The Week Ahead: Updates due from Barclays, Lloyd, Centrica, BT, ITV and BSkyB

A BUSY week for results will see two of Britain’s under-pressure banks post figures, while British Gas owner Centrica will also be in the spotlight.

Banking giant Barclays, which presents its half-year results on Friday, has endured one of the most turbulent periods in its history after it was fined �290million by UK and US regulators for manipulating Libor, an interbank lending rate that affects mortgages and loans.

The affair led to the departure of chief executive Bob Diamond, triggered a fierce debate in Westminster over banking ethics and has spawned several closely-watched hearings before the Treasury Select Committee.

Marcus Agius, who will also resign once a successor for Mr Diamond is found, will present the group’s interim results in his temporary role as executive chairman.

He will hope the figures, which are forecast to show a 10% rise in underlying profits, to �4.1 billion, will go some way towards appeasing investors, who have seen the share price plunge 20% since the scandal broke.

The higher profits, which will be driven by a stronger performance from its investment arm Barclays Capital, could ease concerns held by credit ratings agencies Moody’s and Standard & Poor’s, which both placed Barclays on negative outlook.

The robust results may also address fears over the bank’s weak record on return on equity, a major issue for shareholders at its annual meeting.

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Some analysts are backing the bank, with Ian Gordon at Investec Securities calling Barclays his “top pick for the UK banks sector” and recommending investors buy in at its lowered price.

Mr Gordon said: “Such expectations are underpinned by a strong, defensively positioned, retail and commercial business franchise, coupled with a BarCap business still capable of outperforming peers and, in the shorter-term, posting a resilient performance in the second quarter and beyond, notwithstanding deteriorating market conditions.”

It is unclear exactly what the bank will be able to reveal in its update but the City will be looking for any details on the cost of the Libor scandal, including loss of customers, compensation payouts and investigation costs.

The bank, which employs around 60,000 staff in the UK, will also be pressed to provide details of the compensation bill for interest-rate swap mis-selling, another scandal which emerged around the same time as the Libor claims but has been largely overshadowed.

Interest rate swaps are complicated derivatives products that may have been sold as protection - or to act as a hedge - against a rise in interest rates without the customer fully grasping the downside risks.

Barclays is one of four banks which agreed to compensate customers where the mis-selling of interest rate swap arrangements has occurred.

The bank has already paid out �1.3 billion in compensation over payment protection insurance mis-selling and there is no guarantee that this charge may not increase further.

Other issues on the busy agenda on Friday will be the crisis on the board, which is without a chief executive and a chief operating officer after the Libor affair also claimed the scalp of Jerry del Missier. Mr Agius will be under pressure to find replacements soon as the lack of leadership threatens to undermine the bank’s stability.

Taxpayer-backed Lloyds Banking Group, which unveils its half-year results on Thursday, reached a major milestone last week when it finally agreed the sale of 632 branches to the Co-operative Group for up to �750 million.

While the 40% state-owned bank admitted it would make a loss on the sale, some commentators said the deal was a crucial step in Lloyds’ recovery.

With the so-called Project Verde disposal sealed, subject to regulatory and Government approval, focus will now return to Lloyds’ financial performance and turnaround plan.

Lloyds may face questions about its involvement in the Libor-fixing scandal, which has so far been heavily focused on Barclays, the only bank so far to be fined for manipulating the key interbank lending rate.

Lloyds has previously admitted to “assisting the regulators” with their Libor investigations but would not comment further.

If the Financial Services Authority uncovers evidence of rate-rigging, the bank could face a multi-million pound fine, possible compensation claims and reputational damage.

After the Co-op agreement was unveiled on Thursday, Ian Gordon, analyst at Investec, said: “Lloyds is finally getting there.”

Chief executive Antonio Horta-Osorio has previously warned the bank faces a tough 2012, with income-related targets set to be delayed as a result of the weaker-than expected economic outlook.

But despite the difficult climate the bank is set to reveal broadly flat underlying pre-tax profits of �1 billion for the first six months of the year.

The bank revealed a brighter underlying picture in its first quarter update. Despite a 9% slide in bottom-line profits in the period, Lloyds also showed a significant cut to its bad debts, lower eurozone exposure and higher underlying profits in its core businesses.

The City will be looking for further progress with Mr Horta-Osorio’s strategic review, which includes thousands of job losses and plans to sell off large parts of its international operations.

The bank came under pressure at its annual meeting from shareholders frustrated by the weak share price, which at 30.2p is less than half the 63p price tag paid by the Government for its stake in the throes of the financial crisis.

Lloyds may also reveal the size of its compensation bill for interest-rate swap mis-selling, although it previously said the costs would not be “material”.

Earlier in the year, the bank was reportedly looking to sell off a �1.2 billion portfolio of loans taken on as part of its disastrous merger with HBOS in 2008.

The lender is understood to have hired the investment banking arm of Barclays to oversee an auction of about 50 debt positions, including the bank’s exposure to companies including housebuilders Crest Nicholson and McCarthy & Stone.

Profits at Centrica’s British Gas residential arm are set to rise by a quarter on Thursday as it benefits from higher prices and the miserable weather.

British Gas dropped its standard electricity price by 5% in January but prices were still higher than a year ago after a 16% rise in August when gas bills also went up, by 18%.

And the chilly start to the summer is likely to have prompted people to crank up their central heating, boosting volumes for UK’s biggest energy supplier.

The City expects the British Gas residential energy supply arm to report a 26% rise in profits to �352 million for the first six months of 2012.

The figures will benefit from weak comparatives with the previous year when unseasonably warm weather hit demand and it delayed passing on rising wholesale costs to customers, pushing the division to make a loss in its second quarter.

The City’s forecasts would mean that British Gas made an average pre-tax profit of �3.70 per household per month in the first half-year.

When Centrica last updated the market, in May, it warned its energy costs were continuing to rise, with wholesale gas prices 15% higher for the next winter and other costs set to add �50 to the cost of supplying the average household this year.

Although wholesale prices are understood to have reduced slightly in recent months they are unlikely to be passed on to consumers this year.

Tom Pering, an analyst at Inenco, said British Gas will have already bought much of its supplies for this winter in advance, so is unlikely to be in a position to take advantage of the recent easing in prices.

He said: “For the coming winter prices for consumers are unlikely to come down. And, unfortunately, there will be more bad news for consumers to come, with dwindling Continental Shelf reserves and increasing imports.”

The strong performance at British Gas Residential is set to help drive a 13% uplift in underlying earnings at Centrica to �763 million.

Its upstream division is expected to see a 25% rise in earnings to �662 million, helped by �1.2 billion of acquisitions, which increased its reserves by 38%.

Centrica claims to invest �1.80 for every �1 it has earned over the past five years, while higher upstream profits mean its tax bill could top �1 billion for the whole financial year.

A decent summer for ITV advertising income may come to an abrupt halt next month as viewers focus on the Olympics coverage on the BBC.

The sale of ad slots during Britain’s Got Talent and Euro 2012 helped revenues rise by around 6% and 17% in May and June respectively, but some forecasters suggest this will be followed by falls of up to 10% in July and August.

Analysts had previously hoped that the Games would trigger a “summer of love” across the advertising market, including for ITV, but the UK’s economic gloom has put paid to that, triggering a drop in the company’s shares in recent weeks.

The City will get an indication about ITV’s expected advertising revenues over the Olympics when it updates the market in half-year results on Thursday.

Paul Richards, an analyst at Numis, said every 1% movement in advertising revenues will wipe some �12 million from underlying earnings.

Meanwhile, the group is expected to report a strong performance for the first-half of 2012, when overall advertising revenues rose 3%.

The City expects pre-tax profits to rise 3% to �211 million, helped by an improved performance at its ITV Studios division, which is being revived with productions such as morning show Daybreak and Hell’s Kitchen in the US.

This is part of a turnaround strategy designed to make ITV less reliant on advertising revenues, which are volatile and dependent on the economy.

The importance of BSkyB’s new internet TV service will be highlighted on Thursday when the satellite broadcaster reveals another slowdown in sales.

Sky smashed its 10 million customer target at the end of 2010 but the worsening economy has slowed its growth, while its shares have not recovered after News Corporation dropped its takeover bid in the wake of the phone hacking scandal.

Last week the group launched pay-as-you-go internet TV service Now TV to help it compete with the likes of Netflix and LoveFilm, which are providing tough competition for its subscription service.

At a cost of �15 a month, Now TV will start by showing films but over the next 12 months it will add Sky’s sports and entertainment offer.

Sky hopes the service will allow it to reach the 13 million households that do not subscribe to its TV services.

The need for Sky to reach out to new markets will become increasingly clear as its results confirm a tough final quarter to the end of June.

Investec analyst Steve Liechti predicts that customer additions will continue to slow to 65,000 in the quarter, down from 78,000 in the previous quarter.

He thinks this will be driven by a slowdown in line rental, broadband and telephony packages as Sky comes up against aggressive competition from rivals.

But he thinks Sky, which recently paid �3 billion along with BT for rights to show Premier League football, will see underlying earnings rise 11% to �1.5 billion in the year to the end of June, helped by its drive to sell more products to existing customers.

BT will reveal more strong growth in broadband custom on Wednesday as it gears up for the launch of online TV service YouView.

The group has upped the rate at which it is installing superfast broadband and recently said it will be able to provide the service to two-thirds of the UK by 2014, a year earlier than planned.

This has helped it recruit more customers to its BT Infinity superfast broadband and BT Vision, its video and TV on demand service, which offers Sky Sports 1 and 2, trends which are expected to have continued in its final quarter.

Nomura analyst James Britton expects the group to say Infinity has added 145,000 customers in the three months to the end of June, up from 131,000 in the previous quarter.

He gave no forecast for Vision but BT hopes to accelerate its growth with the launch of internet connected Freeview box YouView, which is also backed by the BBC, ITV, Channel 4, TalkTalk and Lord Sugar.

The box is set to go on sale shortly for �299 but BT is expected to offer a subscription service where its users can spread the cost.

And BT recently took a major step in the evolution of its content when it splashed out �246 million per season for the rights to show some Premiership football, in a move that will see it go head-to-head with Sky.

The City expects the group to report a 1% rise in underlying earnings to �1.5 billion as the group continues to make cost savings to offset falls in phone revenues.

And analysts will be looking for more indications of cost savings to come after the group’s football spending spree.

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