Supermarket Morrisons set for profits slide

Supermarket Morrisons and embattled security giant G4S will lay bare the impact of a tough year for both firms when they report annual results this week

Morrisons supermarket
Morrisons supermarket

Supermarket Morrisons and embattled security giant G4S will lay bare the impact of a tough year for both firms when they report annual results this week.

Morrisons will reveal a slide in profits on Thursday after a dismal year for the supermarket as it faces up to the threat of a full-scale price war among the “big four” players.

The Bradford-based chain warned over profits after a hefty 5.6% drop in underlying sales over the key Christmas period – a performance described as “quite awful” by one retail expert.

It admitted its festive sales were “disappointing” but joined rivals in blaming tough market conditions.

Larger rivals Tesco and Asda are now leading an aggressive price cutting programme to tempt in cost-conscious shoppers and halt the exodus of customers to the likes of discount chains Aldi and Lidl.

Tesco unveiled plans for £200m of price cuts last week and said it would open 150 convenience stores a year under plans to halt falling UK sales.

Asda is also launching a fightback after seeing sales flat-line, recently pledging to spend £200m on price cuts and £750m in store revamps and new openings this year.

There are fears that profit margins which are already under pressure at Morrisons could be hit further if it tries to compete in a price war.

Analysts at Deutsche Bank are forecasting a 13% slump in underlying annual pre-tax profits to £787m after Morrisons warned results would come in towards the bottom end of a £783m and £853m range.

But there are some positives for the group, with its recent launch of a long-awaited online grocery service while it is also rapidly expanding its convenience store network.

It will no doubt be pressed on early take-up of the online service, launched on January 10 in conjunction with Ocado, which has signed a 25-year deal to handle technology and operations, including delivering groceries through a Morrisons-liveried fleet.

Morrisons has also been in sharp focus recently amid reports the founding family behind the chain has sounded out private equity funds to assess their interest in taking the supermarket private.

It is believed the family, which still holds around 9.5% of the group, has contacted CVC Capital Partners and Carlyle Group, but that a buyout partner was proving elusive due to concerns about Morrisons’s sales growth and the size of the deal.

Scandal-hit security giant G4S will no doubt be hoping to draw a line under a dire past two years when it reports annual figures on Wednesday following a string of damaging blunders.

It was left reeling after it emerged that, together with rival Serco, it had overcharged the Ministry of Justice for electronically monitoring offenders, some of whom were found to be dead, back in prison or overseas.

The Government has since announced that the tagging contract will be handed to outsourcing competitor Capita at the end of the financial year, while G4S recently agreed to repay the Ministry of Justice £24.1m for the billing errors and has forked out £2m for investigation costs.

The crisis erupted after G4S had barely had time to recover from the Olympics fiasco, when it failed to provide all of its 10,400 contracted guards in an embarrassing blow to the group.

Pre-tax profits dived by 32% to £175 million in 2012 after the Olympics hit. Results for 2013 are expected to reveal another sharp decline, with analysts at Exane BNP Paribas pencilling in a 13% drop in underlying earnings to £450m.

But new boss Ashley Almanza – who took over from former chief executive Nick Buckles in June after his predecessor came under fire for the botched handling of its Olympic Games contract – has outlined a major shake-up he hopes will get the group back on track.

Steve Woolf, analyst at Numis Securities, said: “G4S has endured a torrid 18 to 24 months, and we look for this set of full-year results to bring this period to an end as the company begins its path back to growth. The long-term opportunities remain in place, but in the short-term the key lies with rebuilding the reputation and standing with key customers.”

Mr Almanza pledged in November last year to sell off or shake up 35 underperforming business units, while also cutting between 250 and 400 roles within the group’s 45,000-strong UK workforce, although some of these will be redeployed.

The latest changes come on top of a £30m to £35m cost-cutting plan.

The group aims to raise funds from the divisions sold to slash debts and fund expansion in lucrative emerging markets, which contribute more than 40% of group profit.

It said in November that growth was strong in emerging markets, running at more than 14%, but the City will be keen to hear if this has been sustained given the recent turmoil in these regions.

Fellow embattled group Serco has recently enjoyed a shares revival after hiring respected FTSE 100 boss Rupert Soames from Aggreko to lead its turnaround.

But it admitted earlier this month it was battling a “material loss of momentum” after the scandal over its criminal tagging contract left annual profits 62% lower.

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