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Burberry's full-year profits predicted to fall with slowdown in luxury sales

Published 15/05/2016

Burberry is expected to see full-year profits tumble on Wednesday
Burberry is expected to see full-year profits tumble on Wednesday

The City will count the cost of the global slowdown on luxury sales at Burberry, while Vodafone's competitive European markets will come under the spotlight at its annual results next week.

Fashion retailer Burberry is expected to see full-year profits tumble on Wednesday, as it battles with a slowdown in luxury sales sparked by China's economic woes.

The City forecasts the group - famous for its trench coats and check scarves - will post adjusted pre-tax profits down by 7.5% to £422 million as the brand has hit tougher times after enjoying years of growth from the mid-2000s.

Burberry revealed last month that its fourth-quarter sales tumbled by 5% amid lower spending by Chinese tourists in continental Europe and a collapse in the Hong Kong luxury market.

It cautioned that profits for the new financial year ending 2017 would be at the bottom end of forecasts, even with a £60 million currency boost taken into account.

The retailer makes around a third of its sales from the Asia Pacific region and has been hit hard as Chinese tourists have reined in their spending, particularly in Hong Kong - traditionally a prime shopping destination for Chinese consumers.

Embattled chief executive Christopher Bailey, who is also chief creative officer, said the group would continue to slash costs to help offset the difficult trading.

Mr Bailey hopes the efficiency drive and turnaround efforts may limit profit pressure over the year ahead and will provide an update on plans at the annual results.

Burberry raised hopes it was turning the corner earlier this year when it halted sales declines in the third quarter, with like-for-like trading remaining flat.

Cost savings also helped shore up half-year figures, with the group posting a 3% rise in underlying pre-tax profits to £153 million in the six months to September 30, which confounded market forecasts of a fall.

But the group's latest update in April revealed that Hong Kong trading remained grim, with sales down by more than 20% for the third quarter in a row.

The UK and Middle East also continued to be difficult in the final six months of the financial year.

Some analysts forecast that given its cost-savings programme the business will announce a share buyback programme of around £350 million.

But brokers at Barclays said: "Given the poor trading conditions we expect a relatively cautious approach."

Vodafone is expected to post broadly flat profits on Tuesday as the mobile operator bids to shore up its European sales in an increasingly competitive market.

The company said it expects the group to post full-year earnings down 1.7% to £11.7 billion, as strong growth in emerging markets is balanced against lagging European regions.

The landscape of the UK market remains unsettled after the European Commission this month blocked mobile operator Hutchison's proposed £10.3 billion takeover of O2, owned by Spanish rival Telefonica.

EU antitrust regulators argued that the deal would have meant higher prices and less choice for UK consumers.

A proposal by Hutchison to offload Telefonica's stake in a joint venture with Tesco and to offer network capacity to Tesco Mobile and Virgin Media in an effort to get the deal approved was rejected by the commission.

Analysts at Bank of America Merrill Lynch said: "This would have marginalised Vodafone more in our view and thus no deal could be regarded as a reprieve.

"This gives Vodafone more time to establish its own fixed broadband/TV product."

Vodafone sealed a deal with cable firm Liberty Global to merge their Dutch businesses in February.

The company said the joint venture would forge a stronger Dutch internet and mobile operator by bringing together Vodafone's mobile operation with Liberty Global's Ziggo broadband network.

The Dutch tie-up will see Vodafone making a cash payment of one billion euro (£772 million) to Liberty Global to "equalise ownership in the joint venture".

The announcement came after the two companies scrapped previous plans for asset swaps across Europe in September.

Vodafone had always dismissed talk of a full-blown merger, but first sparked rumours of a £100 billion deal when it said in June last year it had entered discussions regarding "a possible exchange of selected assets between the two companies".

Liberty Global is controlled by US cable tycoon John Malone, although it is focused on Europe.

Vodafone notched up its sixth consecutive quarter of revenue growth in February, lifted by a strong performance in the emerging markets.

It saw organic service revenue - a closely watched measure of sales - rise 1.4% to £9.2 billion in the three months to the end of December last year, beating the 1.2% rise in the previous quarter.

It was buoyed by "strong" service revenue growth in its India and South African businesses, which grew 2.3% and 7.2% respectively in the third quarter.

The Newbury-based company also saw a brightening picture across Europe, with service revenues continuing to recover, down 0.6% in the three months to the end of December last year, compared with a 1% drop in the previous quarter.

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