Closing summary
Business secretary Jonathan Reynolds has been speaking with reporters (including my colleague Jasper Jolly) at the Farnborough International Airshow today, and weighed in on two crucial matters:
Firstly, on Royal Mail, saying that he expects the government to call in the proposed £3.6bn takeover of mail service by Czech billionaire Daniel Kretinsky for review. Reynolds said he will talk to Kretinsky about the bid this week, and would look at how the government could receive binding assurances about services in UK’s the national interest.
Secondly, on the Harland and Wolff shipyard in Belfast. Reynolds said the government was going to hold out for a “market” saviour to rescue the shipyard, and that he was confident that it would continue to build ships for he Royal Navy despite its ongoing financial troubles.
Elsewhere, airline stocks have plunged in the wake of Ryanair’s earnings report, which showed that weak demand from cost-conscious consumers had sent profits down 46% in the first quarter.
It sparked a sell-off in airline stocks, with Ryanair down 15%, BA-owner IAG down 3.6%, EasyJet down 6.6%, and Wizz Air down 8.7%.
Our other main stories today:
Thanks for reading. We’ll be back tomorrow morning from 8am. –KM
BT has been fined more than £17m for missing 14,000 emergency calls after technical faults caused the emergency call handling service to be disrupted for nearly 11 hours last summer.
The telecoms regulator launched an investigation shortly after the incident on 25 June 2023. Publishing its findings on Monday, Ofcom said the handling of the network fault was a “catastrophic failure”.
The watchdog’s director of enforcement, Suzanne Cater, said:
Being able to contact the emergency services can mean the difference between life and death, so in the event of any disruption to their networks, providers must be ready to respond quickly and effectively.
In this case, BT fell woefully short of its responsibilities and was ill-prepared to deal with such a large scale outage, putting its customers at unacceptable risk.
Today’s fine sends a broader warning to all firms: if you’re not properly prepared to deal with disruptions to your networks, we’ll hold you to strict account on behalf of consumers.
BT, which manages the emergency services calls system, said it had taken three days to contact each of the callers who had not been connected after what it described as a complex software problem that affected nearly 14,000 call attempts from 12,392 people.
Ofcom said its decision to fine BT £17.5m was based on a number of factors including the seriousness, duration and degree of harm.
Read more:
US stocks are opening for trading, and major indexes are on the rise as investors digest news of Biden’s decision to pull out of the presidential race and make way for a new Democratic candidate:
S&P 500 is up 0.68%
Nasdaq is up 1.1%
The Dow is up 0.3%
European indexes are solidly in positive territory, having made further gains throughout the session.
We’re likely seeing a bit of relief as (a) the IT chaos starts to wind down, and (b) higher prospects of a potential Democratic win raise hopes that the US won’t hike trade tariffs and enter into a new era of Trump protectionism.
Here’s how we’re looking across Europe:
FTSE 100 is up 0.9%
FTSE 250 is u 0.75%
Germany’s DAX is up 1.5%
France’s CAC 40 is up 1.37%
Italy’s FTSE MIB is up 1.07%
Vivendi plans to float its French TV business Canal+ in London, providing a shot in the arm for the capital’s stock exchange after a number of high-profile companies opted for rival international financial centres such as New York.
The move is part of a drive to break up the media conglomerate controlled by the billionaire Vincent Bolloré to realise value from its different operations.
Vivendi said the decision to list in London reflected the increasingly international operation of Canal+, which is in the process of a $2.9bn (£2.2bn) takeover of Africa’s largest pay-TV operator, Multichoice.
Vivendi said:
With close to two-thirds of its subscribers outside of France, a film and TV series distribution network present on all continents, and growth drivers resulting from its recent developments on the African, European and Asia-Pacific markets, a London-based listing would represent an attractive solution for international investors likely to be interested in the group.
Vivendi’s plan will be a welcome one after a series of setbacks for the London Stock Exchange in recent years.
The most high-profile company to snub the capital was theCambridge-based chip designer Arm, one of the UK’s few bona fide global tech success stories, which chose to float on the Nasdaq in New York last year in one of the biggest initial public offerings in recent years.
In February, Tui, Europe’s biggest package holiday operator, moved its stock exchange listing from the FTSE 250 to Frankfurt.
The building materials group CRH, one of the biggest companies on the FTSE 100, moved its primary listing to the US, following the UK-based plumbing equipment supplier Ferguson.
Read more:
The Carpetright brand and 54 of the flooring retailer’s stores are being bought by its rival Tapi Carpets and Floors in a deal that will save 300 jobs.
The multimillion-pound deal, which is expected to be finalised on Monday, does not include Carpetright’s head office in Purfleet, Essex, or 220 further shops, and will result in about 1,000 job losses.
The advisory firm PricewaterhouseCoopers has been looking for a buyer for Carpetright after it filed a notice of intention to appoint an administrator earlier in July.
Tapi has been a bitter rival to Carpetright since it was co-founded in 2015 by Martin Harris, the son of “carpet king” Lord Harris of Peckham. Harris launched Tapi a year after he and his father stepped down as directors of Carpetright, which Lord Harris founded in 1988.
Harris left Tapi earlier this year, while Lord Harris remains an investor and adviser to the business.
The acquisition of Carpetright would enable Tapi to expand into a number of new areas, the company said. Lord Harris continues to have a role on the board of Tapi, which he co-owns with about 1,000 investors, the largest of which is the executive chair, Will Barker of US investment firm Camelot Capital Partners.
Tapi, which has 170 stores, said in a statement that it was “desperately sad not to have been able to save more of the business and customer orders”.
Jeevan Karir, the managing director of Tapi, added:
Our goal, initially, was to try to save all of Carpetright. However, as we looked into the details of the situation, we quickly established that saving the entire business was unviable. The business has been materially loss making for a number of years and it has significant debt held by the owner.
Read more:
Futures are pointing to a strong start for stocks when US markets open for trading in about an hours’ time:
S&P 500 futures are up 0.6%
Dow Jones futures are up 0.15%
Nasdaq futures are up 1%
Dan Coatsworth, an investment analyst at AJ Bell, said it was a sign that markets were welcoming President Biden’s decision to pull out of the running for a fresh term in office.
However, he warned over a fresh bout of volatility, despite Biden’s decision to endorse his VP Kamala Harris as the potential Democrat nominee:
We could see heightened volatility over the next few weeks, with assets quickly changing direction depending on the latest comments from Washington.
Kamala Harris looks likely to be the Democratic nominee and while she might score better than Biden in the polls ahead of the election, there is still considerable uncertainty for investors to navigate as the nomination process plays out and election campaigning enters its final stage.
Gains for Bitcoin, which jumped on the prospect of a Trump win after the presidential nominee’s attempted assassination, have eased slightly on the Biden news, though it is still up around 0.8% against the US dollar. The cyptocurrency is expected to benefit from a potential unwinding of regulation under a prospective Trump presidency.
Coatsworth said:
Many investors will have looked at Trump’s ratings boost in the polls last week and placed trades on assets that could benefit if he returned to the White House. That included cryptocurrency, explaining why bitcoin has now pulled back on the news of Biden stepping down in the presidential election.
The so-called ‘Trump trade’ assumed a boost for corporate profit but increased pressure on the US fiscal situation and a kicker for inflation if the former president won this year’s election. A victory also implied heightened geopolitical tension given Trump’s track record of being outspoken.
Biz secretary expects Royal Mail takeover to be called-in for government review
Business secretary Jonathan Reynolds has said that he expects the government to call in the proposed £3.6bn takeover of Royal Mail by Czech billionaire Daniel Kretinsky for review .
Reynolds said he will talk to Kretinsky about the bid this week, speaking to reporters at the Farnborough International Airshow.
“I think it would be reasonable to expect it to be called in,” he said, pointing to the previous review when Kretinsky first increased his shareholding.
Reynolds said unions were holding talks with Kretinsky today.
He added that he would look at how he government could receive binding assurances from Kretinsky.
Fundamental to this is, what is the business plan, what does it mean for the UK’s core national interests.
The GMB union says the Harland and Wolff shipyard is “critical” to the UK’s future security.
GMB National Officer Matt Roberts said:
These are worrying times for workers and their families in Northern Ireland, Scotland and the South West.
These yards have been at the heart of UK manufacturing for centuries - from building the Titanic to the ships that defeated the Armada.
Now they are critical to our future security in building the Fleet Solid Support ships for our navy and in providing the renewables infrastructure needed to reach net zero.
These yards must be saved and their long-term sustainable future secured.
The Labour government says it is going to hold out for a “market” saviour to rescue Harland and Wolff, business secretary Jonathan Reynolds adds.
Extended comments from Reynolds released on the parliamentary website explain:
The Government believes, in this instance, that the market is best placed to resolve the commercial matters faced by Harland and Wolff.
Harland and Wolff indicates that these discussions on new financing should conclude in the next few days. This will involve the current CEO taking an immediate leave of absence and the onboarding of new management with a focus on recapitalisation and ensuring sustainable finances.
Reynolds adds that officials will work closely with the Ministry of Defence and National National Shipbuilding Office on the fleet solid support contract, for which Harland and Wolff remains a key subcontractor:
Officials in the Ministry of Defence are also well engaged with the prime contractor, Navantia, UK to monitor delivery of this important contract.
I welcome potential new financing for Harland and Wolff and the appointment of new management and wish them all the best in their continued efforts to build up this business.
UK biz secretary 'confident' that struggling shipyard Harland and Wolff will still build for Royal Navy
Business secretary Jonathan Reynolds has said he is confident that the Harland and Wolff shipyard in Belfast will build ships for the Royal Navy.
Harland & Wolff is part of a consortium that is due to build three naval fleet solid support ships to supply aircraft carriers.
The government has refused to grant a £200m loan guarantee to help the struggling company to refinance. The shipbuilder had hoped to secure a guarantee of up to 80% to help it avoid collapsing into administration for the second time in five years.
But the guarantee would have put taxpayer money at risk if the shipyard fails.
Speaking to reporters at the Farnborough air show, Reynolds said:
It was clear that would not have been a prudent use of government money.
However, asked if he was confident that Royal Navy ships would be built in Belfast, he answered simply:
Yes.
His confidence will be a boost to the workforce in Belfast and at H&W’s other shipyards in Devon and Scotland. However, he said he expected a “market-led solution” to refinancing the company’s large debt load.
The shipbuilder was forced to suspend its London-listed shares a fortnight ago, raising concerns about its future. It has missed two deadlines to file audited accounts, raising questions over its finances and its ability to fulfil a £1.6bn contract to build the three “fleet solid support” ships that will carry supplies such as ammunition and food to the navy’s aircraft carriers.
The crisis is viewed as the first significant test of industrial policy for the new Labour government in London.
You can read more background from our story last week:
Ex-Tory chancellor Nadim Zahawi preparing £600m bid for Telegraph - Sky News
BREAKING: Sky News is reporting that Zahawi has approached a number of billionaire backers about helping to finance an offer for the Telegraph newspaper as well as its Sunday sister title and The Spectator magazine.
EXCLUSIVE: Nadhim Zahawi, the former Tory chancellor, is sounding out billionaire investors about backing a bid for The Daily Telegraph and The Spectator magazine in a move which could up-end the auction of some of Britain's most influential media assets. https://t.co/MGCxbZIB9I
— Mark Kleinman (@MarkKleinmanSky) July 22, 2024
Citing City sources, Sky says the Reuben family, which owns a vast swathe of property assets and a stake in Newcastle United Football Club, was among those to have been sounded out by Mr Zahawi in recent weeks.
The identity of Mr Zahawi’s other prospective backers was unclear, it said.
Zahawi is understood to believe that the Telegraph has significant scope to boost its profitability by expanding in the US, Sky added.
While is not yet thought to have submitted a formal offer, the report says he is confident of securing sufficient financing firepower to table a competitive bid.
CEOs from BA-owner IAG and Air India have been commenting on their own performance, surely in a bid to reassure shareholders, after the drop in Ryanair profits spooked investors.
IAG’s CEO Luis Gallego has said – according to Reuters – that corporate travel i still recovering but that demand is strong in its core north and south Atlantic markets.
Air India’s CEO Campbell Wilson, meanwhile, has said that the international market was ‘moderating’ for th next six months, but that the domestic market was strong.
More warnings about recovery time for the health sector after the CrowdStrike IT outages.
The British Medical Association (BMA) said GPs will “need time to catch up from lost work over the weekend”, adding that NHS England should “make clear to patients” this is the case.
The BMA said its GP committee will continue to talk to NHS England and patient record system supplier EMIS to secure a “better system of IT back-up” to ensure the “disaster” is not repeated.
Dr David Wrigley, deputy chairman of GPC England, the representative body for GPs at the BMA, said:
Friday was one of the toughest single days in recent times for GPs across England. Without a clinical IT system many were forced to return to pen and paper to be able to serve their patients.
While GPs and their teams worked hard to look after as many as they could, without access to the information they needed much of the work has had to be shifted into the coming week.
GPs have been pulling out all the stops this weekend to deal with the effects of Friday’s catastrophic loss of service and, as their IT systems come back online, we thank them and their staff for their hard work under exceptionally trying circumstances.
We also thank patients for bearing with general practice in this unprecedented situation.
Pharmacy services are expected to be “slower than usual” today as the recovery from the major global IT outage caused by the CrowdStrike update failures continues.
Nick Kaye, chairman of the National Pharmacy Association (NPA), said:
As pharmacists recover from last week’s IT outage and catch up on the backlog of prescriptions, we expect service in some community pharmacies to be slower than usual today.
Please be patient with your local pharmacy team if you are visiting them, as they may still be prioritising emergency prescriptions from their local GP surgeries as well as experiencing increased demand as services return to normal.
As ever, community pharmacies have worked hard to provide support for those who need them during this period.
Commenting on the global travel chaos caused by the CrowdStrike IT failures, Ryanair CEO Michael O’Leary said the airline had 400 cancellations this weekend, mainly due to the fallout from Friday’s IT issues.
The UK government will need to raise taxes, increase borrowing or make spending cuts unless it can grow the economy by at least three times this year’s expected rate, according to analysis by the International Monetary Fund.
Economic growth would need to be around 2.6% in each year of parliament from next April before Labour can claim to have stabilised the public finances.
That is well above the rate of growth predicted by the IMF.
Last month the IMF predicted the UK economy will grow by 0.9% in the current financial year, ending in April 2025. That is projected to rise to around 1.6% or 1.7% in the remaining years of this parliament.
The calculations showed that the UK budget balance excluding interest payments will need to improve by between 0.8 and 1.4 percentage points of GDP per year to get debt under control.
In analysis for the Financial Times (paywall), IMF staff estimates show the acceleration in economic growth needed to avoid tough choices will necessitate a return to the expansionary period seen before the financial crash of 2008.
A Treasury spokesperson told the FT that the government was “under no illusions” about the scale of the challenge facing the economy.
Delivering economic growth will require tough choices and difficult decisions.
That is why we have already started to take the action necessary to fix the foundations of our economy, so we can rebuild Britain and make every part of our country better off.
Ryanair CEO: Consumers resistant to price hikes
The Ryanair CEO Michael O’Leary has told analysts this morning that the airline is repeatedly seeing resistance from customers when they have tried to put up prices for flights.
And that is unlikely to change anytime soon, with O’Leary adding that the trend is ‘downwards, not upwards’ and that they see no reason why prices in Q3 and Q4 won’t be soft as well.
This could result in Ryanair boss said this could result in double digit percentage falls in fares, and that, at minimum, it could mean a 5% drop year-on-year in the second quarter.
But O’Leary speculated over whether this year could actually be part of a ‘rebalancing’ after double-digit fare increases in recent year.
He added that the airline will aggressively advertise the availability of low-price fares.
Begbies Traynor data also showed that around 40,613 UK businesses are in “critical” financial distress, up 1.1% on the prior quarter and 34.5% higher than a year earlier:
Top 10 Sector Ranking – Critical Financial Distress
Construction 6,043
Support Services 5,758
Real Estate & Property Services 5,575
General Retailers 3,113
Professional Services 2,770
Health & Education 2,436
Telecommunications & Information Technology 2,256
Food & Drug Retailers 1,696
Bars & Restaurants 1,587
Media 1,467
There are concerns concerns about the continued impact of high interest rates – for both consumers and businesses – even with the prospect of near-term rate cuts.
Palmer said:
Additionally, the situation for the consumer remains very precarious. The latest figures from the Bank of England highlights how more than three million households will come off their fixed rate mortgages over the next two years – resulting in substantially higher repayments for many – which will in turn act as a drag on disposable incomes.
In a climate like this one, many businesses who were supported through the pandemic and its aftershocks by the government, will be hugely concerned by the very real prospect of a prolonged period of higher interest rates.
Many businesses who loaded up on cheap debt prior to the pandemic are simply not equipped to survive the current pressures and the financial burdens they face may ultimately prove too much.
Data: 10% jump in UK businesses in 'significant' distress
The number of UK companies in “significant” financial distress jumped by nearly 10% in the second quarter, according to Begbies Traynor.
It comes as weak demand from cost-conscious consumers and more expensive debt repayments hit businesses.
Newly-released data from one of the UK’s biggest insolvency practitioners the number of businesses facing significant distress rose to 601,950 from 554,554 in the first quarter, with increases in 20 of 22 sectors.
The change was even more stark year-on-year, up 36.9% from the same period in 2023.
It reveals a particularly worrying picture of British corporate health, with a marked acceleration in leisure sectors quarter-on-quarter, including:
Travel & Tourism (+20.1%),
Hotels & Accommodation (+16.4%)
Bars & Restaurants (+12.2%)
Those business have been by weak confidence amongst consumers still struggling financially from the impacts of the cost of living crisis.
Julie Palmer, a partner at Begbies Traynor, said:
It looks like 2024 will prove to be another tough year for UK businesses. Six months in, and we’re seeing clear signs that financial distress is growing across almost every sector.
It is a particularly difficult situation for businesses in consumer facing sectors, such as hospitality. While a fall in inflation to more palatable levels will likely provide some relief, consumers simply aren’t behaving like they used to and these businesses, who are still grappling with higher costs pushed up by higher wages, are really struggling.
This, combined with one of the wettest summers on record, continues to significantly impact trading.
Updated
Full story: Ryanair has said its profits plunged by almost half between April and June and warned that fares this summer would be “materially lower” than last year.
Europe’s largest airline reported profits of €360m (£303m) in the spring quarter, 46% lower than the same period last year, despite passenger numbers rising 10% to 55.5 million.
The downbeat results, which missed analysts’ estimates, drove the budget carrier’s share price down 12.5% in early trading on Monday.
The news also affected other publicly traded airline stocks. EasyJet fell 7.5%, Wizz Air was down 6.3% and IAG, the owner of British Airways and Iberia, slipped 3.3%.
The average cost of a fare dropped from €49.07 to €41.93 year on year, but the increase in passenger numbers helped limit the decline in total revenues to 1% at €363bn.
Ryanair said while it expected strong demand this summer, with passenger numbers likely to be up 8% overall this financial year, “pricing remains softer than we expected”:
We now expect second-quarter fares [July to September] to be materially lower than last summer…The final first-half outcome is, however, totally dependent on close-in bookings and yields in August and September.
“Close-in bookings” refer to customers waiting much longer than usual to book summer flights.
Read more:
British online supermarket group Ocado is getting a boost, and is one of the biggest risers on the FTSE 250.
Shares were bolstered after US grocer Kroger placed an order for a wide range of new automated technologies to roll out in warehouses across its network.
While the company did not put a value on the Kroger order, it said it would be using the tech in both current and future warehouses, suggesting a boost to future revenues.
It comes a week after Ocado raised its annual guidance for its technology arm. The company said it expects its tech division to achieve a “mid-teens” Ebitda (earnings before interest, tax, depreciation and amortisation) margin this year, up from previous guidance of more than 10%.
CEO Tim Steiner said last week that the global shift to online shopping had resumed, after a brief post-pandemic pause: “We expect to see a lot of long-term growth.”
A view of those Ryanair shares, which are getting hammered after the airline’s earnings results:
Matt Britzman, a senior equity analyst at Hargreaves Lansdown says there will be knock-on effects to the wider sector, as investors speculate whether rivals are feeling similar pressures:
Ryanair disappoints as the outlook over the key summer period looks weak
First quarter profit after tax of €360mn was well below what markets expected as ticket prices plummeted.
The outlook was poor, too, with Ryanair expecting lower prices as peak summer travel kicks in.
There will be knock-on effects to the wider sector from this, though it’s a little unclear whether the likes of easyJet are facing issues at quite this scale.
Ryanair shares tumble 12.5% at start of trading
Disappointing Ryanair profits – and its warnings over depressed summer airfares – has knocked back its shares 12.5% at the start of trading.
The airline’s disappointing update has also managed to drag down rivals, including British Airways owners IAG, which is one of the biggest fallers on the FTSE 100 index, down 3.3% .
But even worse-hit is EasyJet which is down more than 7% and is now at the bottom of the bluechip index.
Updated
European stocks open higher, as traders poised for reaction on Biden drop out
All eyes are on market reaction to President Biden’s decision to pull out of the US election race. And we have positive prints from all major indexes at the start of the European trading day.
FTSE 100 is up 0.43%
Germany’s DAX is up 0.5%
France’s CAC 40 is up 0.5%
Spain’s IBEX is up 0.4%
Euro Stoxx 600 is up 0.3%
Introduction: CrowdStrike still working to restore services after IT meltdown
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
The world is still recovering from the global IT outage caused by a faulty security update by cybersecurity firm CrowdStrike last week, which hit hospitals, businesses, banks and airline services around the world.
In LinkedIn post overnight, CrowdStrike said it was continuing to “focus on restoring all systems as soon as possible,” and that it had deployed a “new technique” to try get everyone back online.:
CrowdStrike continues to focus on restoring all systems as soon as possible. Of the approximately 8.5 million Windows devices that were impacted, a significant number are back online and operational.
Together with customers, we tested a new technique to accelerate impacted system remediation. We’re in the process of operationalizing an opt-in to this technique. We’re making progress by the minute.
While the company has again apologised for the disruption, full restoration could take weeks. And that may result in further pain for CrowdStrike’s US-listed shares, which have so far plunged 11%.
Meanwhile, Ryanair has suffered a 46% drop in its first quarter profits, covering the three months to June, after the airline was hit by cost-conscious travellers.
Average passenger fares fell 15% in the quarter, compared to a year earlier, with CEO Michael O’Leary explaining that they had to take part in “more price stimulation than we had previously expected – meaning the the airline had to cut prices to bolster demand.”
He said the airline had recently tried to close off some cheap seats but they were met with resistance, and opened up lower-cost seats again, as a result.
O’Leary warned that there was likely to be more pain the second quarter:
While Q2 demand is strong, pricing remains softer than we expected, and we now expect Q2 fares to be materially lower than last summer.
The agenda
No major scheduled data
