The business week: 14 - 18 May

By This Is Money
Updated: 05:48 EDT, 14 May 2007

The increasingly competitive trading conditions faced by British Airways and BT will be in focus when the pair report results this week.

Monday

INTERIMS Chrysalis, Diploma, Hardide, Inmarsat (Q1), RM Group, Southern Cross Healthcare, Yamana Gold (Q1)
PRELIMINARY RESULTS DCC, Robert Wiseman Dairies
AGMS BG Group, Burst Media Corporation, Centrica, DRS Data & Research Services, Gresham House, Interserve, TDG
TRADING STATEMENTS Centrica
ECONOMICS UK CBI SME trends survey, UK April PPI, UK March government house price data

Tuesday

The average profitability of pubs owned by Enterprise Inns should show improvement on Tuesday after the FTSE 100 Index group - one of the largest tenanted and leased pub firms in the UK - sold some of its estate.

The disposals included all of the company's pubs in Scotland - 137 for £115m - following a deal with property tycoon Robert Tchenguiz.

Average pub profitability increased 4.3% last year but that rate may double in 2007 as a result of some weaker-performing pubs leaving the estate and the impact of higher rents, which have increased in line with RPI inflation.

The improved quality of the 7,000-strong pub business raises hopes that Enterprise and its licensees are prepared for the English smoking ban, due to come into force in July following its introduction elsewhere in the UK.

Despite the improvement in pub returns, overall half-year profits are forecast to fall 3% to £148m, according to Panmure Gordon stockbrokers. That is because of share buybacks and the one-off impact of the pub disposals.

As well as its readiness for the smoking ban, investors will want to know the group's position on Real Estate Investment Trust (REIT) status. Since the introduction of REITs in January, a swathe of firms have come under pressure from shareholders to spin off their property holdings into the new listed entities in a bid to unlock potential value.

The pub sector has been watched closely over its plans for property, given that many groups own sizeable estates. Punch Taverns played down a REITs move earlier this month, while Panmure Gordon expects Enterprise to make a similar statement - but stop short of ruling out a switch completely.

With talks ongoing over the future of VT Group's shipbuilding operation, attention has been diverted from the continued strong performance of the company's core business, involving support services in the fields of defence, communications and education and skills. This accounts for 80% of its work.

Southampton-based VT - formerly known as Vosper Thornycroft - said recently that trading in all its divisions had been in line with guidance at the time of its half-year results, when it boasted an order book of £3.5bn.

It is currently in discussions with BAE Systems over the combination of the pair's surface ship and naval support businesses. BAE and VT already work together on Ministry of Defence contracts, with VT building the bow and mast sections for the Royal Navy's Type 45 Destroyer programme at Portsmouth and the rest of the work and assembly being done by BAE at Glasgow.

Consolidation in the naval shipbuilding industry has the backing of the Ministry of Defence (MoD).

Analysts expect full-year results on Tuesday to show an improvement in profits to between £70m and £73m, compared with £61.5m a year earlier.

RDF Media, the company behind Wife Swap, Shipwrecked and Location, Location, Location, said in February that its results for the past year should be in line with market expectations.

The television production and distribution firm said it had delivered 101 programme titles to 19 channels during the period - an increase from 45 programmes to 11 channels in the previous year.

The group also highlighted the successful integration and contribution from the six production companies acquired since its float in May 2005. Recent purchases include Basil Brush producer Foundation TV Productions and Late Night Poker group Presentable.

Investec Securities analyst Malcolm Morgan said he was looking for a 42% rise in pre-tax profits to £7.7m in the year to January 31, with revenues up 67% to £99.4m, when the group posts its results on Tuesday.

During the period RDF increased its sales to BBC, ITV and Channel 4, while also benefiting from a $11m (£5.6m) order for its fourth season of the US version of Wife Swap.

Investors will be looking to see if there is any sign of a trading uplift following this year's implementation of the BBC's Window of Creative Competition, which opens up 25% of its commissioning to competition from all suppliers.

Despite budget and revenue constraints at both Channel 4 and ITV, analysts expect RDF to continue to prosper due to its track record of audience delivery and commercial skills in rights exploitation.

Italian cafe and deli group Carluccio's is widely expected to report a solid set of half-year figures when it updates the market on Tuesday.

The company is expected to have benefited from a strong trading performance amid the continued trends for healthy eating, premium foods and eating out.

However, the group has a relatively slow expansion programme relative to its sector peers, currently limited to five outlets a year. Analysts at Dresdner Kleinwort said this is likely to increase as the business grows in scale and investors will be looking for any signs of a ramp up in the roll-out of venues in the company's statement.

The group currently has 29 sites, having opened three in the period - one in The Brunswick in Bloomsbury, London, one in Spitalfields, and its first outside the south east in the Trafford Centre in Manchester.

It is expecting to open a site at The Heart Shopping Centre in Walton-on-Thames in the summer and a cafe in Covent Garden later in the year.

Dresdner Kleinwort is forecasting first half pre-tax profits of £2.3m for the six months to March 25, after the company reported a 21% rise in revenues in the 24 weeks to March 11. The group reported pre-tax profits of £2m in the same period last year.

Analysts at Altium Securities said the fact that sales growth kept exceeding expectations increased the likelihood of a full year forecast upgrade following the interim results.

INTERIMS Bede (Q1), Carluccio's, Enodis, Enterprise Inns, Telecom Egypt (Q1)

PRELIMINARY RESULTS Lees Foods, RDF Media Group, Sondex, VT Group AGMS ARM Holdings, Development Securities, Informa, International Power, ReGen Therapeutics, Royal Dutch Shell, Travis Perkins

ECONOMICS UK April CPI, UK RICS April house price survey

Wednesday

• Commercial property group Land Securities is expected to step up its dividend payout when it reports full-year results. The group converted its £14.8bn UK portfolio into a real estate investment trust (REIT) this year and has already indicated that the tax-efficient nature of REITs means it could raise future dividend payments by up to 30pc. For the year to March, the group will only have benefited from three months as a REIT. Land Securities is expected to report a rise in net assets to more than £21 a share compared with £19.12 a year earlier.

• Catering group Compass has already told the market that trading was ahead of expectations in the first five months of the year, so the first-half results should not come as a surprise.

• Bus and train operator FirstGroup has seen good volume growth in rail while higher revenue from buses has helped offset increased fuel costs. It is expected to give an update on its bids for franchises to be awarded this year as it unveils its full-year results.

• Supermarket group J Sainsbury is expected to demonstrate further evidence of its turnround when it reports full-year results. Analysts are focusing on cost savings and the potential for ramping up its non-food offering, while the valuation of the group's property assets is also likely to receive attention. Total sales excluding petrol are expected to be up 7.4pc, representing like-for-like sales growth of 5.9pc and the remainder from new selling space.

• High street retailer Next is expected to report improving underlying retail sales when it issues an update on first-quarter trading at its AGM.

INTERIMS Compass Group, Michael Page International (Q1)
PRELIMINARY RESULTS Datatec, FirstGroup, Land Securities, London Stock Exchange, J Sainsbury, Vedanta Resources, QXL Ricardo (Q4)
AGMS Admiral Group, Alliance Pharma, Amec, Bunzl, China Biodiesel International, Churchill China, Foseco, French Connection, Legal & General, Marshalls, Next, Nichols, Provident Financial, SIG, Spectris, Statpro, Unilever
EGMS Dexion Trading
TRADING STATEMENTS DSG International, French Connection, LogicaCMG, Next, Spectris
ECONOMICS UK labour market report, BoE Inflation Report

Thursday

In a fiercely competitive market, former state telecoms business BT appears to be holding its own in the battle for broadband business.

BT Retail's share of broadband net additions was 34% in the final three months of 2006, the highest for over two years. BT has faced up to cut-price offers from Carphone Warehouse, but the market is unlikely to get any easier with the entry of BSkyB and the creation of Virgin Media following the mergers of NTL, Telewest and Virgin Mobile.

Further details on BT's performance will emerge on Thursday, when it is due to post annual results showing a rise in annual profits from £2.18bn in 2006 to £2.55bn this time. Shareholders may also get a return of surplus cash, possibly up to £2bn.

Jim McCafferty, a research analyst at Seymour Pierce, said recent signs from Virgin that it had failed to win market share during the first three months of 2007 suggested BT had maintained its strong market position.

He added: 'We believe BT's superior customer service and reliability will see it maintain this leadership.'

BT is also in the process of launching BT Vision, which involves a set-top box providing programmes on-demand via broadband. BT hopes its payment on-demand charges, rather than subscriptions, are a selling point to new customers.

New wave revenues, such as broadband and corporate IT services, now account for more than a third of group's revenues, offsetting sales declines in BT's traditional fixed-line business.

It has also prompted BT to create a new structure aimed at driving its transformation into a software-based services company.

BT said around 20,000 people would move from elsewhere in the business to staff two new units, one responsible for the design and development of services and the other to handle their deployment and operation.

The company said the structure benefited customers by bringing them new services quicker, while ensuring that BT is able to accelerate its development as a networked IT services company by delivering products over broadband.

INTERIMS Avon Rubber, Euromoney Institutional Investors, Orpak Systems (Q1)
PRELIMINARY RESULTS BT Group, Findel, Investec, Luminar, National Grid, Paypoint, SABMiller, Vedanta Resources
AGMS Henry Boot, Brixton, Cairn Energy, William Hill, Intimas Group, IS Solutions, ITV, Prudential, Spirax Sarco, Uniq, Unite Group
EGMS Henry Boot, Jiangxi Copper
TRADING STATEMENTS ITV, National Grid
ECONOMICS UK Q1 housing starts

Friday

Security measures, fog and cabin crew disputes will impact annual results at British Airways on Friday. Charles Stanley stockbrokers is looking for profits of £550m, down from £605m a year earlier but still above the recent average for the airline.

The publication of the results will provide an opportunity to comment on current guidance in the year to March 2008. Currently, BA is forecasting revenues growth of between 5% and 6% based on a capacity increase of 1.3%, traffic growth of 2.4% and a 3.4% improvement in passenger yields.

The goal for BA is an operating margin of 10% in the year to March 2008, which would trigger bonuses for the airline's 44,000 staff. It is unlikely to achieve the margin target for the financial year just completed.

Apart from labour relations, Charles Stanley analyst Tony Shepard said the biggest threat to BA remained competitive trading conditions.

He said: 'The airline cycle has been very strong for the last two years and BA has done well to grow its premium traffic. Recently, easyJet shares took a tumble as it warned about lower summer passenger yields and both Ryanair and easyJet have increased promotional activity.'

During the industry upswing BA has paid down debt and made a one-off £800m cash injection into its pension fund deficit.

BA plans to renew its fleet from 2010 onwards and this will require a strong balance sheet as it starts to spend £1bn a year over a ten year period, Mr Shepard said. It is also due to move into Heathrow Terminal Five in March 2008.

INTERIMS Holidaybreak
PRELIMINARY RESULTS British Airways (Q4)
AGMS Assura Group, European Business Jets, Galiform, IMI, Independent News & Media, Kerry Group, Ladbrokes, Lookers, Premier Oil, Psion, Raymarine, SRS Technology Group, S&U, Zirax
TRADING STATEMENTS Galiform, Ladbrokes
ECONOMICS UK pay deals from IRS, UK April retail sales