Royal Mail ‘must improve’ deliveries, warns regulator; bad weather dampens Primark sales – business live

We also have results from online clothing retailer ASOS this morning, but they don’t report problems from the bad weather.

ASOS told the City that its adjusted profits for the current financial year are expected to hit the top of analyst estimates…. but its sales will be “slightly below guidance”.

ASOS has also struck a deal to sell a majority of its stake in Topshop and Topman brands – which it acquired in 2021 – to a new joint venture formed with Danish family office HEARTLAND, which would own 75% of the new entity.

ASOS expects to get about £118m from the sale, and will hold the remaining 25% of the joint venture.

Police in China have detained five current and former employees of British drugmaker AstraZeneca for questioning about potential illegal activities, Bloomberg are reporting.

Bloomberg explains:

The individuals being held are all Chinese citizens who marketed cancer drugs in AstraZeneca’s oncology division, the people said, asking not to be identified discussing private information. The investigation is being led by police in the southern metropolis of Shenzhen, and the detentions took place earlier in the summer, the people said.

One probe is related to the company’s collection of patient data, and whether that infringed China’s data-privacy laws, according to the people. Authorities are also looking into some of the individuals’ involvement in importing a liver cancer drug that hasn’t been approved for distribution in mainland China, one of the people said.

China made up 13% of AstraZeneca’s global sales last year, bringing in revenues of nearly $6bn of a total $44bn, making it the biggest overseas pharmaceuticals company by sales.

The company had considered spinning off its business in China and listing it in Hong Kong or Shanghai to shield it from geopolitical tensions between Beijing and Washington.

While the cold and wet British summer dampened demand at Primark, electricals retailer Currys was growing its sales over the summer.

Currys grew its like-for-like sales in the UK and Ireland by 5% in the 17 weeks to 24 August.

This was partly due to England’s performance in EURO 2024, it says, as some families bought new TVs to enjoy the Three Lions’ occasionally choppy route to the final.

Currys is also seeing intest in AI computing products, it says.

Alex Baldock, Currys chief executive, explains:

“Trading is going well, strengthening our confidence in growing profit and free cash flow again this year.

New AI-enabled computers are bringing excitement and innovation to customers, who are coming to our stores to learn more about the technology, helping us take almost 50% share of the total laptop market.

Cutting deliveries of second-class letters to just two or three days a week would save Royal Mail hundreds of millions of pound a year.

As my colleague Alex Lawson explained here in April, a postal worker could deliver on a single route on Monday, Wednesday and Friday, and on another route on Tuesday and Thursday. First class letters would then be shipped faster on Royal Mail vans also used for parcels.

Citizens Advice say that changes to the universal service obligation are needed – but should benefit customers, not just save Royal Mail money.

Tom MacInnes, Interim Director of Policy at Citizens Advice, says:

“With Royal Mail failing to meet its targets for nearly half a decade, the current Universal Service Obligation (USO) clearly doesn’t protect consumers as it should.

“Reforms to the USO need to address this. They can’t just be a disguise for cuts that prioritise saving Royal Mail money over providing a good standard of service.

“We agree that improving reliability and affordability is essential. But cutting deliveries won’t automatically lead to the more reliable service people need.

“Ofcom has acknowledged some of Royal Mail’s failings but we need to see that recognised with action. The regulator needs to make sure we have a USO that serves its basic purpose of protecting consumers – not Royal Mail’s bottom line.”

Royal Mail’s parent company, International Distribution Services, says the universal service obligation needs to change.

Responding to the news that Ofcom is considering its proposal to downgrade second class deliveries, Martin Seidenberg, Group CEO of IDS, says:

“To save the Universal Service, we have to change the Universal Service.

“Letter volumes have fallen from their peak of 20 billion to just 6.7 billion a year today meaning the average household now receives just four letters per week. Yet whilst most countries have adapted their Universal Service requirements to reflect the new reality, in the UK the minimum requirements have not changed.

“Our proposal for the future of the Universal Service has been developed after speaking to thousands of people across the country and is designed to protect what matters most for customers. It can be achieved through regulatory change with no need for new legislation.

“The Universal Service faces a very real and urgent financial sustainability challenge. Change cannot come soon enough. We look forward to continuing to engage with all our stakeholders to secure a financially sustainable Universal Service for many years to come.”

Another British institution, Primark, has been hit by the grizzly weather this summer.

Primark’s owner, Associated British Foods, warned shareholders this morning that like-for-like sales at the clothing chain have fallen in the last six months.

Like‐for‐like sales are expected to decrease by around 0.5% in the six months to 14 September, driven by a 0.9% decline in the last three months.

In the UK, alone, like‐for‐like sales are expected to decrease by around 2.0% in the six months to 14 September, including a 3.1% drop in the last quarter – with customer visits “impacted by challenging weather, particularly in April and June.”

ABF says:

This primarily reflects unfavourable weather in the UK and Ireland in H2, which resulted in lower footfall and particularly impacted sales of our seasonal lines in womenswear and footwear.

But thanks to new store openings, Primark’s overall revenue growth is expected to be around 4% for the last six months.

Last summer was the coolest since 2015, according to provisional Met Office statistics.

This made it more of a ‘drat summer’ than a ‘brat summmer’ for retailers hoping to shift summery garments.

Or, as CEO George Weston puts it this morning, “the British weather was not in Primark’s favour this summer.”

ABF has also flagged that profits at its sugar business will be below expectations, due to “a sharp fall in European sugar prices” this year.

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

Britain’s Royal Mail “must improve” its delivery performance, says communications regulator Ofcom this morning, as it proposes changes to its second-class letter service.

The proposals are meant to secure the future of the universal postal service, it says.

Ofcom warns that Royal Mail’s delivery performance has simply “not been good enough” in recent years. In the last five years, the regulator has found it in breach of its quality of service obligations twice and fined it both times.

The regulator says:

We have been pressing the company on what it is doing to turn things around, and we are currently investigating its latest failure to hit its annual delivery targets. Regardless of how the universal service evolves, Royal Mail’s delivery performance must improve.

Ofcom has been examining potential changes to the universal obligation – that compels the postal operator to deliver letters six days a week (Monday to Saturday) and parcels five days a week (Monday to Friday) to every address in the UK.

And today, it is proposing that Royal Mail should be allowed to downgrade its second class service, and no longer deliver letters with a 2nd class stamp on Saturdays.

The regulator argues that this would give Royal Mail flexibility to improve its service, and is going to consult on the plan.

Ofcom says today:

The evidence we have gathered so far also suggests people want a next-day service available six days a week for when they need to send the occasional urgent letter or card. However, people acknowledge that most letters are not urgent.

If Second Class letters continued to be delivered within three working days but not on Saturdays – and First Class remained unchanged at six days a week – it would enable Royal Mail to improve reliability, make substantial efficiency savings, and redeploy its existing resources to growth areas such as parcels.

This proposal is likely to please Royal Mail – back in April, it asked Ofcom to let it reduce deliveries of second-class letters to just two or three days a week

Lindsey Fussell, Ofcom’s group director for networks and communications, says Royal Mail must do better:

Postal users’ needs are at the heart of our review. If we decide to propose changes to the universal service next year, we want to make sure we achieve the best outcome for consumers.

So we’re now looking at whether we can get the universal service back on an even keel in a way that meets people’s needs. But this won’t be a free pass for Royal Mail – under any scenario, it must invest in its network, become more efficient and improve its service levels.

The agenda

• 9am BST: UK new car sales

• 9.30am BST: UK construction PMI for August

• 9.30am BST: Bank of England Monthly Decision Maker Panel data for August 2024

• 11am BST: Irish Q2 GDP and GNP

• 1.15pm BST: ADP private US payrolls

• 1.30pm BST: US weekly jobless claims