The Week Ahead: Figures due from BP, GlaxoSMithKline, TUI Travel and Ocado
- Credit: PA
IT Will be another big week for results as full year earnings from companies includiing oil giant BP and multinational drugs company GlaxoSmithKline are published.
The City is braced for a 34% fall in profits at BP in the final three months of the year after it landed the biggest fine in US history in settling claims over the Deepwater Horizon oil spill disaster.
Analysts predict fourth quarter underlying replacement cost profits will fall to 3.3billion US dollars (£2bn), from 4.99bn US dollars (£3.2bn) in the same period the previous year, well below third quarter profits which were 5.2bn US dollars (£3.3bn).
The group, which reports on Tuesday, agreed a 4.5bn US dollars (£2.8bn) settlement with the United States Department of Justice (DoJ) and the Securities and Exchange Commission (SEC) in November, which it will pay over six years.
But Jon Rigby, analyst at UBS, said this still left the last “big ticket item” of the civil claims relating to the oil rig accident in 2010, which killed 11 workers and spilled millions of barrels of oil into the Gulf of Mexico.
Keith Bowman, equity analyst at Hargreaves Lansdown, said the final settlement with the US Department of Justice in relation to its Gulf of Mexico spill continued to overshadow investment prospects.
He said while an end to the maintenance season should help production, asset sales, including the recently agreed 50% stake in its Russian joint venture TNK BP, were likely to continue the downward momentum at the oil group.
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BP is becoming a smaller company as it sells off large chunks of its business as part of its pledge to raise cash to pay the costs of the 2010 Deepwater Horizon disaster.
In November the group agreed to sell a range of North Sea oil fields to Taqa, the Abu Dhabi National Energy Company, in a 1.1bn US dollar (£687million) deal.
But BP insists is still a major investor in the North Sea, with plans to invest 10bn US dollars (£6.7bn) over the next five years in the region.
The City will also be interested in an update on the group’s North Africa future after the recent terrorist attack in Algeria.
Lucozade and Ribena owner GlaxoSmithKline is expected to end a troubled year on a more positive note when its reports full-year results on Wednesday.
Experts at UBS predict sales declines will ease in the final quarter of 2012, down 3% on the previous year to £6.8bn in a slight improvement after a 5% slump to £6.5bn in the third quarter, which was dragged down by government cut backs in Europe.
At its last update in October the drugs giant called on European governments to halt aggressive price cuts on medicines or suffer “unintended consequences”.
Glaxo’s results will come after rival AstraZeneca reported a 38% drop in pre-tax profits to 7.7bn US dollars (£4.9bn) for 2012 and said the loss of exclusivity on several brands would continue to hurt performance this year.
Glaxo, which also makes hot drink Horlicks, has already warned that austerity drives across Europe, which have seen medicine prices slashed by more than 7%, will impact the development of new drugs across the continent.
The group said at its last update that while it hoped better performances in emerging markets and Asia would see a return to sales growth in the fourth quarter, the worse-than-expected conditions in Europe will mean full year sales were likely to remain flat.
Experts predict full year sales will come in 3.5% lower compared with the previous year at £26.4bn and are pencilling in an 11% slump in full years profits to £7.6bn.
The group footed a £19bn fine last July after pleading guilty to mis-promoting two medicines by seeking to persuade doctors to prescribe anti-depressant drug Paxil for children, although it was not intended for under 18s.
The City will also be hoping for an update on a batch of drugs which it is hoping will get approval this year, including a medicine for patients with chronic obstructive pulmonary disease and a treatment for type two diabetes.
Tom Kemp, analyst at Panmure Gordon, said the group was entering a potentially “transformational year” in 2013.
He said it had a strong balance sheet and had “cleaned up” most of its liabilities
Thomson and First Choice parent company TUI Travel will report back on whether the package holiday comeback has continued when it updates investors on its first quarter on Thursday.
At its last update in December, the group said UK holidaymakers looking to escape to the sun after last year’s dismal summer also resulted in a surge in bookings for next summer, up 12%.
And its unique holidays, including Couples, Sensatori and SplashWorld, were already up 18% for summer 2013, accounting for 83% of bookings.
The group had an “outstanding” year last year with strong bookings for more profitable “unique” holidays, targeted at groups including couples and those looking for luxury all-inclusive resorts. It produced a record performance, with UK underlying annual earnings jumping 32% to £197m.
In the UK, TUI increased prices by 4% this winter and 3% for the summer, while it made £4m in savings over the year.
Alex Brignall, analyst at UBS, said the group’s recent performance had been strong, helped by improved cost control in the UK and a better mixture of products.
He said: “Booking trends have also accelerated in recent months, and the cautious approach of management was encouraging, given missed expectations in previous years.” He added that 2013 should see a significant fall in restructuring costs.
Online grocer Ocado is set to reveal another multi-million pound loss on Thursday after battling to compete with the major supermarkets last year.
The City expects the group to book a loss of between £2m and £3m after being hit with the cost of its second delivery centre in Dordon, Warwickshire and sales were dented by the Olympics and Diamond jubliee in its third quarter.
Investors will be wondering when the group is going to make a profit, after it suffered a £2.4m loss in 2011 as it struggled with capacity constraints at its Hatfield distribution centre.
But things have been looking up for the group since its banks extended its loan facilities in November. It landed retail vetern Sir Stuart Rose, who became chairman this month, and reported a 14.2% leap in sales to £91.6m over the six weeks to January 6, with a pre-Christmas rush of orders seeing revenues jump 17.1% in the final week before Christmas.
Andrew Wade, analyst at Numis, said he was encouraged by the appointment of Sir Stuart with his significant retail experience, across both food and general merchandise.
He said Ocado shares had been strong in recent weeks as investors recognised the recent “reacceleration” in sales momentum and looked to the potential growth as its new delivery centre opens at the end of its first quarter.
The group has vowed to tackle its ranges and marketing efforts when it managed to raise £35.8 million from the sales of new shares, and extended the terms of its £100m loan facilities with its banks through to 2015 in November.
It has added 9,000 new non-food ranges including Early Learning Centre toys, toiletries and kitchen ware.
The City will be watching closely to see if fund manager Hargreaves Lansdown has managed to attract increasing numbers of new customers to its investment supermarket when it reports its interim results on Wednesday.
In its first quarter, the group reported that a dearth of product and fund launches over the summer, combined with poor investment appetite among retail clients had taken its toll on net new business growth, which was down 19% on a year earlier.
The number of new customers on its active Vantage investment supermarket slowed to 7,000 in its first quarter from 8,000 a year earlier and Citi analyst Haley Tam said the market would respond negatively if new customer number growth failed to return to a faster pace.
But Citi still expects the fund manager to report a 27% rise in pre-tax profits to £90m, higher than the 21% underlying increase in the same period last year, with revenues expected to rise 21% year-on-year to £136.5m.
At its last update the group’s funds under management surged to a record £28.5 billion as stock market gains helped it weather a quiet summer for the industry and Citi expects the figure to reach £30.1bn in its half year.