BUSINESS LIVE: Ofwat enforcement against four firms; Ocado losses narrow; B&M sales near £1.4bn

Britain’s water industry regulator has opened enforcement action against Welsh Water, Hafren Dyfrdwy, Severn Trent and United Utilities related to wastewater management.

Ofwat has given formal notices to the four firms to obtain evidence for an investigation, meaning the watchdog is now investigating all 11 companies in the English and Welsh water sector regarding the issue of sewage.

It said it launched the cases after analysis of the groups’ environmental performance and data raised concerns that the four firms ‘may not be fulfilling their obligations to protect the environment and minimise pollution’.

The construction industry has been hit by a ‘very sharp rise’ in recruitment problems in a blow to Labour’s plan to see 300,000 homes built per year.

Sir Keir Starmer has pledged to reform the planning system and set compulsory targets for councils to ensure 1.5m houses are built in the next five years.

The FTSE 100 is trading at a one-week low this morning amid broad market weakness, as investors exercise caution ahead of inflation data and look to earnings reports.

The personal goods sector is again the biggest laggard with a 2.3 per cent decline, after hitting an over 14-year low in the previous session. Burberry is the biggest loser with a 3.3 per cent fall, extending its 16 per cent decline from Monday.

Rio Tinto’s London-listed shares are down 2 per cent after it reported second-quarter iron ore shipments below analyst estimates.

It weighs on the industrial metal miners, which has shed 1.3 per cent. Other copper miners also tracked an fall in prices of the metal.

Domestic consumer prices and producer prices data will be in focus this week, as the Bank of England’s next monetary policy decision inches closer.

Markets are pricing in about 50 per cent chances of a rate cut in August. Although data showed inflation falling to the BoE’s target 2 per cent, markets are jittery due to hawkish comments from some policymakers and global political uncertainty.

Meanwhile, bets for a US rate cut in September further solidified after Federal Reserve Chair Jerome Powell said on Monday the three inflation readings over the second quarter showed ‘more progress’ was being made on bringing the pace of inflation back to its target.

United Utilities and Severn Trent shares are down at the open after Ofwat opened enforcement cases into them, as well as two others, as part of its ongoing probe into wastewater management.

United Utilities and Severn Trent are among the top percentage losers on the FTSE 100, falling about 1.5 and 1 per cent respectively at the open.

Adam Vettese, analyst at eToro says:

‘It’s been a tough year for Ocado shareholders, seeing the price get slashed by half as the firm contends with the grocery market’s stuttering post-pandemic recovery and high food inflation.

‘Ocado kits out supermarkets worldwide with its fulfilment technology and quite simply the capacity has not been there for the anticipated number of centre openings as first predicted.

‘This is leaving the firm burning cash, which is a situation that investors will want to see remedied promptly. The signs this morning are that investors sense progress as shares are up 17.

‘The numbers do read better than expected, with a smaller than anticipated loss and guidance being raised, but this could well just be papering over the cracks of the overriding problem.

‘There is evidence that the technology is improving efficiency and saving energy with the firm closing its oldest site in Hatfield and moving that capacity to the newer Luton facility. The global rollout is what is going to pay the bills though.’

More than £1billion was added to the value of Donald Trump’s social media platform yesterday as investors bet that his attempted assassination would propel him back to the White House.

The former president is being tipped for a landslide election victory in November after a gunman opened fire at a rally in Pennsylvania on Saturday.

The prospect of a Republican victory reverberated through financial markets yesterday, with shares in Trump Media & Technology, which is behind his Truth Social platform, rising as much as 50 per cent.

Among the great British value-creating corporate breakups of recent decades was that of Great Universal Stores.

Out of the embers of the empire built by the late Sir Isaac Wolfson were born three enterprises: Burberry, credit data giant Experian and Argos, now part of Sainsbury’s.

Clive Black, vice-chairman and head of consumer research at Shore Capital:

‘B&M has been a high-quality discount player comprising three elements; its core home B&M label, Heron frozen foods, and its converted French offer. The firm did not convince the market about the current momentum and nature of its investment thesis at its FY24 results, evidenced by the c20% markdown in the Group’s shares in 2024 YTD.

‘CEO, Alex Russo, described the growth fundamentals of the business as ‘strong’, but Q1 sales growth of 2.4% and minus 3.5% UK like-for-like (LFL) sales provides current challenge to that thesis. B&M speaks robustly about not being a busy fool, focusing upon sales volumes, cash conversion, and carefully curated new space, which we like.

‘However, we wonder if recent trading momentum, set against some of its discount peers, especially in FMCG, one thinks of Home Bargains and Lidl UK rather than Aldi and Poundland, has been more challenging than it wants to admit, leading to a smoke & mirrors around disclosure that is, frankly, not helpful.

‘We also ask the question whether mainstream supermarket loyalty initiatives, notably Clubcard Prices, are starting to challenge the noise and profile of B&M’s FMCG proposition, its core footfall driver; adding that we do not sense management is respectful enough to some of the now proprietary data driven loyalty initiatives evident in the UK market.’

John Moore, senior investment manager at RBC Brewin Dolphin:

‘Ocado finds itself at a crossroads. While there is decent growth at its business divisions, the deferral of rolling out additional customer fulfilment centres is a drag on the momentum the company needs to ramp up cashflow and refinance the debt that falls due over the next three years.

‘On the positive side, revenue and cashflow remain on a positive trend, and the easing of inflation should help attract more customers.

‘However, there is a lot of ground to make up for Ocado to get to where many analysts hoped it would be by now, and some self-help will be required to meaningfully reverse the share price decline of the past three years.’

Top investment platforms are demanding a shake-up of Isas to unlock billions of pounds of investment in the UK economy.

AJ Bell is calling for the number of types of Individual Savings Account (Isa) to be radically slimmed down while rival Hargreaves Lansdown said the market needed to be ‘as simple as possible’.

B&M saw lower like-for-like UK revenue in the first quarter of fiscal 2025, with the discount retailer blaming wet weather dampening demand for seasonal items.

Group revenue, however, overall grew 2.4 per cent to £1.35billion for the three months ended 29 June, helped by higher volumes across its businesses.

B&M’s UK like-for-like revenue was down 3.5 per cent, excluding the timing of the Easter holiday earlier this year.

The FTSE 100 retailer, which sells everything from garden furniture and electrical items to toys and food, said that B&M UK’s gross margin performance in the quarter has been strong and in line with expectations.

Boss Alex Russo said: ‘The growth fundamentals of our business are strong, with a highly disciplined approach on pricing, product and high operational standards.

‘We continue to offer our customers exceptional value at a time when household incomes are under pressure.

‘Ahead of Q2, we have launched our Everyday Value range with more than 500 new lines in core categories across home, electrical and pet in the UK and France.

‘As we transition towards Autumn/Winter in the months ahead, our relentless focus on Everyday Low Price and Everyday Low Cost will ensure we continue to serve our customers well.’

Ocado losses nearly halved in the first half of the year as revenues jumped 12.6 per cent, with the group upgrading expectations for annual earnings from its robotic warehouse arm.

The group reported a £154million pre-tax loss for the six months to 2 June against losses of £290million a year ago.

It notched up revenues of £1.54billion for the first half, boosted by a 21.8 per cemt surge in its technology solutions business, which powers online grocery businesses and automated warehouses for other retailers.

Ocado retail – run as a joint venture with Marks & Spencer – saw revenues rise 11.3 per cent, helping the division swing to underlying earnings of £20.7million from a £2.5million loss a year earlier.

Ocado said it was now on track for annual underlying earnings margins in its technology solutions business to be in the ‘mid-teens’, having previously guided for at least 10 per cent.

A top Bank of England official said ‘now is the time’ to start cutting interest rates to ‘stop squeezing living standards’.

Swati Dhingra, who sits on the nine-strong Monetary Policy Committee that sets rates, has been voting for cuts since February.

She is now calling on other members of the committee to join her having seen inflation fall back to the 2 per cent target.

Water industry regulator Ofwat has opened enforcement action against Welsh Water, Hafren Dyfrdwy, Severn Trent and United Utilities related to wastewater management, meaning the watchdog is now investigating all 11 companies in the sector regarding the issue.

Ofwat said the move follows analysis of companies’ environmental performance and data about how often spills occur as a result storm overflows.

‘This has heightened Ofwat’s concerns that these companies may not be fulfilling their obligations to protect the environment and minimise pollution.’ it said.

Ofwat chief executive David Black added: ‘The fact that Ofwat now has enforcement cases with all 11 of the wastewater companies in England and Wales demonstrates how concerned we are about the sector’s environmental performance.

‘Where we find that companies have breached their obligations, we will continue to act – over recent years, we have imposed penalties and payments of over £300 million on water and wastewater companies.’