The week to come in business

Sainsbury's and Vodafone will report results this week


The struggles of the UK’s major supermarkets will remain in focus next week when Sainsbury’s reports results alongside mobile phone giant Vodafone.

The new boss of Sainbury’s will give details of a wide-ranging strategic review alongside half-year results on Wednesday, having warned that the business is facing its most turbulent period in three decades amid a fierce price war.

Investors will want to know more about Mike Coupe’s plans for a fightback and whether they will have to shoulder the burden with a smaller dividend.

The supermarket is expected to post underlying pre-tax profits down 12.5% to £350m compared to a year ago, after it said last month that half-year like-for-like sales were down 2.1% with total revenues flat.

Mr Coupe, the chain’s former commercial director, took over at the grocer this summer following the departure of Justin King after a decade in charge.

This month, closely-watched data from Kantar Worldpanel showed quarterly sales fell 3.1% and its market share slipped to 16.1% from 16.7%.

It has responded to the loss of market share by lowering prices on thousands of food lines and has switched focus for its Brand Match comparisons to Asda, which began cutting prices a year ago and is the only one of the big four grocers to hold market share over the period.

Sainsbury’s has declined to reassure investors about the size of its dividend amid speculation that it will be cut to help pay for its plans.

Brokers at Exane BNP Paribas wonder if Sainsbury’s will be the first supermarket to launch a rights issue in order to secure extra funds.

Market watchers also think Mr Coupe may cut back new store openings and launch a wide-ranging cost cutting drive to raise cash.

Analysts at Shore Capital conclude the supermarket sector is currently a place for shoppers rather than investors.

They said: “For now, as we have argued with respect to Morrisons and Tesco too, the big British grocers remain off-limits for investors. Earnings visibility is very limited, downgrades are not yet over and we cannot be confident about dividend flows.”

Mobile phone giant Vodafone is expected to show steady progress when it reports half-year results on Tuesday as its battles to revive its European arm through a massive network upgrade.

The group is due to post a 12% fall in earnings to £5.8bn as it ploughs £19bn into its Project Spring plan, which will provide wider 4G coverage in Europe and 3G coverage in emerging markets.

It is being funded through Vodafone’s 130bn US dollar (£78bn) sale of its 45% stake in Verizon Wireless to joint venture partner, Verizon.

One of the biggest transactions in corporate history, it resulted in around £50bn in shares and cash being returned to shareholders.

The group has been growing strongly in emerging markets such as India, but its European arm is still weighed down by economic conditions, competition and regulator-imposed price changes.

Growing demand for 4G services has given a boost to Vodafone’s recovery hopes in Europe, as the firm has said these customers use roughly twice as much data as 3G customers.

It already has deals to stream services from Spotify, Netflix and Sky Sports and is reportedly close to unveiling another deal in the UK to offer access to Sky’s NowTV pay-as-you-go service, which includes television box sets and 13 entertainment channels such as Sky One and Sky Atlantic.

The company has now launched 4G in all its major European markets, as well as South Africa, Australia and New Zealand.

The mobile phone giant said earlier in the year its performance in several key European markets, including UK and Germany, was showing signs of stabilisation.

Brokers at Citi agree, adding that they expect group service revenues to decline 2.8% in the second quarter compared to a 4.2% fall in the first three months of its financial year.

By contrast the Indian market in the first quarter increased 125% year-on-year and at the end of the year Vodafone had 52 million data customers in India alone, with seven million being 3G data customers.

The group forecasts full-year earnings of between £11.4bn to £11.9bn.

Vodafone is this year celebrating 30 years since it was first launched as a “portable and mobile public telecommunications service” - marking the start of the mobile phone revolution in Britain.

Now one of the biggest companies in the world, it was originally part of the Racal Electronics Group, which announced the name of its new venture on March 22 1984, after winning a bid for the private sector UK cellular licence.

Regional airline Flybe should show further progress with its turnaround on Wednesday after posting its first annual profit in four years in the summer.

The Exeter-based firm, which is due to post half-year results, is expected to build on full-year pre-tax profits that swung to £8.1m, compared with a £41.1m loss a year ago.

The upturn in profits is the result of restructuring by chief executive Saad Hammad, having cut 1,100 jobs and reduced its number of regional bases to seven from 13.

Mr Hammad said the return to profit represented the “rebirth of Flybe”, which serves 35 UK airports and now has bases in Belfast, Birmingham, Edinburgh, Exeter, Glasgow, Manchester and Southampton.

Last month it launched new routes from London City Airport to Dublin, Belfast, Exeter, Aberdeen, Glasgow and Edinburgh and plans to carry around 500,000 passengers on routes that operate up to four times a day.

In the first quarter of the new financial year the carrier said its load factor jumped to 75.8% in the three months to June 30, up from 66.5% a year ago as it benefited from fare promotions and more profitable routes.

It is on track to achieve £24m of planned cost savings in this current financial year, taking the total for its turnaround plan to £71m.

The company also unveiled a major brand refresh in April when it showed off aircraft in a new purple livery.

Brokers at HSBC said: “The pace at which Flybe is restructuring impresses us.”

Mr Hammad, who joined the carrier last August from easyJet, began the turnaround after it hit trouble following a fall in air passenger numbers in the wake of the financial crisis.

HSBC forecasts annual pre-tax profit will fall 21% to £6.4m in 2015, as the airline continues to cut capacity before adding more profitable routes in following years.


David Whetstone
Culture Editor
Graeme Whitfield
Business Editor
Mark Douglas
Newcastle United Editor
Stuart Rayner
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