023 cost reduction target for capital expenditure, but we recognize that more needs to be done.

‘Following a thorough review, we are now redesigning and simplifying our business model to eliminate at least £150 million in costs, primarily from group functions and support services. The program will be largely implemented in 2024 and completed in 2025. These changes will allow us to continue our focus on building a growth company.”

The owner of Royal Mail stood up for a second day hoping that incoming proposals from Britain’s postal watchdog could ease pressure on the struggling company.

Shares in International Distributions Services (IDS), owner of Royal Mail and foreign postal company GLS, rose 3 percent, or 7.6p, to 261.9p. That followed a 3.4 percent increase in the previous session.

The mini-rally took place ahead of the publication of an Ofcom investigation into options for reforming the group’s legal obligations for letter delivery, which is expected to be released today.

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

Ofcom estimates that Royal Mail could make net cost savings of up to £200 million if letter deliveries were reduced to five days, while owner International Distribution Service could save up to £650 million on a three-day working week.

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

Ofcom boss Melanie Dawes said: “Postal workers are part of the fabric of our society and vital to communities across the country.

‘But we send half as many letters as in 2011 and receive many more parcels. The universal service has not changed since then, is outdated and will become unsustainable if we do not take action.”