The Week Ahead: Updates due from G4S, WPP, Hays and The Restaurant Group
THE boss of under-pressure security group G4S will be back in the spotlight this week at the start of another busy few days for corporate results.
The fallout from G4S’s bungled Olympics contract will dominate the agenda when the security firm reports interim results on Tuesday.
With G4S admitting in early July that it would not be able to provide its 10,400 contracted guards for London 2012, investors will be looking for confirmation of the financial, and reputational, impact after the company said it will lose up to �50 million on the �284 million contract.
The Government had to plug the gap with more than 18,000 military personnel and G4S chief executive Nick Buckles has been left fighting to save his career after agreeing with MPs that it had been a “humiliating shambles”.
Analysts at Panmure Gordon said the Olympics loss was expected to be listed as an exceptional item in the half-year results, but they predicted a possible hit to underlying earnings in the range of �2 million to �4 million.
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More importantly, the market will be looking for reassurance on G4S’s contract pipeline amid fears the Olympic contract has hurt its bidding prospects for outsourcing work,
UBS analysts said they believed G4S had dropped out of bids for government contracts as management attention was diverted to the Olympics contract.
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“We wonder if there has been any further fall-out in terms of bidding activity?,” they said.
There had also been fears the Government would be put off handing contracts to private sector firms, although construction and support services firm Carillion recently dismissed these concerns and said the public sector market was buoyant.
G4S, the largest employer on the London Stock Exchange with more than 650,000 staff worldwide, has two further appearances in front of MPs next month on its Olympics contract woes, which could add to pressure on the firm.
UBS is forecasting a hefty drop in pre-tax profits from �154 million to �96.4 million.
But G4S may offer some contract cheer after recent reports that it extended its deal to protect the British embassy in Afghanistan’s capital Kabul.
The deal is understood to be worth �72 million and will see G4S guard the high-risk embassy for a further two years.
Panmure analysts said the UK difficulties should not detract from G4S’s prospects elsewhere in the business.
“G4S remains an emerging markets growth story, with such markets accounting for 43% of our full year forecast,” they said.
Engineer Lamprell reports interims on Tuesday after a tumultuous first half which saw it issue three profit warnings in as many months.
The group, which is based in Dubai and specialises in constructing oil rigs and the vessels used in the installation of wind farms, has seen shares plunge 20% over the past month and by more than two thirds in the last year.
It said last month that it expects to post a pre-tax loss of 45 million US dollars (�28.5 million) due to costs from the delayed delivery of its turbine installers to Norwegian company Fred Olsen.
It is now on course for the first loss in the group’s stock market history, in the range of 12 million (�7.6 million) to 17 million US dollars (�10.8 million).
Chairman Jonathan Silver stepped down in June in the midst of the firm’s woes, but has since been replaced by John Kennedy - formerly executive vice-president of Halliburton and chairman of Wellstream.
Mr Kennedy joins at a fraught time for the firm, which is also making a plea to lenders for leniency on its banking agreements.
But some analysts are confident its lenders will be supportive and believe the London-based company will be able to turn itself around.
Andrew Whittock, analyst at Liberium Capital, said: “With the third profits warning now out of the way and management focused on delivery, we believe this update is likely to mark the bottom.”
Lamprell employs more than 12,000 people, with its main bases in the United Arab Emirates, with facilities also in Saudi Arabia and Kuwait.
Recruitment firm Hays is likely to lay bare the challenges in the UK jobs market when it reveals full-year figures on Thursday.
The group has reported increasingly poor numbers for its loss-making UK arm as the double dip recession takes its toll.
Hays, which employs around 7,600 staff in 31 countries, reported a �3 million half-year loss for the UK in February and said UK net fees fell by 5% in the third quarter, accelerating to a 9% fall in the fourth quarter to June 30.
Troubles in the banking market and City saw the private sector hit the worst, with fees down 14% in the fourth quarter.
Hays is slashing costs in the UK and Ireland to offset the fee pressure, cutting 10% of its staff in the division over the year to June 30.
But a resilient performance in its international arm is helping prop up figures, with like-for-like fees up 2% in the final quarter thanks to growth in Germany in its continental Europe division, as well as its Asia-Pacific region.
The robust international performance saw Hays offer some profits cheer in April, saying it would deliver operating profits at the top end of expectations for the year to June.
Analysts are expecting underlying earnings of �126 million against �114 million a year earlier.
But plans for a UK turnaround remain crucial, according to UBS analyst William Vanderpump.
He said: “UK profit improvement is key to the longer term investment case for Hays and we expect new management in the UK to outline initial thoughts and plans on a three to six month view.”
He added the outlook for the new year would also be keenly watched on Thursday, especially prospects for September and the post-summer return to work trends in the UK and Europe.
Car insurer Admiral is set to drive profits higher on Thursday as it continues to grow its share of the market, while the bodily injury claims that blighted last year’s results are expected to ease.
The group, which is the second largest insurer in the UK with 2.9 million customers, has been aggressively expanding in recent years after it put up prices by less than rivals to attract more customers.
Admiral’s profits for 2011 came in weaker than expected after the company, which owns of Elephant, Bell and the comparison website Confused.com ,was hit by a rising tide of bodily injury claims.
This forced it to price its premiums less competitively and slowed the rate at which it won new customers.
The group’s last update showed that UK new vehicle growth continued to slow in the three months to the end of March. But it also offered some encouragement, saying that claims trends were unchanged after easing in the final quarter of 2012.
Christopher Esson, an analyst at Credit Suisse, expects the group to report a 10% rise in pre-tax profits to �176 million in the first half of 2012. However, that would mark a slowdown on the previous year, when it reported a 27% hike.
And he expects the group to update the market on how proposed changes to legislation will impact its outlook.
Referral fees for passing on details to lawyers are due to be banned from April, while the Ministry of Justice has proposed that claimants rather than defendants should pay lawyers’ success fees in a move designed to curb litigious behaviour.
Global communications giant WPP will give its latest outlook on the advertising industry when it reports interims on Thursday.
The group put in a resilient performance in the last financial year, shrugging off the eurozone crisis and UK double dip recession to report record revenues of �10 billion and profits of �1 billion.
WPP said firms were prepared to invest in capacity and behind brands in fast growing markets, unlike at the height of the financial crisis when companies were focused on shedding costs.
Its most recent update suggests the positive momentum has continued into the new year, with like-for-like revenues up 4% in the first four months. The UK performance has been weaker, with growth of 1.7% in the first four months.
Analysts are expecting half-year revenues to have grown by 3.8% across the group.
Media buying agency Carat recently forecast a positive picture for the ad industry over the next two years, despite trimming estimates for global growth slightly from 6% to 5% for 2012 and from 5.8% to 5.3% for 2013.
It said Western Europe would see sluggish growth of 0.2% this year, but that the UK would be notably stronger with growth of 2.8% in 2012 and 2013.
North America and emerging markets are expected to remain key growth areas, according to Carat.
Aside from performance and prospects for the ad industry, WPP has come under scrutiny over its executive pay this year, having suffered one of the biggest ever pay revolts.
Nearly six out of 10 investor votes were made against WPP’s remuneration report at the group’s AGM in June amid anger over a �6.8 million package for boss Sir Martin Sorrell.
Sir Martin, who founded WPP in 1985 and has invested millions of pounds into the company, defended the deal as reflective of his performance.
WPP is one of the biggest marketing and communications firms in the world and owns dozens of companies including public relations firm Ogilvy, communications agency RLM Finsbury and market research firm Kantar Worldpanel.
The owner of Frankie & Benny’s restaurants is set to serve up another healthy increase in profits on Friday but analysts fear its strong growth rates will soon start to come under pressure.
The Restaurant Group, which owns 400 sites and also runs the Chiquito and Garfunkel’s brands, has seen its share price push close to its pre-recession peaks following a series of bullish updates.
With most of its restaurants in out-of-town retail parks and half near cinemas, the group has benefited from the demise of the high street and the enduring popularity of movies.
When it last updated the market, it reported a “significant uplift” in trading, with like-for-like sales up 4% and total sales ahead 8% in the first 19 weeks of its financial year.
And the group’s Garfunkel’s restaurants, which are all in London, have benefited because consumer demand has held up better in the capital than in many parts of the country.
Numis analyst Douglas Jack expects the group to unveil an 11% hike in pre-tax profits to �27.1 million in the 26 weeks to July 1.
But he warned sales growth may have slowed in recent weeks as it comes up against tough comparatives with the previous year.
There have also been signs that cinema audiences have been weaker in May and June amid a lack of blockbusters, a trend he fears will continue in 2013.
And there are further clouds on the horizon for the group in the form of rising food prices, which Mr Jack thinks the group will struggle to pass onto consumers.
He said the group had hiked drinks prices by 20% in recent years to maintain its margins but he does not think this trend can be sustained.