The Week Ahead: Updates due from Barclays, Rolls-Royce, Reckitt Benckiser, Denelm and Albemarle

Antony Jenkins, chief executive of Barclays
Photo: VisualMedia

Antony Jenkins, chief executive of Barclays Photo: VisualMedia - Credit: Archant

BONUSES and culture at scandal-hit Barclays will be thrust into the spotlight once more this week when the bank delivers its annual profits and the long-awaited results of a strategic review, with Rolls-Royce and Reckitt Benckiser also among the major names due to report.

Barclays’ new chief executive Antony Jenkins will on Tuesday reveal his plans to repair the bank’s battered reputation and overhaul its culture and practices following a string of damaging scandals.

He is expected to warn of pay cuts and a swathe of job losses, having told the Banking Standards Commission last week he was “shredding” the legacy left by former boss Bob Diamond,- who quit after the bank’s £290million Libor rigging settlement last year.

Thousands of staff are reportedly facing the axe and the group’s investment banking business is likely to bear the brunt after a redundancy consultation process was launched last month.

Mr Jenkins has already waived his bonus for 2012, saying it was “only right that I bear an appropriate degree of accountability” after a “very difficult” year for the group.

But Barclays is set to reveal how much its wider bonus pool is for 2012 and what it will pay the 24,000 staff in its investment banking arm, around 9,000 of who are based in London.

Amid intense public and political pressure to rein in bonuses, the pot is likely to be sharply lower than the £2.2billion set aside for 2011, which included £1.5bn for Barclays Capital employees.

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Mr Jenkins has already assured that bonuses have been slashed to take account of its mounting mis-selling compensation bill and the Libor fixing affair.

Last week’s additional £1bn to cover mis-selling of payment protection insurance and interest rate swap products to small businesses resulted in another “material” cut to the bonus pot, he told the Banking Standards Commission.

Banking analyst Ian Gordon at Investec Securities said the plan to recoup some of the mis-selling provisions from the bonus pool was good news for investors and could mean the bank delivers a better-than-expected increase in profits.

Despite one of the worst years in the bank’s history, the City is pencilling in a decent rise in profits after its BarCap arm returned to form following a better year for markets.

Most analysts are predicting adjusted pre-tax profits of £7.18bn for 2012, up 28% on the £5.59bn reported in 2011.

More than half of this is expected to come from its investment banking division, with experts forecasting BarCap profits to rise to £4bn from £2.97bn in 2011.

But Mr Jenkins will have a difficult path to tread, balancing out the need to please investors, while also calming public anger.

He has already outlined plans for a new code of ethics, sending out a memo to its 140,000 staff worldwide last month instructing them to sign up or get out. Tuesday’s strategic review will go much further, with a likely overhaul of its investment banking division and widespread cost cutting.

And there are set to be more bumps along the way, with Barclays said to be facing yet more investigations, this time over allegations it lent Qatar money to invest in the bank in 2008 as part of an emergency cash call to avoid a Government bailout.

The probe, which emerged last week, comes as the terms of the bank’s fundraising at the height of the financial crisis are already being scrutinised by the Financial Services Authority (FSA) and the Serious Fraud Office.

Engine maker Rolls-Royce, which is being investigated over bribery allegations relating to its business dealings with overseas customers, will report another jump in profits when it publishes its 2012 results on Thursday.

The FTSE 100 engineering company is expected to deliver a 16% hike in underlying profits to £1.4billion, but the focus will be on the progress of veteran lawyer Lord Gold’s review into the company’s compliance procedures in the wake of the claims being investigated by the Serious Fraud Office (SFO).

Rolls disclosed in December that it was in talks with the SFO in relation to concerns about bribery and corruption in Indonesia and China and warned there was the potential for the prosecution of individuals and the company.

The company, which has major sites at Derby and Bristol and employs around 40,000 people in more than 50 countries, is expected to see underlying revenues jump to £12bn, from £11.3bn last year.

Contract successes have included a “significant” deal to power the US Navy’s upcoming fleet of new hovercraft and a record number of orders for its Trent XWB engine that will help reduce jet emissions by 16% and is due to come into service in 2014.

Jeremy Bragg, analyst at Citi, said recently that the group’s earnings should prove resilient as the civil aerospace business was predominantly based around long-term service agreements.

He also said that the “significant barriers to entry” in the market limited the threat of Chinese competition.

As well as strong demand from customers in emerging markets, it is benefiting from the strong growth of planemakers Boeing and Airbus who are lifting output after building up record backlogs of orders.

However, its defence aerospace division has seen a drop in orders as advanced nations see their military spending plans come under pressure.

A surge in winter cold and flu bugs should help profits at Nurofen maker Reckitt Benckiser edge up on Wednesday.

The City expects operating profits to rise to £2.5bn, up from £2.4bn the previous year, after it saw increasing demand for its products Lemsip and Strepsils.

The company behind products ranging from Durex condoms to cleaning product Dettol is also likely to have been buoyed by its fast growing emerging markets division in Latin America and Asia.

According to Panmure Gordon stockbrokers, Reckitt will deliver like-for-like sales growth of 4.2% for the year, which is much lower than the growth of 6.9% seen at rival Unilever due to the Flora owner’s higher skew to emerging markets.

With negative currency movements factored in, Panmure is looking for overall sales to be flat at around £9.5 billion.

But it is raising its forecasts for the current year due to the weakness of sterling against a number of currencies since the start of the year.

The loss of a patent on Reckitt’s heroin substitute drug Suboxone continues to linger as the company prepares for the threat of competition later this year.

The City will also be looking for further signs that a restructuring of the company, which is based in Slough, Berkshire, is starting to pay off.

The group recently merged the European and North American divisions due to slower consumer spending and at its last update in October the group said it was showing “encouraging early results”.

Out-of-town chain Dunelm is expected to post a 15% rise in half-year profits on Tuesday as it continues its march on the homewares market.

Dunelm, which started life as a Leicester curtain stall in 1979, has been one of the bright spots in a difficult retail market in recent years, taking on small and independent competitors with its expanding footprint.

In a trading update in January, chief executive Nick Wharton said the company was on track for half-year profits of up to £60 million, a rise of 15% on a year ago, with its “New Lower Prices” campaign failing to derail margins.

The first half results will be boosted by a strong first quarter when like-for-like sales were up 1.6%, helped by demand for its “Teddy Bear” textile range of blankets, cushions, rugs and mattress covers, which it launched in 2008.

Dan Homan, analyst at Citi, said Dunelm had grown faster than any of its large rivals, taking over two percentage points of market share in the period compared with 1% at John Lewis and market share losses at Argos.

He expects like-for-like sales growth to be further boosted by progress online and a move away from local advertising into the national press.

Mr Homan said: “This marks a step change in its targeted audience and signifies the confidence management has in the current store portfolio.

“By using its financial muscle to advertise nationally Dunelm will target more customers, and further customer acquisition is likely.”

First quarter total revenues rose 13.4% to £340.1million for the six months to December 29, after the group opened eight new superstores in the period. It also relocated a shop and reopened its Coventry store after a major fire in 2011.

There are currently 123 stores but the company has plans for 200 outlets over the medium term.

Pawnbroker Albemarle & Bond will update the City on the crucial Christmas period on Tuesday amid recent signs of a slowdown in the high street “gold rush”.

The group’s retail business is expected to have fared well over the festive months and investors will be keen to hear if its ranges of second-hand prestige watches continued to boost like-for-like retail sales at the group.

Albemarle saw full-year profits hit by a “sudden slowdown” in gold buying levels in the middle of last year, following a peak last March, as gold prices pulled back after three years of rapid growth.

But Michael O’Brien, analyst at Canaccord Genuity, said he anticipated a stronger retail performance than in recent years over its key Christmas period.

Reading-based Albemarle, which has 233 outlets including around 50 gold-buying pop-up stores, said more than half of the shops it has opened since 2009 have made an operating profit.

But the group, which also trades as Herbert Brown, has slowed its store opening programme in response to the drop in gold buying, having taken advantage of the so-called “gold rush” to double shop numbers over the past three years.

The group, which posts half-year results, will now look to open five stores in the current year.

It has benefited from increased demand in recent years as banks have tightened their lending criteria. Albemarle was founded in Bristol in 1983 and bought Leeds-based Herbert Brown in 2007.