BUSINESS CLOSE: FTSE in the red; Royal Mail losses widen; Mars subsidiary to buy Hotel Chocolat

Royal Mail owner, International Distributions Services, saw its losses widen in the first half as the otherwise profitable business suffered worsening performance within the UK postal service.

Royal Mail adjusted operating losses widened from £219million to £319million in the six months to 24 September, dragging IDS to an overall loss of £169million.

But, more than 100,000 frontline workers at Royal Mail are in line for a bonus worth up to £500

each if they hit targets over Christmas.

Emma Carr, retail and commercial litigation partner at the law firm Gowling WLG:

‘Burberry enjoyed a strong start to the year as lockdown measures eased in China, giving the luxury brand a significant boost that saw it fend off the global economic headwinds brought on by the cost-of-living crisis. While its demand levels in Europe have dipped in recent months, the brand has seen continual success in China in the face of global operational cost and supply chain pressures that have seen competitors fair less well.

‘However, despite its success to date, the threat of a potential dip in sales in the global luxury market generally –as highlighted by analysts recently – will no doubt be front-of-mind for Burberry, as it moves towards the festive season. Burberry’s strong multi-channel focus as well as collections from its newest creative director, Daniel Lee, are rapidly advancing the company’s evolution, so should provide the necessary protection to offset this threat successfully.

‘It will be interesting to see how the business addresses further engaging its UK and European markets in terms of more readily competing outside of capital cities like London and equivalents – a clear opportunity where opening more regional outlets is concerned.’

Neil Shah, Executive Director of Content and Strategy at Edison Group:

‘Royal Mail owner, International Distributions Services (IDS)’s interim results fail to deliver as it now expects to breakeven this financial year amidst a challenging macroeconomic climate.

‘While the international parcels network also owned by IDS, GLS boasted £150m adjusted operating profit, these were offset by Royal Mail’s £319m losses, with the group reporting an overall operating loss of £243m. Royal Mail’s revenue declined 2.9% year-on -year, after being hit by worker strikes, a cyber security incident and most recently, a £5.6m fine for significant delivery target failures.

‘As shareholders collect a modest dividend from GLS and none from Royal Mail, IDS will be looking to repackage their offering by modernising their network to provide the high-quality service that drives sustainable growth.’

London-listed stocks are treading water this morning after a three-day run of gains, as luxury group Burberry tumbles after it said it would struggle to meet revenue targets.

Burberry’s shares are down 9.5 per cent and are on track for their biggest one-day percentage loss since the height of pandemic-driven selloff in March 2020, after the company said it was being hit by a global slowdown in luxury spending.

Hotel Chocolat has soared 164.4 per cent to a one-and-a-half year high after the British specialist chocolatier agreed to a £534million takeover offer from Mars.

Meanwhile, shares of Shell, Hargreaves Lansdown and B&M European Value are down as they traded without entitlement for dividend.

Mars’ £534million takeover agreement has driven the value of Hotel Chocolat shares 164.4 per cent higher at the open.

Derren Nathan, head of equity research at Hargreaves Lansdown

‘International Distribution Services’ new CEO, Martin Seidenberg, is finding it harder than first thought to turn round His Majesty’s mail service. And he’s escalated the agenda to Downing Street’s door calling for a relaxation of the Group’s statutory duties.

‘That’s in the face of the steep declines in volume bought about by digitalisation and competition in the market. His comment that it’s simply not sustainable to maintain a network built for 20 billion letters when Royal Mail is only delivering 7 billion is one that resonates.

‘But all in investor confidence, which has rebounded of late, is likely to take another hit as the profitability horizon is pushed out further. There’s a lot of work going on behind the scenes to restore the public’s faith in Royal Mail, and a faultless execution of Santa’s delivery list will be important to rebuilding trust.

‘Whilst the international division GLS is generating a healthy profit the growing economic pressures have kept a lid on margins here too.

‘The fact that this side of the business should be able to support a dividend this financial year will be music to some investors ears, but given that Royal Mail is far off from making a contribution, it’s likely to be more of a symbolic gesture than a meaningful payout.’

Specialist chocolatier Hotel Chocolat has agreed to a £534million takeover offer from Mars, after the pair agreed the food giant was well-positioned to help the small retailer expand internationally.

Stephen Alexander, chair of Hotel Chocolat, said:

‘Hotel Chocolat is a brand with strong long-term prospects and today’s deal will allow it to grow further and faster.

‘Joining forces with Mars will deliver great value through the Cash Offer for Hotel Chocolat shareholders and the combination will create exciting opportunities for Hotel Chocolat employees as part of Mars.’

Young’s has agreed to buy rival City Pubs in a worth around £162million, the brewery and pubs chains revealed this morning.

Simon Dodd, CEO of Young’s, said:

‘We are excited to be announcing the proposed acquisition of City Pubs, with the full recommendation of their Board. City Pubs is an excellent business we have followed for some time, and one which aligns closely with Young’s in terms of both strategy and culture.

‘Like us, City Pubs operates premium, individual and well-invested pubs and rooms, with a focus on the highest standards of customer service. Both businesses have performed well in a tough trading environment recently, testament to the strength of our business models, people and approach to customers.

‘We believe that City Pubs is an excellent fit with Young’s and the combination of the two businesses represents a compelling opportunity for all stakeholders. It will allow us to expand our estate through the addition of a complementary, high-quality pub and bedroom portfolio, with the potential for the benefit of significant operational synergies to be realised by both sets of shareholders, through the partial share offer.’

Diageo boss Debra Crew admitted it is difficult to predict when the company could clear up the issues in Latin America that led to a surprise profit warning and sent its shares 16 per cent lower.

The world’s top spirits maker said last week that sales were set to fall by more than 20 per cent in Latin America and the Caribbean, which makes up around 11 per cent of business.

Royal Mail adjusted operating losses widened from £219million to £319million in the first half, dragging its otherwise profitable owner International Distribution Services to an overall loss of £169million.

IDS told investors this morning it expects to pay a modest dividend from its unit GLS this year and its adjusted operating performance would be around the breakeven point this fiscal year.

Martin Seidenberg, CEO of IDS, said:

‘We have two businesses with great potential – Royal Mail and GLS. Three months into the job I am more convinced of that than ever.

‘When I arrived, I took action to stabilise Royal Mail, after performance had suffered due to industrial action and customer losses. We’ve delivered on that plan through rigorous cash management, controlling our costs and ruthlessly prioritising high-return projects.

‘My top priority now is improving quality. From experience, I know that quality is key for customer satisfaction and sustainable growth, so we are pulling out all the stops to deliver Christmas for our customers. This includes recruiting 16,000 seasonal workers, opening five temporary sorting centres and launching an incentive scheme for operational employees worth up to £500 each for hitting local and national quality targets.

‘We have a clear plan for improvement longer term, including reinforcing operational management at a regional and local level, and recruiting faster than ever before, reducing reliance on agency workers. A number of changes we secured in the agreement with the Communication Workers Union (CWU), such as new sickness and attendance policies, will also help to underpin quality.

‘We’re making good progress implementing that agreement, but our change agenda is wider and will take time.’