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

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.’