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Sainsbury's and takeover target Home Retail Group to update on recent trading

Published 05/06/2016

Sainsbury's posts first quarter figures on Wednesday at a testing time for the chain
Sainsbury's posts first quarter figures on Wednesday at a testing time for the chain

Sainsbury's and its takeover target Home Retail Group will update on recent trading this week, while WPP shareholders will have their say on boss Sir Martin Sorrell's £70 million pay package.

Sainsbury's posts first quarter figures on Wednesday at a testing time for the chain as its £1.4 billion takeover of Home Retail Group faces scrutiny from the competition watchdog and amid signs that sales are flagging.

Boss Mike Coupe is expected to reveal that its recent move to scrap "buy one get one free" offers has dented trading after industry data revealed its worst sales performance for nearly a year.

Figures from Kantar Worldpanel revealed that Sainsbury's saw sales drop by 1.2% in the 12 weeks to May 22, pushing its market share down to 16.2% from 16.5% a year earlier .

It came after a change in promotional strategy at the chain, which has also ditched its brand-match guarantee in favour of overall lower prices.

Sainsbury's was outperformed by market leader Tesco, which saw its share rise after two years of declines, to 28.6% from 28.3% a year earlier, as it saw the smallest sales decline of the Big Four players, down 1%.

The disappointing Kantar figures followed less than a week after the Competition and Markets Authority (CMA) said it was looking into whether the tie-up with Argos owner Home Retail could result in a "substantial lessening of competition".

It will consider comments on the deal and decide whether to launch an inquiry by July 25 in a move that could jeopardise the Argos takeover.

Shore Capital experts said Mr Coupe has a task ahead of him.

"Sainsbury's is a business that is a little in the doldrums at the moment, with management concentrating upon the day job but also preparing to the best of its efforts upon the potential acquisition of the Argos business, subject now to the consultation, analysis and pronouncements of the UK Competition and Markets Authority," they said.

They are expecting the first quarter update from Sainsbury's to reveal ongoing food price falls to offset a strong showing from non-food sales.

They are pencilling largely flat like-for-like sales, ranging from a fall of 0.5% to a gain of 0.5%.

It would come as a set back after the chain posted a 0.1% rise in the previous three months - its first quarterly like-for-like sales growth for more than two years.

Mr Coupe has been frank about the challenges facing the industry, saying on unveiling annual figures in May that there was little sign of an end to tough conditions.

The group reported a 13.8% fall in underlying pre-tax profits to £587 million for the year to March 12.

But on a bottom-line basis, it swung out of the red with pre-tax profits of £548 million against losses of £72 million the previous year, which had marked the company's first loss in a decade.

Takeover target Home Retail also reports back on recent trading and Sainsbury's will be watching Thursday's update closely for signs of an improvement at its under-pressure Argos chain.

Home Retail posted flat like-for-like sales for Argos over the year to February 27, after narrowing sales declines in the final eight weeks.

It has battled to boost Argos sales in recent years, launching efforts to revamp the retailer and give it a high-tech makeover.

But the sales improvement - to a decline of 1.1% in the fourth quarter from a 2.2% drop in the previous three months - showed signs that the overhaul might be bearing fruit.

Matthew Taylor, analyst at Numis Securities, is expecting similar sales trends to the fourth quarter update, when growth in mobile phones, furniture and sports was offset by a decline in video gaming, tablets, white goods and jewellery.

Home Retail has had an eventful past few months, selling off its DIY chain Homebase to Australian conglomerate Wesfarmers for £340 million in February and agreeing a £1.4 billion takeover by Sainsbury's just a month later.

If the Sainsbury's deal goes ahead, Home Retail group chief executive John Walden could cash in more than £5 million in cash and shares, according to the Home Retail annual report.

But it has not yet been announced if Mr Walden will continue in his role if the Sainsbury's takeover goes through as planned in the third quarter.

WPP boss Sir Martin Sorrell will face shareholders at the advertising giant's annual general meeting on Wednesday amid controversy over his mammoth £70 million pay deal.

The cash-and-shares award - which includes a £1.15 million base salary and £62.8 million in shares from a long-term incentive plan - makes him the best paid chief executive in the FTSE 100.

It has been branded "excessive" by shareholder lobby group Pirc, which said his bonuses and long-term share awards are "unacceptable".

Pirc has advised shareholders to vote against the group's remuneration report in protest at his pay.

Another influential advisory group, Glass Lewis, has also recommended shareholders vote down the report in protest.

It states: "We have noted our concerns with certain aspects of the company's remuneration structure. The remuneration levels of the chief executive appear to be extremely outsized relative to the company's UK and European peers.

"We are concerned that the level of pay being awarded on an ongoing basis represents an inappropriate cost to the company and shareholders."

The vote will be closely watched, coming amid a period of increasing tension between investors and boards over pay.

BP faced a humiliating shareholder rebellion over executive pay in April, when almost 60% of BP shareholders rejected the oil giant's remuneration report, which awarded boss Bob Dudley £13.8 million.

Sir Martin himself was embroiled in the so-called shareholder spring of 2012, which saw nearly 60% of WPP investors reject his £6.8 million pay packet.

Asked if he feared another rebellion ahead of this year's AGM, Sir Martin told the Press Association in April: "We have shareholder votes every year. It is what it is. Shareholders will decide. It's very democratic. We're always engaged with shareholders with anything and everything."

Sir Martin went on to defend his pay package, saying "if WPP does well, I do well".

It comes after WPP posted a 2.8% rise in full-year pre-tax profits to £1.49 billion.

The group has received support from some quarters, with advisory group Institutional Shareholder Services (ISS) backing his pay deal last month, saying shareholders should approve WPP's remuneration report.

ISS said: "The quantum of the realised awards, while exceptional, is the output of a scheme which was approved by the vast majority of shareholders in 2009, and reflects the company's strong performance over the previous five years."

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