HELLO and welcome to the Business Week Ahead - a weekly briefing and analysis on events to watch out for across the next seven days.
The following events will take place next week:
February 25 - Finals: Bovis Homes, Bunzl, Domino’s Pizza, Pearson, Persimmon. Interims: Thorntons. Trading update: Associated British Foods; British Bankers’ Association’s high street banking report
February 26 - Finals: Croda, Goals Soccer Centres, GKN, Provident Financial, Robert Walters. Interims: Redrow. Trading update: Whitbread
February 27 - Finals: Carillion, Centrica (with strategy update), Interserve, Intu Properties (Capital Shopping Centres), ITV, Weir
Second estimate of Q4 GDP
February 28 - Post Business Magazine, free with the Liverpool Post. This week:
- Big Feature: focus on HMRC's new Real Time Information being introduced in April which is set to catch many small firms unawares
- Big Interview: Andrew Palmer and John Sutton of logistics giant Suttons
- Economic Development: Mathew Street Festival to be replaced - what are the implications for the visitor economy
- Small Business of the Week: AtPeak Resourcing, a specialist IT recruitment company
Finals: British American Tobacco, Capita, Direct Line, Howden Joinery, International Airlines Group (BA), LSL Property Services, National Express, Reed Elsevier, Royal Bank of Scotland
March 1 - Finals: Hammerson, Lloyds Banking Group, Rightmove, Taylor Wimpey, William Hill, WPP. Trading update: Stagecoach
Business Analysis
Mammoth energy firm profits will be in the spotlight again next week when British Gas parent Centrica unveils full year figures, while ITV also reports in a busy week for corporate results.
British Gas parent Centrica will stoke public anger over energy firm profits on Wednesday when it reveals robust results following a hike in bills.
Last year’s colder-than-normal weather is expected to provide a boost to the company, with the City predicting the group’s British Gas residential arm will deliver profits of £598 million, up from £544 million in 2011.
The results come amid mounting questions over the fairness of energy prices after British Gas hiked tariffs by 6% for around 8.5 million households at the end of last year.
Consumer Focus called for greater transparency between profits and prices earlier this month after utility giant EDF revealed a £1.7 billion earnings haul just two months after raising bills for 3.7 million British households.
The French-owned supplier said UK underlying profits leapt 7.5% in 2012, but insisted its gas and electricity residential arm remained loss-making, with the performance driven instead by the generation business.
Regulator Ofgem’s research has found average net margins for a typical standard dual fuel bill in the electricity and gas market is currently about £85, but it warned it will rise to about £115, based on an average annual bill of £1,420, over the next 12 months.
Centrica will argue on Wednesday that its British Gas division profit margin has not increased despite cost cutting, remaining at 5%.
The group is also planning to fight an expected backlash against its predicted double-digit profits rise by drawing attention to its tax bill.
Most analysts are forecasting a 15% rise in operating profits to £2.77 billion and the energy group is also expected to point out that its tax bill will rise from £891 million to about £1.1 billion.
The results will come after regulator Ofgem’s boss Alistair Buchanan warned of inevitable price rises as there is an energy supply crunch as ageing power plants close and the country is forced to import gas.
Centrica announced this month that it has pulled out of plans to build nuclear power stations in Britain with partner EDF.
The group is also set to formally appoint US retail boss Chris Weston to the helm at British Gas, replacing Phil Bentley, who is standing down after six years in the top job.
ITV’s Studios business, which makes ratings winners such as I’m a Celebrity and the latest historical drama Mr Selfridge, will help ITV report surging profits on Wednesday as its recovery plan remains firmly on track.
ITV has been enjoying a marked revival over the past two years, thanks to improvements in its production arm and a better outlook for advertising revenues.
It is three years into a five-year transformation programme being led by former Royal Mail and Football Association boss Adam Crozier.
The strategy helped the group deliver a 24% rise in profits to £398 million in 2011 and analysts at Numis predict a further double-digit rise in profits for last year, pencilling in a 16% increase to £460 million.
The latest robust figures are likely to fuel takeover rumours amid speculation that private equity firms are circling the group.
The takeover talk has sent shares in ITV soaring to their highest level in nearly six years as other merger and acquisition activity - including the takeover of Virgin Media by Liberty Global - reinforced beliefs that the broadcaster is ripe for a deal.
At its last trading update, the group eased fears of continued pressure on advertising revenues and Numis expects 2012 ad sales to be “broadly flat” despite the 6% fall in its third quarter as the Olympics and European Championships suppressed spending. It also said that anecdotal reports suggested the group had started the year well.
Direct Line Insurance Group will be in focus on Thursday when it delivers its first set of annual results since its stock market debut last year.
The company, which trades as Direct Line and Churchill, raised £787 million for former owner Royal Bank of Scotland when it starred in London’s biggest flotation of the year.
Shares were priced at 175p on their debut in October and have edged up to around 208p, although the stock peaked at 225p last month.
City experts predict Direct Line will post pre-tax profits of £279 million for 2012, despite challenging markets, particularly in motor insurance following a surge in claims levels in recent years. The group, which is also home to the Green Flag and Privilege brands, has more than 4 million personal motor policies and 4.3 million home insurance policies in force, equating to a market share of 19% in motor and 18% in home insurance.
In the first half of 2012, it reported a 7% rise in operating profits to £224.2 million, helped by “broadly stable” trends on premiums and signs of an improving claims environment.
The group has its headquarters in Bromley, south east London, and operations in the UK, Germany and Italy. Its cost savings have included the loss of 900 call centre and other roles, as well as the separate loss of 236 jobs, including in commercial underwriting.
Kevin Ryan, analyst at Investec, said: “The group’s core UK motor and home insurance markets where it is the market-leader, remain challenging.
“However, as claims and underwriting processes are re-engineered, steady improvement in profitability should emerge.
“The company is a broadly based personal lines insurer and this offers interesting strategic options.”
Nick Johnson, analyst at Numis, also said the government’s plans to clampdown on whiplash claims would provide a boost to the business.
RBS floated 30% of Direct Line in October and must sell a majority stake by the end of next year and divest of the entire company by the end of 2014 as part of conditions of its £45 billion bailout at the height of the financial crisis.
The battle to secure the survival of loss-making Spanish airline Iberia will dominate results from British Airways owner International Consolidated Airlines on Thursday.
The group, which has been battling Spanish unions as it attempts to cut costs and jobs, is expected to make an operating loss of 120 million euros (£104 million).
The figure, which excludes Iberia restructuring costs, compares with profits of 485 million euros (£419 million) a year earlier and comes as it also suffered from the impact of Superstorm Sandy, which grounded flights into and out of the US east coast.
Its Spanish airline has been hit by the European economic crisis, but its chief executive Rafael Sanchez-Lozano said the problems were “systemic and pre-date the country’s difficulties”.
The group, which was formed when BA merged with the Madrid-based carrier in 2011, will cut Iberia’s capacity by 15% and downsize its fleet by 25 aircraft as part of a restructuring that will cost 4,500 jobs.
James Hollins, an analyst at Investec, is backing IAG chief executive Willie Walsh to lead a turnaround of the airline.
He said: “While unions have initially rejected the level of staff and capacity cuts outlined, Willie Walsh and his team have wasted no time in progressing with the cuts required to make Iberia profitable.
“We remain firm supporters of the IAG management and strategy and we retain our ’buy’ recommendation.”
The Iberia woes have overshadowed better trading at BA, which made an operating profit of 13 million euros (£10.2 million) in the first six months of 2012.
BA achieved profits of 286 million euros (£247 million) over the first nine months of the year, although revenues growth for the last quarter was held back as the London Olympics reduced demand for business travel.
A number of new routes will help the coach division of National Express stay on track on Thursday when it reports full year figures.
The group said its coach business, which covers 1,000 destinations in the UK, should haven seen passenger volumes rise 4% in the year to December 31 after routes were added between Liverpool airport and Leeds, Liverpool and Newcastle and Ipswich and Heathrow.
But City experts believe full-year profits across the group will fall short of last year’s record haul and will drop 13% to £156 million.
Despite the expected decrease in profits, the group has been boosted in recent weeks by two significant rail contracts in Germany.
National Express, which runs the c2c service between London and Essex and buses in the West Midlands and Dundee areas, beat current incumbent Deutsche Bahn to win the pair of 15-year regional rail contracts, which cover the cities of Cologne and Bonn.
The deal is a rare reversal of the trend that has seen Deutsche Bahn’s Arriva division run services in Wales, as well as Chiltern Railways and CrossCountry.
It also marks another step in the recovery in fortunes for the rail arm of National Express, which was stripped of the East Coast mainline in 2009.
David Pitura, analyst at JP Morgan, said that National Express had pre-qualified for three further rail bids and he expected the market to increasingly focus on the opportunities available in Germany’s rail sector, which is twice the size of the UK market.
