M&S to post impressive annual results

MARKS & Spencer's annual results and the start of the reportingseason for the UK's water companies will dominate the agenda forinvestors this week.

Marks & Spencer chief executive Marc Bolland will present theretailer's annual results for the first time tomorrow as the formerMorrisons boss starts to make his mark on the firm he joined in May2010.

The high-street bellwether, which runs 600 stores in the UK and300 overseas, is expected to reveal an 8% rise in profits topound(s)710 million in the year to the end of March.

Analysts say the retailer has put in a resilient performance overthe year, despite tough trading conditions that have squeezed manyother high street operators.

M&S, which sees 21 million customers pass through its doors everyweek and has 11% of the clothing market, was badly hit by therecession when its mid-market positioning left it exposed toconsumers' flight to value.

Under former executive chairman Sir Stuart Rose the chain beganthe fightback by improving its offer through various initiatives,such as its Dine In For pound(s)10 promotion.

In recent trading M&S has surprised the market with itsresilience, most recently by revealing 0.1% growth in like-for-likesales in the 13 weeks to April 2. City analysts had expected adecline of around 2.5%.

Dutchman Mr Bolland has already outlined ambitious plans tocontinue the chain's growth. These include an increase in the rateof overseas expansion, making cost savings in its supply chain and arevamp of its various labels to create 'proper brands'.

He also recently announced the chain's return to France, withplans to open a store in Paris and several smaller Simply Foodstores in the surrounding area.

Under his tenure, its advertising campaign has been relaunchedfeaturing celebrities Dannii Minogue, Jamie Redknapp and Twiggy.

Gillian Hilditch, an analyst at JP Morgan Cazenove, believes thatM&S has been outperforming its competitors and predicted this trendwill continue.

She said: "It now seems that M&S is pursuing a very competitivepricing strategy funded by its self-help on gross margin and standsto gain market share as a consequence.

"Market share growth in food has been consistently positivedespite a weakening macro picture and an increase in food inflation.

"In general merchandise the investment in product and internetseems to be paying off with a strong degree of out-performanceversus both the market generally and its main peer Next."

An "unprecedented" period for burst pipes following the UK'srecent big freeze means leakage rates at the major water companieswill be under increased scrutiny during the sector's results seasonover the next fortnight.

Regulator Ofwat has the power to fine firms that fail to meetleakage targets, with potential penalties up to 10% of theirturnover.

Last year, six companies failed to meet their targets and werethe subject of increased reporting requirements while they improvedtheir performance.

United Utilities, which posts figures on Thursday, has met itstarget in each of the last four years but admitted recently thatwinter weather conditions made meeting the requirement for 2010/11"extremely challenging".

Between Christmas and New Year, it received 40,000 callsreporting problems - 10 times the usual level - in an"unprecedented" period for the firm.

The sector's leakage performance will carry even moresignificance this year as a prolonged dry spell in some parts of thecountry has raised the prospect that households may face water usagerestrictions.

The annual results are also the first since the regulator imposednew price controls on the sector covering the five years to 2015.

Price cuts were imposed on a number of the water companies andthis will be reflected in the figures published over the next fewdays.

However, shares in the sector have still risen as investorsanticipate the positive impact of higher-than-expected inflation,which has meant that this year's bills will reflect November's RPIfigure of 4.7%.

Companies have also benefited from an improvement in waterconsumption due to the economic recovery and as dry conditions boostdemand.

United, which owns North West Water, described its settlementwith Ofwat as "tough" after being hit with a 4.3% decrease in pricesin real terms. Deutsche Bank estimates that profits from thecompany's water business will drop as a result to pound(s)588million, from pound(s)701m a year earlier.

But the Warrington-based group has claimed it is well positionedfor the five-year regulatory period after embarking on a cost-cutting drive and winning union backing for changes to its pensionscheme which reduce the deficit and also future funding costs.