The Week Ahead: Updates due from Morrisons, Home Retail Group, Prudential, French Connection and G4S

The Morrisons store in Stowmarket

The Morrisons store in Stowmarket

SUPERMARKET chain Morrisons will deliver its full-year results in a big week for the retail sector, with figures from French Connection and Argos owner Home Retail Group also in the spotlight.

Morrisons reports its annual results on Thursday after a difficult past few months for the supermarket sector, which has been embroiled in Europe’s horsemeat scandal.

While the Bradford-based chain’s fresh meat sales have risen in the wake of the crisis, it has suffered on other fronts after losing market share to larger rivals.

It reported disappointing Christmas trading when like-for-like sales declined 2.5% in six weeks to December 30 and analysts at Investec are pencilling in underlying pre-tax earnings of £888million, down from £939m the previous year.

Investors will be hoping for signs that the Geordie duo Ant and Dec have helped Morrisons reverse sales declines after the chain enlisted the help of the presenters for a television advertising campaign hailing its in-house butchers and bakers.


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But the latest figures from market researcher Kantar Worldpanel suggest there has been little impact yet after Morrisons was the only retailer to post a sales decline, down 1.3% in the 12 weeks ending 17 February.

Dave McCarthy, analyst at Investec, said that Morrisons had lost momentum and was losing market share, despite its capital expenditure programme and its fresh format.

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He said: “The market remains very tough, with major structural problems.

“Within this, Morrisons faces difficult strategic decisions, as well as the challenge of kick-starting sales.”

The supermarket chain is fighting back against the might of larger rivals, which have outpaced the group with their online grocery offerings and large convenience store estate.

It recently swooped on 49 shops from failed DVD and games rental chain Blockbuster and seven from collapsed camera retailer Jessops, taking advantage of quick access to high street locations to expand its convenience store business.

And the City is expecting news on further progress towards a full online grocery service alongside annual results.

Catalogue chain Argos is set to deliver more sales cheer on Thursday as it continues to benefit from turnaround efforts and the demise of electrical chain Comet.

The City expects parent Home Retail Group to say Argos sales rose 2.1% in the eight weeks to March 2, although this will come as a slight slowdown on the 2.7% jump seen in the 18 weeks to January 5.

The trading update comes amid signs that confidence is returning on the high street, with upbeat figures from the British Retail Consortium (BRC) for February showing sales grew at their fastest rate in more than three years.

It is also expected to confirm further progress of the digital transformation at Argos, which has moved away from its traditional printed catalogue to screen-based ordering.

At its last update, the group said the internet now accounted for 42% of total revenues, while mobile sales leapt 125% as a result of its new tablet and smartphone apps and improved website.

However, Deutsche Bank analyst Warwick Okines added a note of caution.

He said: “Home still faces many challenges, and there will be few concrete developments to the transformation plan in spring/summer, except the new website that launched last year.”

But he said in the meantime the withdrawal of Comet should “offer a tailwind”.

Home Retail’s DIY brand Homebase is expected to remain under pressure and is forecast to report ongoing declines in sales, with the City pencilling in a 2.8% drop at the end of the year.

The BRC recently said DIY firms in particular had been hit by the January snow and recent freezing weather.

Fashion retailer French Connection will lay out further details of its turnaround plans on Wednesday as it reveals the scale of last year’s losses.

Analysts at Seymour Pierce are expecting the fashion chain to unveil a pre-tax loss of £7.8m as UK sales continued to decline.

The group has already warned losses would rise to between £7.5m and £8m in the year to the end of January after it saw UK like-for-like sales fall 2.9% in the 24 weeks to January 12.

French, which made a loss of £8.2 million in 2011, reported a half-year loss of £6.3 million in September.

But investors will be looking for signs of improvement after it vowed to overhaul ranges, sharpen prices and close loss-making stores following a review of its UK business.

An update on how a new range of premium womenswear, exclusive to its stores, will also be closely watched, while the City will be keen for news on how its homewares offering in larger stores is faring.

Kate Calvert, retail research analyst at Seymour Pierce, said in January: “There must now be question marks over the company’s strategy, which was unveiled in September. It now looks likely that it will be at least two years before results break-even.”

But she said she believed the business did have value, with brands including Toast and Great Plains.

Security firm G4S will be keen to put its difficult year behind it when it delivers full-year results on Wednesday.

Analysts at UBS are expecting pre-tax profits at the group to fall 24% to £194m after the group took a £7m hit on its bungled contract for the 2012 Games.

It has put its US government business up for sale after budget cuts and delays hit revenues in the division, which runs sensitive contracts such as fire protection and mine clearance services for US government departments such as Energy and Homeland Security, as well as international organisations like NATO.

But there has been better news for the group, which won a new British Airways contract this month to screen passengers and provide security at Heathrow and Gatwick over the next three years.

Gideon Adler, analyst at Investec, said: “G4S has faced a series of setbacks in the UK, with the mishandled Olympics contract followed by a failure to secure recent high profile prisons and police opportunities.

“However, we believe concerns over exclusion from government outsourcing are overdone and that the group is poised to benefit from a greater flow of programmes into 2013.”

It recently appointed ITV chief executive Adam Crozier and two other new directors to its board after the findings of a review into G4S’s Olympics Games contract included a recommendation that its board is strengthened with the appointment of at least two new non-executive directors.

The report by PwC found that monitoring and tracking of the security workforce was inadequate and that management failed to appreciate the scale and exact nature of the project.

G4S fulfilled 83% of contracted shifts at the Games, failing to provide all of the 10,400 contracted guards and forcing the Government to step in with military personnel.

Insurer Prudential is the last of the major life and pensions firms to report annual figures on Wednesday after a mixed results season so far for the sector.

Aviva and More Than parent RSA shocked the City with hefty cuts in their dividends after earnings fell, but Legal & General and Standard Life fared much better with sharp profit rises in 2012.

Prudential is also expected to emerge as a winner after a robust year for its burgeoning Asian arm, while its UK business also enjoyed a bounce back in the third quarter.

The City is expecting operating profits to rise by 15% to £2.3bn in 2012, with the outlook recently boosted after Asian competitor AIA - headed by former Pru boss Mark Tucker - reported an 89% hike in annual earnings to 3.02 billion US dollars (£2.6 billion).

Asia’s booming insurance market is being driven by the appetite of the middle classes for life insurance and other savings and protection products.

Pru, which was founded in London in 1848, reported a 13% rise in overall group operating profits to £1.2 billion in the first half as a 21% leap in Asian profits to £443m offset flat UK profits at £552m.

But even the UK, which has been hampered by low confidence among savers and difficult economic conditions, rebounded in the third quarter due to strong annuity sales and growing demand for with-profits investment bonds, which offer shelter from stock market volatility.

New business profits rose 56% in the three months to September and by 17% over the first nine months of the year, to £227m.

Part of this was down to a sales rush ahead of the so-called Retail Distribution Review (RDR), which came into effect on January 1 banning commission payments from product providers across the industry.

Pru said it had seen adviser sales increase before the RDR took effect and was expecting a drop off in investment bond demand in the fourth quarter and into 2013.

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