Microsoft bragged it could ‘spend Sony out of business’ ahead of $69bn takeover row

Matthew Field
Tue, 27 June 2023 

Xbox Games Studios boss Matt Booty said Sony was the only company that could compete with Microsoft on game streaming products - Patrick T. Fallon/Bloomberg

A senior Microsoft executive claimed the US tech giant could “spend Sony out of business” in the battle for control of the video games market, according to newly released emails.

Microsoft, which designs the Xbox console, is fighting both British competition regulators and the US Federal Trade Commission which have sought to block its $69bn (£54bn) takeover of Call of Duty-maker Activision.

The FTC has been in court to attempt to stop the deal over fears it will hurt competition in the video games market.

Newly released emails revealed as part of the case showed that Microsoft executives had previously discussed ways to gain an upper hand over rival Sony. Matt Booty, the tech giant’s head of Xbox Games Studios, in 2019 had urged finance chief Tim Stuart to unleash billions of dollars in spending to put pressure on Sony’s position.

Mr Booty said: “We (Microsoft) are in a very unique position to be able to go spend Sony out of business.” The comments were made two years before Microsoft launched a bid to acquire Activision.

Sony, the Japanese tech company, has insisted the Microsoft takeover would result in it being barred from the lucrative Call of Duty action franchise. Microsoft has argued it would have no incentive to make the game exclusive to the Xbox.

Mr Booty said: “In 10 years, we might look back and say, ‘Totally would have been worth it to lose $2bn to $3bn in 2020 to avoid a situation where Tencent, Google, Amazon or even Sony have become the Disney of games and own the most valuable content.”

He added that “Sony is really the only other player who could compete” with Microsoft’s game streaming products.

A Microsoft spokesman told The Verge website: “This email is three and a half years old and predates the announcement of our acquisition by 25 months.

“It refers to industry trends we never pursued and is unrelated to the acquisition.”

Activision has been hugely critical of the CMA’s decision to block the deal, claiming it shows that Britain is “closed for business”.

Activision’s chief executive, Bobby Kotick, has accused the CMA of being a “tool” of the FTC. The CMA has denied these claims.

Further documents disclosed as part of the US court battle show Microsoft also looked to buy games maker Bungie, which developed several games for the popular Destiny games franchise, and Sega.

Bungie was later bought by Sony in 2022 for $3.6bn.

Corporate profits drove up prices last year, says ECB president

Phillip Inman

THE GUARDIAN
Tue, 27 June 2023



Corporate profits were the biggest factor driving up prices last year and will be again in 2023 unless businesses are forced to absorb rising wage bills, the head of the European Central Bank has said.

Outlining how the ECB plans to tackle inflation across the 20-member eurozone, Christine Lagarde said she was concerned that firms would again “test” consumers’ appetite for paying higher prices despite a steep decline in most business costs in recent months.

In a speech at a central banking conference in Portugal, the central bank president said workers were expected to recover the value of their pre-pandemic wages over the next two years, but if companies passed these rises to consumers through higher prices, inflation would persist for longer than currently expected and remain above the ECB’s 2% target.

Warning that there may need to be more interest rate rises this year, Lagarde’s comments were supported by the deputy chief of the International Monetary Fund, speaking at the same conference, who said there was a risk of “inflation getting entrenched”.

Gita Gopinath, who was until last year the IMF’s lead economist, said in her speech that the ECB and other central banks “should be prepared to react forcefully” to signs of persistent inflation, despite concerns that higher borrowing costs could increase unemployment and cause a recession in many countries.

In a study of inflation across European countries, IMF researchers said their findings showed corporate profits had played a significant role in pushing inflation higher across Europe, supporting Lagarde’s concerns.

Citing research by Isabella Weber at the University of Massachusetts, the IMF said: “Rising corporate profits account for almost half the increase in Europe’s inflation over the past two years as companies increased prices by more than spiking costs of imported energy.

“Now that workers are pushing for pay rises to recoup lost purchasing power, companies may have to accept a smaller profit share if inflation is to remain on track to reach the European Central Bank’s 2% target in 2025.

Annual consumer prices in the eurozone rose 6.1% in May, down from 7% in April, while the UK’s inflation rate in May remained steady at 8.7%.

Lagarde said the ECB expected eurozone workers to claw back their earnings losses from inflation by the end of 2025. This would mean a 14% increase in wages over two years.

She said: “During previous [financial] shocks in the euro area, firms had tended to absorb rising costs in profit margins, as slower growth made consumers less willing to tolerate price hikes. But the special conditions we experienced last year turned this regularity on its head.

“The sheer scale of input cost growth made it harder for consumers to judge whether price hikes were caused by higher costs or higher profits, fuelling a faster and stronger pass-through.

“At the same time, pent-up demand in reopening sectors, excess savings, expansionary [government] policies and supply restrictions brought on by bottlenecks gave firms more scope to test consumer demand with higher prices.”

She said corporate profits accounted for about two-thirds of inflation in 2022 compared with the average over the previous 20 years of one-third.

“This in turn led to the shocks feeding into inflation [last year] much more quickly and forcefully than in the past,” she said. To keep inflation low, “we need to ensure that firms absorb rising labour costs in margins”.

Without a shift in corporate behaviour, interest rates would need to stay higher for a longer period than previously forecast, Lagarde said.

“If firms were to regain 25% of the lost profit margin that our projections foresee, inflation in 2025 would be substantially higher than the baseline – at almost 3%,” she added.

The Bank of England has yet to produce a study calculating the influence of corporate behaviour on inflation and says it has no plans to embark on a similar study to the one carried out by the ECB.

The Unite union said the IMF study confirmed research it carried out last year into the impact of rising corporate profits on UK inflation.

Inflation crisis driven by rising corporate profits, claims IMF

Szu Ping Chan
Mon, 26 June 2023

IMF's Gita Gopinath said firms should allow their profit margins to decline to bring down inflation - Jason Alden/Bloomberg

Rising corporate profits played a bigger role in driving Europe’s inflation crisis than the energy shock caused by the war in Ukraine, according to analysis by the International Monetary Fund (IMF).

Profit increases accounted for almost half the increase in the eurozone’s post-pandemic inflation rate, according to research by IMF staff, as “companies increased prices by more than spiking costs of imported energy”.

The research is likely to be seized on by trade unions as evidence of “greedflation” as they demand pay rises for their members.

Gita Gopinath, the IMF’s deputy managing director, urged companies to abandon efforts to protect their margins in the face of higher costs.

Speaking at a conference in Sintra, Portugal, she said: “If inflation is to fall quickly, firms must allow their profit margins—which have shot up during the past two years—to decline and absorb some of the expected rise in labour costs.”

It comes after a string of British companies reported increased profits in the past few months.

On Monday, Primark owner Associated British Foods (ABF) raised its outlook for the year on Monday as it said shoppers had absorbed price increases for food and clothing.

The company said the value of its sales was up 16pc in the quarter to May 27, even though the volume of goods sold was close to flat.

Eoin Tonge, finance director, insisted the business had still sacrificed some profitability even with these increases. He said: “We didn’t raise prices in line with inflation. We chose to completely banjax our margins so that we could stay true to our consumers.”

Separate figures showed food inflation eased for a second month as supermarkets cut the price of household staples, in what economists said suggested prices in the shop have peaked.

Shop price inflation overall slowed to 8.4pc in June, down from 9pc in May, according to the British Retail Consortium.

Food inflation slowed to 14.6pc in June, down from 15.4pc in May in the second consecutive deceleration in the food category.

Ms Gopinath said that history suggested that workers were also likely to ramp up pay demands in an attempt to protect living standards. She said: “Some wage catch-up is to be expected.”

IMF researchers Niels-Jakob Hansen, Frederik Toscani and Jing Zhou added that if pay increased by the 5.5pc rate needed to guide real wages back to their pre-pandemic level by the end of next year, companies’ profit share would have to drop to its lowest level since the mid-1990s for inflation to return to target.

Ms Gopinath warned that companies are likely to resist any declines in profits, “especially if the economy remains resilient, while workers may demand payback for their real wage losses.

Such dynamics would slow inflation reduction and likely feed into expectations and increase susceptibility to further upside cost or resource pressures”.

Sainsbury’s announced this week that it will plough £15m into cutting prices of its own-branded products from Tuesday alongside cuts in the price of jam, honey and cornflakes. Prices of chicken breasts will also be matched to Aldi for the first time.

UK
‘I’m being forced to make difficult choices’: outrage at telecoms price rise


Clea Skopeliti
Tue, 27 June 2023 

Photograph: Gary Calton/The Observer

Stuart Ward, 68, was “astonished” when he learned EE would raise his broadband bill to £68.76 a month from April.

“The deal that Ofcom agreed with telecommunication companies to add 3.9% on top of inflation rises is a disgrace. And we, the consumers, have no real choice, as all [of the firms] appear to do it,” he says, adding that he was paying £60.11 a month before the price rise.Interactive

The increase has been hard to stomach amid the wider cost of living crisis. Ward has lived on a canal boat in North Yorkshire with his wife for the last year due to surging rents. “Rental prices went up a ridiculous amount,” he says, explaining that they struggled to find suitable accommodation after their landlord sold up. “It got to the point where to rent anywhere reasonable was almost double what we were paying and many are short term rentals with very little security.”

Ward was taken aback by the price increase for his broadband bill. “I was very surprised because I’d hoped there might be some consideration of the fact people are really struggling with household costs in general,” he says, adding he’d hoped for a much smaller rise.

“What other business has this guaranteed extra cash?”

Ward moved on to the canal boat last year after his landlord sold up.

 Photograph: Gary Calton/The Observer

As Ward lives on a boat, he is limited in the providers who can offer him reliable 4G broadband. “It means that on top of all the other price rises – like food, energy – I am being forced to make some difficult choices.

“I rely on 4G broadband for my phone, internet and TV. Without this I will be very isolated. In a world where everything is online, not having internet access would make my life very difficult indeed.”

“If the costs are allowed to keep rising at inflation plus 3.9%, then only the rich will have the privilege of being able to afford to be online. This will make for a tier of second class citizens who are cut off from much of the world.”

Why are UK telecoms firms imposing inflation-busting bills?

Richard Partington Economics correspondent

THE GUARDIAN
Tue, 27 June 2023


In the autumn of 2020, bosses at BT were faced with a problem. Britain’s economy was reeling as the second deadly wave of the Covid pandemic took hold, and millions of Britons were still shut out from their offices, working from home.

Demand had ballooned for BT’s sprawling broadband network and its EE mobile phone service, as the nation Zoomed in to meetings and switched to shopping online. Its contracts, like those of other telecoms companies, allowed it to increase prices each year by linking them to inflation. But in the lockdowns, with the wider economy in freefall, inflation had collapsed close to zero, limiting the firm’s ability to recoup costs.

BT’s bosses took action. In September 2020, the company added a supplementary charge of 3.9 percentage points on top of the usual inflation-linked rise. At the stroke of a pen, a measly increase of less than 1% became a chunky 4.5% rise.

Executives at Vodafone appear to have taken note. Two months after BT, they made the same call, announcing contracts would rise by inflation plus 3.9 percentage points.

One former Vodafone insider said the company considered how to respond to BT’s pricing change. “They didn’t want to be above BT, as this would bring undue attention. But they didn’t want to go lower as it would be a missed revenue opportunity.”

In March 2021, other big telecoms companies followed BT and Vodafone’s lead, moving to inflation plus a supplement. TalkTalk opted for a slightly lower 3.7 percentage points on broadband contracts, while Virgin Media O2 went for 3.9 percentage points. It also chose the higher retail prices index (RPI), as opposed to the more commonly used consumer prices index (CPI).Interactive

By now, the Covid vaccine had arrived, allowing factories and offices to reopen and trade to resume. The rate of inflation ticked up. From a low point of 0.2% in August 2020, it jumped to 2.1% by May 2021, and continued to climb. The original problem with the old inflation-linked rises no longer applied.

Nonetheless, in November 2022, iD Mobile (owned by the retailer Currys), and mobile operator Three introduced a 3.9 point supplement. By then, Russia’s decision to throttle gas supplies to Europe had sent energy prices skywards, and propelled the rate of inflation above 10%.

In early 2023, when it was clear the Bank of England was struggling to prevent inflation from becoming embedded in the economy, Tesco Mobile introduced the 3.9 supplement for out-of-contract customers. Virgin Media announced that its RPI-linked increases for broadband, landline and TV customers would also include a 3.9 percentage points from April 2024.Interactive

In total, the Guardian has found the rate was adopted, and is still being used, by six companies across 11 of their mobile and broadband brands.

The companies argue record levels of investment are required to upgrade their networks to the latest 5G technology, and to manage the flow of data as video meetings and streaming of TV, film and music become more popular. Virgin Media O2 alone invested £2bn in its network last year.

BT argues its price increases reflect the level of investment it needs to make across its networks and service. A spokesperson said the annual rise was contracted, transparent and clear. “We understand that price rises are never wanted nor welcomed, but recognise them as a necessary thing to do given the rising costs our business faces.”

Vodafone said its increase reflected “industry-specific costs beyond inflation – which include costly infrastructure projects and investments that help us anticipate and answer the ever-increasing demand for data”.Interactive

A spokesperson for Virgin Media O2, which uses the higher RPI measure, said “the suggestion that the industry has a uniform approach to pricing is demonstrably untrue”, and highlighted how “a quick Google” showed TalkTalk added 3.7 percentage points on to inflation, Shell 3 percentage points, and Sky used discretionary rises not linked to inflation. Some smaller operators, including Hyperoptic, Cuckoo and Zen, did not raise prices at all this year.

Virgin Media O2 said its price increase applies only to airtime contracts, and not handsets, adding: “We are facing higher costs ourselves at a time when demand for both mobile and broadband has never been higher.”

Sky used an average 8.1% increase across its broadband and TV service in April, below the RPI-linked increases applied by Virgin Media O2.

“We don’t think CPI or RPI should determine what people pay for broadband and mobile,” a spokesperson for Sky said. “Not only does it mean unfair prices for customers, but it also means they are locked into contracts without the ability to leave penalty-free.”

Several smaller providers – including budget brands owned by some of the larger firms – have kept their pricing competitive. Giffgaff, Smarty, Voxi and Sky Mobile did not increase prices by inflation this spring, and Lycamobile froze its prices for six months.

A spokesperson for Three said it understood consumers were under pressure, but that its rising running costs and investment plans meant it had to pass costs to customers. They added: “Our prices remain some of the most competitive in the market.”

The telecoms regulator, Ofcom does not regulate prices in the broadband and mobile retail markets, where it says the choice of providers offers enough competition. But it can intervene where a provider has significant market power. In February, it launched an investigation into transparency around mid-contract price rises after finding about one-third of customers did not know this could happen. But its current review will not consider limiting or banning them, and does not address why so many operators chose to add the same 3.9 percentage point supplement.

The regulator said: “Ofcom has repeatedly called on providers to think very carefully about whether significant price rises are justified during an exceptional period of hardship for many people. However, in recent months, we’ve seen more providers move to an inflation-based calculation, limiting customers’ choice of contracts that are not subject to these price rises.

“We’re taking a close look at these issues to consider whether tougher protections are needed.”

Lack of intervention allowed extraordinary increases this spring, the time of year when most telecoms companies put up prices. With CPI above 10% and RPI above 13% in January – the reference month used for annual bill increases – consumers faced an increase on their bills of up to 17.3%.

For the economy at large, the price hikes have added to the UK’s overall inflation rate for all goods and services – just as the Bank of England battles to crush inflation by raising interest rates. Annual inflation in telecoms jumped from 3.5% in March to 7.9% in April, and rose further to 9.1% in May – the highest rate since 1991.

Economists say that inflation-plus telecoms contracts risk adding to the persistence of inflation. Paul Donovan, the chief economist of UBS Global Wealth Management, said: “Any process where you have an indexation of prices which is rigidly built in is going to potentially prolong inflation at least for that sector.”

The Unite union, which represents many workers in telecoms, is particularly worried about the proposed merger between Vodafone and Three. If approved by regulators, it will reduce the number of providers that run their own network from four to three in the UK. “We need the competition regulator, the Competition and Markets Authority, to step in to prevent this damaging merger and stop this endless cycle of greedflation,” said Gail Cartmail, executive head of operations for Unite.

The CMA said it would review the impact of the merger. Vodafone and Three argue that by merging they would help to improve competition by acting as a larger challenger to BT and Virgin Media O2, the two largest companies in the mobile market. A spokesperson for Vodafone added: “We hope [the CMA] will find – as we strongly believe – that it will boost competition in the industry and benefit both customers and the country.”

Mobile and broadband firms accused of fuelling UK ‘greedflation’ with major price hikes

Richard Partington Economics correspondent

THE GUARDIAN
Tue, 27 June 2023


The UK’s largest mobile and broadband companies have been accused of fuelling “greedflation” after pushing through the biggest round of price hikes for more than 30 years.

It comes ahead of a meeting on Wednesday at which the chancellor, Jeremy Hunt, will order industry regulators to take tougher action to curb inflation.

Analysis published by the Guardian today reveals that six companies controlling most of the telecoms market all charged a 3.9 percentage point supplement on top of their annual inflation-linked increases this year.


The practice means millions of customers have faced mid-contract price increases of up to 17.3%, which economists said risked prolonging the cost of living crisis and adding to the pressure on the Bank of England to raise interest rates.

Labour accused the government of being “asleep at the wheel” on broadband pricing, while the telecoms regulator Ofcom responded by saying it was “taking a close look” at the issue “to consider whether tougher protections are needed”.

Morgan Wild, head of policy at Citizens Advice, said: “We called on firms to support their customers during this incredibly challenging time, but many chose not to listen and instead pushed on with price rises.”

This year’s charges have generated billions of pounds in extra revenue for providers, according to estimates by the price comparison website Uswitch, while hitting the average customer with an annual bill increase of £222 for broadband and £114 for mobile.Interactive

The biggest increases were for mobile phone customers of Virgin Media O2, which imposed a rise of up to 17.3% in April – 3.9 percentage points on top of the retail price index (RPI), which stood at 13.4% in January, the reference month it uses. The RPI is typically higher than the consumer price index measure of inflation, which most other telecoms operators use, and was at 10.1% in the same month.

The practice of adding a 3.9 percentage point supplement began during the pandemic, when inflation was near zero. BT was the first mover in September 2020. Despite a surge in inflation over the following months, more and more providers have adopted price increases of inflation plus 3.9 percentage points, including Vodafone, Three, and Virgin Media O2. Smaller suppliers Tesco Mobile and iD Mobile have also done so. As of this spring, the model is being used by at least six companies across 11 separate mobile and broadband brands.

Andrew Sentance, a former member of the Bank’s rate-setting monetary policy committee, said regulators appeared to have been “caught napping” by the practice and called for tougher action to stop firms ripping off consumers.

“Where has this 3.9% come from? It seems to be uniform across the industry – which is the sort of thing a regulator should be concerned about. They have been caught napping by the shift up in inflation.”Interactive

Jeremy Hunt is to hold meetings with regulators on Wednesday to ask them what they are doing about any companies exploiting rampant inflation by raising prices, including the Competition and Markets Authority and Ofcom, the telecoms watchdog.

Mid-contract price rises usually take effect in March or April each year and apply to all customers on contracts with relevant terms, regardless of when they signed up to the deal, affecting millions of consumers across Britain. Contracts tend to last between one and two years, and customers typically must pay a penalty if they leave before the contract expires. But many are being asked to sign up without the guarantee of a fixed price.

Ofcom does not regulate prices in the broadband and mobile retail markets, where it says the choice of providers offers enough competition, but it can intervene where a provider has significant market power. It launched a review of mid-contract rises in February after finding that one-third of customers did not know whether their provider could hike prices.

Labour said it would ban mid-contract price rises. Lucy Powell, the shadow culture secretary, said: “It’s increasingly clear that government has been asleep at the wheel when it comes to broadband price increases.

“The eye-watering rises we have seen are a direct result of their wrong approach to competition in the broadband market which is harming consumers, hitting families struggling with the cost of living crisis, and contributing to the worsening economic outlook.”

Official figures show price rises by mobile phone and broadband providers drove inflation in telecommunications services in May to the highest level since 1991, with an annual rise of 9.1%.

The regulator said: “Ofcom has repeatedly called on providers to think very carefully about whether significant price rises are justified during an exceptional period of hardship for many people. However, in recent months, we’ve seen more providers move to an inflation-based calculation, limiting customers’ choice of contracts that are not subject to these price rises.

“We’re taking a close look at these issues to consider whether tougher protections are needed.”Interactive

Chris Pike, head of digital markets at Fideres, a global economics consultancy which investigates corporate and financial matters, said: “This is not the sort of stuff that should be happening in a competitive market.

“Whether this is explicitly agreed, or whether this is tacit – in the sense they all see what they’re doing and follow it – each of those can be a competition problem.”

Telecoms firms argue price increases are vital for funding investment in their networks amid surging demand for broadband and mobile services, as more people shop and work remotely, and stream data-intensive TV, film and music.

They also highlight that consumers can shop around for a cheaper deal or haggle for better terms. The industry also provides cheaper social tariffs for people on benefits. However, just 5% of eligible households are signed up.

Gail Cartmail, executive head of operations for Unite, said the price hikes were leading to an “endless cycle of greedflation”.

“Failures by regulators are fuelling the attack on living standards,” she said.

Spokespersons for BT, Three, Virgin Media O2 and Vodafone said that while they understood consumers were under pressure, they faced their own increases in costs and needed to put up prices to continue investing in improving services.

UK
Contingency plans being drawn up for possible collapse of Thames Water – reports


Holly Williams, PA Business Editor
Wed, 28 June 2023 

The Government is reportedly drawing up contingency plans for the emergency nationalisation of Thames Water as concerns grow over its mammoth £14 billion debt pile.

Ministers are said to be in talks about the possibility of temporarily bringing the utility company back into public hands under a so-called special administration regime (SAR).

The discussions are understood to be taking place between water regulator Ofwat, the Department for Environment, Food and Rural Affairs (Defra) and the Treasury, but the plans are at a very early stage and may not need to be put in place.


It comes after Thames Water chief executive Sarah Bentley stepped down with immediate effect on Tuesday amid mounting worries over the financial stability of the firm.

Thames Water is the UK’s biggest water supplier and provides water services for 15 million people in London and the South East.

The firm is now reportedly racing to raise £1 billion from investors to shore up its finances, with AlixPartners said to be advising the firm on turnaround plans.

Thames Water – owned by a consortium of pension funds and sovereign wealth funds – has come under pressure in recent years over its poor performance in tackling leaks and sewage contamination, while facing criticism for handing out big rewards to top bosses and shareholders.

Thames Water chief executive Sarah Bentley stepped down on Tuesday amid mounting concern over the financial stability of the company (Thames Water/PA)

Ms Bentley, who was appointed in 2020, said in May that she would give up her bonus after the company’s environmental and customer performance suffered.

But even after giving up the bonus, the chief executive managed to double her pay, raking in £1.5 million.

On announcing her departure, she said: “The foundations of the turnaround that we have laid position the company for future success to improve service for customers and environmental performance.”

Ofwat, the Treasury and Defra were not immediately available for comment.

Speaking to Sky News, children’s minister Claire Coutinho declined to comment directly on the reported plans to prepare for the possible collapse of Thames Water.

She said: “I certainly think there are water companies like Thames Water which are in difficult positions, but I think our position as Government is to make sure that we have the right policies in place to see consumers protected but also that we’re dealing with things which are really important to the country, like dealing with the sewage leaks.”

Thames Water’s owners last year invested £500 million in the firm – the first injection of equity into the group since privatisation.

They pledged a further £1 billion, subject to conditions, and warned that “further shareholder support may be required”.

The group’s shareholders include Chinese sovereign wealth fund China Investment Corporation, UK private pension fund the Universities Superannuation Scheme, and Abu Dhabi Investment Authority subsidiary Infinity Investments.

Ofwat warned last December over the financial resilience of Thames Water, as well as Yorkshire Water, SES Water and Portsmouth Water.

Thames Water chief executive quits after giving up bonus over sewage spills

August Graham, PA Business Reporter
Tue, 27 June 2023 

The boss of Thames Water has stepped down with immediate effect weeks after being forced to give up her bonus over the company’s environmental performance.

The company said that Sarah Bentley would leave the board on Tuesday, but will continue to support her interim replacement until a new full-time boss can be found.

Ms Bentley, who was appointed in 2020, said in May that she would give up her bonus after the company’s environmental and customer performance suffered.


But even after giving up the bonus, the chief executive managed to double her pay, raking in £1.5 million.

At the time Gary Carter, a national officer at the GMB union, said that Ms Bentley’s plan to give up the bonus was “nothing more than a flimsy PR stunt”.

The logo of water company Thames Water seen through a glass of water.

Because she declined it, the company never said how large the 51-year-old’s bonus would have been, but the year before her performance-related pay had reached £496,000.

Chief finance officer Alastair Cochran, who will now take over as interim co-chief executive, also gave up his bonus at the time.

He will now run Thames Water together with Cathryn Ross, the former Ofwat chief executive who joined the business in 2021.

On Tuesday chairman Ian Marchant said: “I want to thank Sarah for everything she has done since joining the company in 2020, building a first class executive team and leading the first phase of the turnaround of the company.

“On behalf of everyone at Thames, the board wishes her every success for the future.”

Ms Bentley said: “It has been an honour to take on such a significant challenge, and a privilege to serve Thames Water’s dedicated and inspirational colleagues.

“The foundations of the turnaround that we have laid position the company for future success to improve service for customers and environmental performance.

“I wish everyone involved in the turnaround the very best.”

Liberal Democrat environment spokesperson Tim Farron said: “This has to be a watershed moment for the scandal-ridden company.

“Thames Water is a complete mess and it’s time ministers stepped in to reform the firm from top to bottom.

“The days of profit before the environment must end.”

Fashion brands must stop moving suppliers to cut costs – sustainability expert

Rebecca Speare-Cole, PA sustainability reporter
Tue, 27 June 2023 



Fashion brands have been urged not to switch businesses and manufacturers in their supply chains for cheaper options as the industry faces increasing pressure to introduce sustainable practices.

Dr Hakan Karaosman, professor at Cardiff University and chair of the Union of Concerned Researchers in Fashion (UCRF), said he has been researching three-tier supply chains in the fashion industry.

Speaking at the Global Fashion Summit on Monday, he told industry leaders and policymakers: “I’m not going to give you sugar-coated answers but I will give you the honest truth.

“There are some problems in our industry that we need to talk about urgently.”

Dr Karaosman said he is seeing brands dropping suppliers to reduce costs, which can force manufacturers, often in developing countries, to cut corners on sustainability and safety in order to compete.

“At investor level, fashion supply chains are all about profits,” he said.

“When I speak with suppliers across multiple tiers and multiple chains, I see brands switch their suppliers based on those reductions. So please don’t abandon your suppliers because you find someone cheaper.”

It comes after major brands like H&M, Next, Primark and Zara owner Inditex were accused of unfair practises toward Bangladesh clothing suppliers earlier this year.

The report from Aberdeen University and the advocacy group Transform Trade found that brands were allegedly paying for items below the cost of production while nearly one in five factories struggled to pay their workers the Bangladeshi minimum wage of £2.30 a day.

Dr Karaosman told the summit in Copenhagen that brands must collaborate more with their supply chains and garment manufacturers to find sustainable solutions on the ground.

“Top-down governance structures and exclusive decision making are a disastrous recipe for all of us,” he said. “We need to understand plural voices and their representation in decision making.”

Dr Karaosman said suppliers often have effective solutions on issues like water usage and waste but are often ignored by brands, which can be detached from manufacturers.

“We need to ensure emotional attachments between brands and their workers,” he said.

“Supply chain workers are often ignored and not listened to. Even though auditors ask questions, supply chain workers are scared because they’re not understood.

“We need to go out into the field to understand the context and have conversations based on trust – not based on punishment or fear.”

Michael Bride, senior vice president of corporate responsibility, global affairs at Calvin Klein and Tommy Hilfiger owner PVH later argued that “local governance is absolutely crucial” when it comes to labour rights in supply chains.

Mr Bride told the conference that PVH brands source from 42 other countries.

“From my perspective, we are guests in those producer countries,” he said. “We don’t get to go in and run the roads, and so I think you have to have folks at the table.

“I think if you’re going to have an authentic brand and speak to today’s consumer, I don’t think you want to position yourself as a colonialist brand.

“I think you want to position yourself as being a stakeholder capitalist brand that’s integrated in different parts of the society where you touch, including in those production companies.”

Mr Bride previously worked for the Bangladesh Accord – a legally binding treaty between more than 200 garment brands and global trade unions after the collapse of the Rana Plaza factory claimed the lives of more than 1,000 workers in the country in 2013.

He said that those working on the accord found around 165,000 safety violations in more than 2,000 factories representing 220 brands when inspections began in response to the disaster.

But he said only two violations have led to legal dispute settlements outside the local area because local governance was involved in finding solutions to the safety issues.

“The decision-making takes longer but the decision-making is better with local governance and local people at the table,” he said.

Aston Martin vows to quadruple profits within five years as it embraces electric cars

Howard Mustoe
Tue, 27 June 2023 

Aston Martin chairman Lawrence Stroll is working with Saudi partners towards electrifying more of the company's models - Mark Thompson/Getty Images

Luxury car maker Aston Martin is aiming to quadruple its profits within the next five years, as it pushes ahead with plans to sell more electric vehicles and limited edition models.

The company has set a target of doubling its sales to £2.5bn by its 2028 financial year and increasing adjusted profits to £800m in the same timeframe.

Under executive chairman Lawrence Stroll’s stewardship, the business has limited the number of cars it sells to dealers to keep demand and therefore prices high. It said this trend would help to push margins on its cars to 40pc.

As well as its popular SUVs, the company is planning to sell more limited edition cars, including one which is launching for its 110th anniversary this year. These cars typically cost more than £1m.

The one-off Victor model, a manual V12 which was launched in 2021, was said to have been sold for between £4m and £5m.

Its Valhalla hybrid model will take the company into a new market with its mid-engine arrangement and is expected to sell for about £700,000, plus tax, with deliveries starting next year.

The business revealed on Monday that it was aiming to adopt the comfort of a Rolls-Royce and the performance of a McLaren or Ferrari for its next round of models, as part of the plan to squeeze higher prices from its customers.

Mr Stroll said: “I am extremely proud of the major industrial turnaround we have completed in the last three years, which has completely rebuilt this iconic company.”

Chief financial officer Doug Lafferty said the focus for Aston would be “on making sure that the balance sheet is robust”. The company has said it is aiming to become “sustainably” free cash positive.

Mr Laffety said: “I think the actions taken over the last 12 months mean that we’ve made good progress in that.”

The sales target comes as Aston plots a path towards electrification of its fleet. It is looking to launch its first core all-electric car by 2025. Earlier this week, it unveiled a £182m deal with US luxury electric car company Lucid.

Under the agreement, Aston will buy battery systems from Lucid, a company which is backed by Saudi Arabia. Lucid will also be taking a 3.7pc stake in Aston.

Mr Lafferty said the deal meant Aston would be able to secure a supply of what it needs to end its reliance on petrol for a fraction of the price.

He said rivals had “spent billions”. “We’re spending a couple of hundred million dollars to access that”, likening the deal to a “library card” to give the business as many parts as required.

The tie-up comes in the wake of the collapse of Britishvolt, an independent British gigafactory start-up, with which Aston had an early stage agreement. No firm orders were ultimately agreed with Britishvolt.

Aston has already received backing from the Saudis, with the Saudi Arabia’s Public Investment Fund (PIF) last year taking part in its £575m rights issue to help the car maker pay off its debts.

PIF is now Aston’s second-largest investor, after chairman Mr Stroll’s consortium.

Mr Stroll’s Yewtree Consortium holds a 20.3pc stake in Aston, while PIF owns 17.2pc.

Chinese car maker Geely owns 17pc and Mercedes, which supplies the company with some of its engineering technology for combustion engine cars, owns 9pc.

The deal, which draws Aston close to PIF, comes at a time when Saudi Arabia is aiming to diversify itself away from petrol and plough part of its oil wealth into new technology before the fuel is banned.

Until recently, PIF also had shares in McLaren – only selling them to Bahrain’s state investment fund in recent days.

Other Saudi companies have also been firmly backing electrification, including Abdul Latif Jameel investment company, founded by the late sheikh of the same name, which was an early investor in Rivian, the US electric truck maker, and remains among its largest investors.

Forecasting failures under Bailey have made inflation worse, admits Bank of England policymaker

Tim Wallace
Tue, 27 June 2023 

Andrew Bailey has faced widespread criticism for letting inflation get out of hand - TOLGA AKMEN/EPA-EFE/Shutterstock

The Bank of England’s poor economic forecasts have undermined its response to the cost of living crisis, extending the pain and hitting the institution’s credibility, a top policymaker has warned.

Swati Dhingra, an economist who joined the Monetary Policy Committee last year, said “a lot of the pain and the criticism, and the inaccuracy of monetary policy, could have been avoided had we had better data and statistics and analytical toolkits to be able to do some of these types of analysis better”.

Central banks “have not kept pace” with major changes in the economy since the 1970s, when the world was last struck with a crippling energy price crunch, she said in a speech at a UK Women In Economics Network event.

Dr Dhingra acknowledged that the Bank’s modelling “has taken a massive bashing” and said the institution faces a “historical moment” to get its analytical capabilities “in shape for the next big shock that arises, as well as to be able to mitigate whatever we can of this shock as it goes on”.

The Bank has admitted repeatedly underestimating inflation, both when prices started to surge in 2021 and 2022, as well as midjudging the stubbornness of cost increases through recent months as households have suffered in the face of a prolonged cost of living crisis.

Andrew Bailey, the Governor, this month admitted “we were wrong” on the tightness of the jobs market coming out of the pandemic and the subsequent impact on inflation, while the Bank has struggled to accurately predict price rises since then.

Mr Bailey said: “We still think the rate of inflation will come down but it is taking a lot longer than we expected.”

Dr Dhingra, who wanted to hold interest rates at 4.5pc this month but was outvoted in favour of a move to 5pc by a majority of the nine-strong MPC, said inflation is now at last set to fall quickly as cost pressures in supply chains fade and energy prices come down.

“We can start to feel a little bit reassured that there is some promising evidence out there that the producer price inflation (PPI) drop has been broad-based across the consumption basket,” she said.

There are a few areas where lower PPI reported by businesses is not feeding through to the shop shelves, including fruit, tobacco and beer.

However, at the same time, Dr Dhingra said the drop in energy costs is trickling through the economy while labour-intensive industries, including retail and hospitality, are “seeing a levelling off to some degree of wage inflation” which is important for keeping a lid on consumer prices.

Dr Dhingra said it was important nonetheless to have raised interest rates from December 2021 to show the Bank was taking inflation seriously.

She said: “The policy stance has needed to be tightened compared to the almost abnormal levels of 0.1pc interest rates that we had become used to before.

“This is really designed to insure against any kind of runaway domestic inflation, but the biggest issue is it is not going to be able to do anything about spot inflation, it is only going to have a lagged effect.”

This means that “its effects are not going to be felt until the end of this year in a big way, but there are some promising signals CPI inflation should ease”.

However, analysts at Capital Economics have said this will require higher interest rates, predicting that this will cause a recession in the UK.

The economists said: “Wage growth and core CPI inflation will only drop to rates consistent with the 2pc target if the Bank triggers a recession by raising rates from 5pc now to at least 5.25pc and keeps them at their peak until late-2024.”

CANADA

Rising grocer profit margins underscore need for competition, regulator finds

The Canadian Press
Tue, June 27, 2023


Canada's grocery sector needs more competition to help keep food prices down, give shoppers more choice and encourage new entrants, the country's competition watchdog says.

In a highly anticipated study released Tuesday, the Competition Bureau said concentration in the grocery industry has increased in recent years and the largest grocers have increased the amount they make on food sales.

Most Canadians buy groceries in stores owned by a handful of grocery giants, with Canada’s three largest grocers — Loblaws, Sobeys, and Metro — collectively reporting more than $100 billion in sales and $3.6 billion in profits last year, the study found.

Food gross margins have generally increased over the last five years by a "modest yet meaningful" amount of one or two percentage points, the Competition Bureau said.

"This longer-term trend predates the supply chain disruptions faced during the pandemic and the current inflationary period," it said.

That's roughly equivalent to $1 to $2 on each $100 that Canadians spend on groceries, the study found.

The regulator said this signals the need for more competition in Canada’s grocery industry.

"Canada needs solutions to help bring grocery prices in check," the study said. "More competition is a key part of the answer."

The competition watchdog proposed four recommendations to improve competition and lower prices, including an innovation strategy to support new grocery businesses and expand consumer choice.

It also recommends governments encourage the growth of independent grocers and the entry of international grocers into the Canadian market, standardize unit pricing to help Canadians easily compare prices, and curb real estate practices in the industry that limit competition, such as putting covenants on sold land that prevents any new grocer from operating there.

Gary Sands, senior vice-president of public policy with the Canadian Federation of Independent Grocers, said the study recognizes that more needs to be done to support independent grocers in Canada.

"They've drawn attention to some of the challenges that are faced by independent grocers," he said. "There are a lot of barriers to entry that make it hard to compete with the chains and this will hopefully lead to some changes."

Karl Littler, senior vice-president of public affairs with the Retail Council of Canada, said the study proves that major grocery chains have not made an excessive profit on food.

"We see this as another nail in the coffin of the greedflation hysteria," he said, referring to allegations that higher prices during the pandemic have been due to grocery chains engaged in price gouging and so-called greedflation — raising prices by more than the rate of inflation.

However, the Bureau said its inability to compel information as part of the study limited its access to some details and highlighted the need for more formal information-gathering powers.

It said it also needs to approach its work in the grocery industry with "heightened vigilance and scrutiny" to ensure Canadians benefit from greater choice and more affordable groceries.

"We need to thoroughly and quickly investigate allegations of wrongdoing, and we need the power to act when issues arise," the study said.

In a survey of consumer attitudes and opinions about the grocery sector, some Canadians said the country's laws don't go far enough to stop deals that are bad for competition, while others felt the Competition Bureau has just not done a good enough job enforcing those laws, the study said.

When the Competition Act was introduced in 1986, there were at least eight large grocery chains across Canada, the study said. Each was owned by a different company.

Today there are five large chains that operate in Canada: Loblaw, Sobeys, Metro, Costco and Walmart.

The competition watchdog committed to taking steps to better promote competition in the Canadian grocery industry, including providing a pro-competitive perspective to support the implementation of Canada’s grocery code of conduct.

It also committed to revisiting the findings of its study in three years to assess the progress on recommendations it has made to government.

The concentrated nature of Canada's grocery's sector has come under intense scrutiny in recent years.

The big three grocery chains have been embroiled in an alleged bread price-fixing scheme, which observers say has triggered distrust of the grocery industry.

The large grocers have also been accused of wage fixing after simultaneously scrapping pandemic bonuses for front-line workers.

It's behaviour the House of Commons industry committee likened to "cartel-like practices" in a June 2021 report.

Yet Canada's grocers have argued that consolidation increases efficiencies and provides consumers with more value, even as their profits have climbed.

The House of Commons agriculture committee has floated the idea of a windfall tax on those profits to "disincentivize excess hikes in their profit margins for these items."

Meanwhile, a grocery industry committee is continuing to hammer out a new code of conduct that would help level the playing field between large grocers, independents and suppliers.

Food prices have recorded a massive spike in Canada since November 2021 — the last month for which grocery inflation was under five per cent.

Since then, grocery prices have consistently risen by close to double digits, peaking at an 11.4 per cent year-over-year price hike last September and again in November before easing somewhat in recent months.

Statistics Canada said Tuesday grocery prices rose nine per cent year over year in May.

This report by The Canadian Press was first published June 27, 2023.

Companies in this story: (TSX:L, TSX:EMP.A, TSX:MRU)

Brett Bundale, The Canadian Press

How much profit are UK supermarkets making amid the cost crisis?

Henry Saker-Clark, PA Deputy Business Editor
Tue, 27 June 2023 

Bosses at UK supermarkets have denied they are profiteering from customers who have witnessed soaring increases in their food bills.

Executives from Tesco, Sainsbury’s, Asda and Morrisons all defended their actions to MPs on Tuesday amid scrutiny over behaviour by firms in the sector.

The latest official figures showed that food inflation eased slightly last month but remained at a stubbornly high 18.4%.

The UK’s competition regulator is currently investigating how price increases and decreases in food and fuel have been passed onto consumers.

Here the PA news agency highlights how much profit the biggest supermarket chains have made and how it compares to previous years:

Tesco

The UK’s biggest supermarket chain saw its profits cut by more than half in its latest financial year.

Tesco – which employs more than 300,000 people – saw its profits drop to £1 billion in the year to February 2023, from £2.03 billion in the previous year.

Tesco pre-tax profits for the past five financial years (PA Graphics)

It came despite a 5.3% increase in its sales, excluding VAT and fuel, over the year.

The grocery giant blamed lower profits for the year on lower sales volumes, investment in the business and steep cost rises.

Tesco saw its profits slide following the impact of the Covid-19 as it swallowed higher costs related to the pandemic and opted to hand business rates tax relief back to the Government.

Sainsbury’s

The second largest supermarket group, which also owns Argos, reported its own drop in profits last year.

In April, Sainsbury’s revealed that statutory profits tumbled by more than half to £327 million, while underlying profits were also 5% lower year-on-year.

Sainsbury’s pre-tax profits for the past five years (PA Graphics)

It said this was partly driven by a £560 million investment into lower pricing to keep shoppers coming into its stores.

On Tuesday, the retailer’s food commercial director Rhian Bartlett that it has increased the price of products on shelves “behind input cost inflation”.

Asda

Asda followed the pattern seen by most of its rivals of reported a fall in profits.

The privately-owned business, which was bought by the billionaire Issa brothers and private equity backers TDR Capital in 2021, recorded lower profits last year due to the impact of higher cost inflation.

The firm said adjusted earnings – Asda’s preferred measure of profitability – declined by almost a quarter to £886 million in 2022.

It also saw sales tip marginally higher for the year, as it was boosted by price cuts later in the year to attract more shoppers.

Morrisons

Fellow private equity-owned supermarket chain Morrisons also recorded a decline in earnings for the past financial year.

David Potts, CEO of Morrisons, appearing before the Business and Trade Committee (House of Commons/UK Parliament/PA)

The group, which was bought by private equity giant Clayton, Dubilier & Rice (CD&R) in 2021, revealed that adjusted earnings fell by 15% to £828 million over the year to October 30, from £975 million in the previous year.

On Tuesday, Morrisons chief executive David Potts denied claims that it was profiteering from price inflation and stressed that it would be quick to pass cost reductions on to its customers.

Aldi/Lidl

Numerous UK supermarket chains have said their profits have been lower as they have chosen to direct funds into keeping prices lower, at the expense of profitability.

This largely taken place in an effort to stop customers from fleeing to German discount rivals Aldi and Lidl, who have taken more market share over the past year as shoppers have looked to reduce the cost of their weekly shops.

Aldi has yet to reveal its profit data for last year, with its most recent figures showing that pre-tax profits slid to £35.7 million in 2021, from £264.8 million in 2020, blaming a jump in costs.

Similarly, Lidl has not yet revealed profits for the past year but recorded a pre-tax profit of £41.4 million for the year to February 2022.

This represented a 319% increase in profits compared with the previous year after cost reductions across the business.

Supermarket bosses reject calls for price caps and deny ‘grotesque profiteering

Archie Mitchell
Tue, 27 June 2023 

Consumers have faced punishing increases in the cost of food in recent months (PA Wire)

Supermarket bosses have rejected calls for price caps on products and denied claims of “grotesque profiteering” during a grilling by MPs.

Executives from four of Britain’s biggest grocers were quizzed over rising prices and whether they are using inflation as an excuse to boost their profits.

They were also asked about the potential for price caps on some foods to help protect shoppers from spiralling costs.


But bosses from Tesco, Sainsbury’s, Asda and Morrisons mounted a staunch defence of the sector, insisting it remains “fiercely competitive”.

The representatives said they had not passed on all the costs of supply chain inflation to their customers, absorbing some of the shock in a hit to their own profits.

It comes as supermarkets are under increasing pressure to hand down savings on wholesale items to consumers, who have faced punishing food-price inflation in recent months.

Tesco commercial director Gordon Gafa was asked about a suggestion made by the general secretary of the Unite union, Sharon Graham, that supermarkets are guilty of a “grotesque display of profiteering” – a claim he rejected.

And he claimed that Tesco, the UK’s largest grocer, is the “most competitive we have ever been”.

Mr Gafa told the business and trade committee: “Profits year on year for the group are down. We have sold more year on year and we have made less.”

Sainsbury’s food commercial director Rhian Bartlett said the supermarket has spent £560m to lower prices for customers. “In the most recent year we made lower profits, at £690m – input costs are not being fully passed through to our shelf prices,” she said.

Questioned on speculation about a price cap for certain food products, Ms Bartlett said: “This is fiercely competitive as a market.

“We’re generally considered one of the most competitive food markets in the world. I’m not sure what price caps would add to that process, other than bureaucracy.

“Where we’ve seen them applied in France and so on, it can have unintended consequences – of selling out and other prices moving up and down ... So I think this market self-regulates to a positive extent.”

On Wednesday, Jeremy Hunt will pile pressure on regulators to investigate whether firms are exploiting rampant inflation to bolster their profits.

The competition watchdog is already investigating the grocery sector amid “ongoing concerns about high prices” and is looking at whether increases are linked to “any failure in competition”.

Data from the BRC-NielsenIQ Shop Price Index suggests that retailers are beginning to pass on lower wholesale costs, with food inflation easing for a second month running as supermarkets cut the price of household staples.

The rate of food inflation decelerated to 14.6 per cent in June, a relatively significant drop from May’s 15.4 per cent and below the three-month average of 15.2 per cent. But costs remain high overall.

Fresh-food inflation saw a significant slowing from May’s 17.2 per cent to 15.7 per cent as shops dropped the prices of basics including milk, cheese and eggs.

The grocers were also challenged over petrol prices, with the suggestion that consumers did not feel the benefit of Rishi Sunak’s 5p fuel-duty cut last March when he was chancellor.

Morrisons boss David Potts said the supermarket passed on the cut “on the same day”, but said that customers may not have benefited because of “the volatility within the market”.

Tesco, Sainsbury’s and Asda all suggested that they would back a Northern Ireland-style system to allow customers to check fuel prices at every petrol station online.

Mr Potts said he would be happy to look at “anything that can benefit consumers”.

‘Greedflation’? The MPs missed the target when grilling the grocers

Nils Pratley
Tue, 27 June 2023 

Photograph: Steve Parsons/PA

If you have given yourself less than 90 minutes to investigate one of the hottest business and political issues of the hour – the charge of “greedflation” as it applies to supermarkets – it is usually a good idea to stick to the subject. Sadly, this was not the approach adopted by MPs on the business and trade select committee on Tuesday.

The supposed grilling of a crew of supermarket representatives turned into a tour of multiple horizons, including boardroom pay and workers’ collective bargaining rights, which, though fascinating subjects, are only tangentially connected to the rising price of essential stuff.

The closest thing to a revelation was the admission by Morrisons’ David Potts, the only chief executive of the four-strong panel (why?), that there is “more profit at the retail end of fuel” these days. But that isn’t fresh news. It has been an open secret for at least a year that forecourt competition on petrol and diesel is less intense than it used to be (many point the finger at post-takeover changes at Asda). It is why the Competition and Markets Authority (CMA) has been taking a look – its final report is due next week.

But the next question will be whether the big supermarkets are less competitive on fuel because they are fighting harder on food via their various “Aldi price match” schemes and pledges. That will be their defence and it is worthy of consideration. If the transfer of competitive heat is real, many might regard the switch as legitimate and desirable during a cost of living crisis. Everyone must eat, but not everybody drives.

It would have been useful, then, to hear the supermarket representatives be pressed on the food v fuel margin trade-off in detail. It lies at the heart of this debate. The MPs, however, largely ignored such nuances.

In their absence, we got loose talk about “a cartel” and some apples-and-pears profit comparisons for Sainsbury’s, for instance, that ignored the role of exceptional charges in generating a supposedly enormous increase in returns from pre-pandemic levels. On a like-for-like underlying basis, the four-year increase was more like 15%. And, if food is the focus, one should also strip out the (probably increased) contribution from Argos. Such granular detail matters.

This committee session, then, would have been better timed after the CMA has opined on food and fuel prices. The competition regulator has the power to demand commercially sensitive price information of a sort that is never likely to be coughed up to MPs in a public forum. It is the only way to make definitive judgments about the true state of price tension in the market.

Until the CMA reports, the view here remains the same: yes, “greedinflation” is very likely to be contributing to inflation globally, as central banks and the International Monetary Fund belatedly suggest, but supermarkets are not the obvious candidates to put in the dock.

Tesco, the market leader, runs on profit margins of about 4% and Sainsbury’s does about 3%. That is in line with historical levels. Meanwhile, the lauded Aldi made a thin pre-tax profit of £36m on turnover of £13.6bn in its UK business in 2021, according to its last accounts at Companies House. The more obvious corporate culprits during the food inflation shock are the global agricultural giants who were unmentioned by the MPs.

Wait for the CMA. Its reports can’t fail to be more informative.

UK

Boots to close 300 shops despite strong quarterly sales

Sarah Butler
Tue, 27 June 2023

Photograph: Maureen McLean/REX/Shutterstock

Boots is to close 300 shops in the year ahead despite a 13.4% rise in quarterly turnover fuelled by high sales of sunscreen during the UK’s hot spell.

The high street chemist, which is owned by the US group Walgreens Boots Alliance, said it was “evolving the store estate” by shutting branches that were close to each other in order to direct staff to where they were needed and “focus investment more acutely in individual stores”.

Thousands of jobs will be affected, but it is understood Boots hopes there will be no redundancies with all staff offered redeployment to nearby shops.

The latest closures at the business, which has about 2,200 outlets, come on top of about 200 in recent years as it attempts to improve profitability amid rising costs and tough competition on the high street.

Sales have also shifted online, with trade via its website up more than 25% in the three months to the end of May to represent over 14% of sales.

Sales of own-label health and beauty products are also rising as households look for ways to save money. The Everyday essentials range did particularly well with 40% growth in the period, Boots own-brand suncare range, Soltan, rose 19% year on year.

The managing director of Boots in the UK and Ireland, Seb James, said: “It is particularly pleasing to see our owned brands proving popular, including an exceptional No7 performance. I would like to thank all of our team members for their hard work in delivering these results.”

Boots had a difficult time during the pandemic, when the number of visitors to its high street outlets slumped as a result of government restrictions.

Related: Boots boss more than doubles pay to £3.8m as chain triples profits

The group was able to keep its stores open because it was deemed an essential retailer, but its customers chose to buy online or rein in spending on items such as cosmetics and hair care given restrictions on socialising.

It bounced back in the year to 31 August, making a pre-tax profit of £137m across its three entities that file accounts at Companies House, up from £44.5m a year before. Sales rose by just under 10% to nearly £7.8bn.

Profits were partly helped by the closure of 44 underperforming stores during the year.

Walgreens abandoned a hoped-for £5bn sale of Britain’s biggest chemist a year ago, blaming global financial market conditions that meant potential buyers were struggling to borrow money to finance a deal.

Recent reports, however, have suggested that the Walgreens boss, Stefano Pessina, might be considering putting Boots back up for sale, potentially leading to the latest round of cost cutting.