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City seeks assurance from FTSE big hitters as recovery falters

The Independent: The Week Ahead: City seeks assurance from FTSE big hitters as recovery falters

“The Anglo-Dutch giant is expected to announce a fall in production for the first half of anything between 2 and 9 per cent”

Edited by Tim Webb

25 July 2004

Some of the leading lights of British corporate life will use the last week of July to get their interim reporting out before the City empties for August.

The UK’s largest banking, insurance, media, oil and pharmaceutical companies all feature. With their statements coming a week after the Footsie slumped to an eight-month low over concerns about the sustainability of the global economic recovery, the stock market needs to see stronger corporate earnings.

The media sector is starting to show faint signs of recovery as advertising finally picks up, although no one is jumping for joy just yet. Pearson, owner of the Financial Times, kicks off the media reporting on Monday. Analysts at Investec Securities expect the group to report that the newspaper has lost £6m in the first six months of the year, although other analysts put this figure closer to £10m. Compared with losses of £32m for last year, that counts as good news for the pink ‘un. Performance across its larger education business and its Penguin publishing business will be flat, but the group books most of its revenues in the second half, so these numbers are of limited value.

On Tuesday, analysts will quiz Reuters chief executive Tom Glocer about the progress of the group’s cost-cutting plan “Fast Forward”. Its Friday closing share price of 327p means the company is valued at almost three times its all-time low 18 months ago, but this week’s results won’t be spectacular, analysts believe. Williams de Broë says that the recent cautious tone from the company has offset market optimism that the group will beat expectations for the fifth quarter in a row as the company’s revenues are still declining significantly.

Merrill Lynch analysts expect Trinity Mirror to outline more ways of saving money (a recurrent theme in the media sector), principally by streamlining its printing operations and its supply chain management. It says this could result in another £10m of savings by the end of next year, although other analysts were more sceptical. Despite continued falling sales, it is expected to post £100m pre-tax profits on Thursday, up almost a quarter on the same period last year, but this is partly down to last year’s tabloid price war, which ate into revenues.

Shell, which is still being investigated on both sides of the Atlantic for misreporting its oil and gas reserves, will be under the spotlight again on Thursday. This time it is production, not reserves, that will be vexing the market. The Anglo-Dutch giant is expected to announce a fall in production for the first half of anything between 2 and 9 per cent when it reports. Chairman Jeroen van der Veer will be pressed to give more guidance over precisely how bad production will be this year. The company’s exploration portfolio is going through a dry patch, and it has missed out on the good hunting grounds in Angola, Azerbaijan and Russia, unlike its rival BP, which reports on Tuesday. Analysts expect it to post record results of between $4.3bn (£2.3bn) and $4.6bn thanks to high oil prices and record refining margins. But BP will face tough questions about how safe its Russian venture TNK is from the political intrigues that have almost bankrupted Yukos.

Lloyds TSB and HBOS will report almost £4bn of pre-tax profits for the first half between them on Tuesday and Wednesday respectively as Britain’s consumers show no sign of satisfying their appetite for credit. Analysts warn that the recent slowdown in borrowing, signalled by HBOS last month, is beginning to bite and will hit profits in the second half.

Housebuilder George Wimpey will show on Wednesday it is reaping the benefits of the continued resilience of the property market, aided by cheap home loans provided by the likes of HBOS. It lacks exposure to the slowing London market, and the US market remains strong.

Shareholders will be hoping there will be no more nasty surprises from GlaxoSmithKline, which has already warned that profits will fall during the first three quarters of 2004. It has been hit by increasing generic competition for its anti-depression blockbuster drugs Paxil and Wellbutrin. Analysts also expect it to set aside £170m when it reports on Tuesday to cover any litigation settlements being brought by patients.

On the economics front, it’s pretty quiet in the UK and Europe, other than various consumer confidence surveys which will be published this week. The Bank of England will also publish household borrowing figures for June on Thursday, which should officially show that debt has breached the £1 trillion mark for the first time. Stronger than expected figures will strengthen the Bank’s case for a rate rise next month, possibly by as much as 50 basis points.

CALENDAR

Tomorrow 26

UK: Results: (final) London Clubs, Vedanta Resources (interim) Aggregate Industries, i-documentsystems, Pearson, Eurotunnel, St Modwen Properties, Reckitt Benckiser, Royalblue Group, (first quarter)Daniel Stewart Securities, Pace Micro Technology Alterian.

Tuesday 27

UK: Results: (f) Games Workshop (i) Reuters, Alliance & Leicester, BAT, BP, Cookson, Genetix, GlaxoSmithKline, Novar, Provident Financial, Prudential, St James’s Place.

Wednesday 28

UK: Results: (f) Monsoon (i) BG, Bookham Technology, Croda International, Donino’s Pizza, Datamonitor, Electric Word, Elementis, Hanson, HBOS, George Wimpey, Isis Asset Management, Jardine Lloyd Thompson, RAB Capital, RAC, TDG, Unilever.

Thursday 29

UK: Results: (f) Hampton Trust, Jarvis (i) Abbey National, Alfred Mcalpine, Alliance Unichem, BT, Centrica, Flomerics, Imperial Chemical, Legal & General, National Express, Rio Tinto, Rolls-Royce, Royal Dutch/Shell, Shell Transport & Trading, Shire Pharmaceuticals, Trinity Mirror, United Business Media.

Friday 30

UK: Results: (f) Aston Villa, Betinternet.com, Carbo, Homestyle, Medical Marketing, Osmetech (i) ARC International, Exel, Flying Brands, Lloyds TSB, Telewest.

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