City diary: Week ahead in the markets

By This Is Money
Updated: 09:46 EDT, 6 May 2011

High-profile firms including BT, Thomas Cook Group and Sainsbury's will test City confidence during another busy week for corporate results.

MONDAY

Banking giant HSBC is scheduled to update the market with first quarter results, and a strategy day will also be held on Wednesday.

The bank could announce branch closures and job cuts in its UK retail arm. Its new chief executive, Stuart Gulliver, recently said its cost efficiency ratio was totally unacceptable and that the management team was stepping up discipline on cost control.

He said he would provide more detail at the strategy day but his remarks have been interpreted in some quarters as meaning that Mr Gulliver plans to slash costs in a bid to increase profits.

It has been reported that branch closures are among options being looked at, as well as potential job cuts among middle management.

The announcement is expected to form part of Mr Gulliver's vision for the group after taking on the top job from predecessor Michael Geoghegan at the start of the year.

His plans will also reportedly see HSBC focus on specific countries in a move away from being the 'world's local bank'.

Last year HSBC reported that annual profits nearly doubled to £19bn, hitting levels not seen since the financial crisis due to significant falls in bad debts.

But the bank cut its profitability targets for this year due to the cost of tougher global banking regulations.

Its main rivals have made a disappointing start to the earnings season, suggesting that banks may struggle to grow profits this year.

Barclays reported a 9% drop in quarterly profits after investment banking revenues fell 15% to £3.3bn, while Santander's UK operation also revealed a profits fall as it said it was hit by regulatory costs.

Thomas Cook (today) and TUI Travel (on Tuesday) are expected to report bigger losses because the uprisings in north Africa caused holidaymakers to cancel bookings.

Riots on the streets of Tunisia forced 3,000 British citizens to return home, while the uprising in Egypt prompted the Foreign Office to advise against all non-essential travel to the cities of Cairo, Alexandria, Luxor and Suez.

Thomas Cook said the problems will hit second-quarter results by around £20m, while TUI, which owns First Choice and Thomson Holidays, said profits were impacted by between £25m and £30m.

They have also come under pressure from soaring oil prices, which have led to fuel surcharges on flights at a time when consumer spending power is weak.

These problems mean that 2011 is shaping up to be another difficult year for the industry following the disruption caused by Icelandic ash cloud and snow.

The companies' first-half figures will also be impacted because Easter falls in the third quarter this year. But they could also reveal that the royal wedding provided a boost in recent weeks as consumers only had to take three days' leave to get 11 days off work, encouraging many to take an Easter break.

James Ainley, an analyst at Citi, predicts that Thomas Cook's results will show that operating losses increased 28% to £167m in the six months to March 31, while its turnover grew 2.5% to £3.4bn.

When it last updated the market, Thomas Cook said it was cutting back its summer holiday programme from the UK amid a drop in demand as the economic uncertainty creates 'fragile' consumer sentiment.

The group said it reduced its capacity for the summer season by 1%, whereas it had planned a 3% increase when it updated the market after its first quarter.

It also said its winter bookings from the UK were down by 5% on last year after the crisis in Egypt and Tunisia caused cancellations and confirmed the uprisings wiped £20m from its profits.

Although flights have now resumed to both destinations from most of its markets, the firm estimated its programme to these countries in the summer will be at 70% of the level originally planned.

Centrica, Munich Re and Hiscox will release interim statements.

TUESDAY

TUI faces many of the same pressures as Thomas Cook. It will report a 1% increase in operating losses to £318m in the six months to March 31, according to James Ainley of Citi, as the later Easter wipes some £20m from its second quarter results.

It recently reported a 6% slide in summer bookings and said it is expecting to take a further hit from the uprisings in Egypt and Tunisia as tourists steer clear of north Africa.

The group said even with the impact of disruption to these countries stripped out, recent summer bookings since January 16 were down 1% in the UK as under-pressure Britons cut back on spending.

The group hopes to offset this by promoting other sunshine destinations such as Spain, Greece and Turkey and cost savings in the wider business.

National Express faces a potential showdown with shareholders amid calls for a change in strategy.

American hedge fund Elliott Advisors, which owns 17.5% of the bus, train and coach operator, is pushing for the election of three new non-executive directors to re-invigorate the board.

Elliott is also attempting to muster support for a shift in the company's strategy. Possible options could see the bus and coach operator tie up with another UK rival such as Stagecoach, refocus on the United States or sell off part of the business.

The rebel investor has been talking to other shareholders in an attempt to secure support for the measures which it believes would improve returns by at least 25%, with the potential for a 55% boost.

It claimed last month that it had the backing of National's second biggest investor - Spain's Cosmen family, which owns a 17.4% stake - to vote in favour of the resolutions and had been in talks with other investors.

Jorge Cosmen, who is also deputy chairman of National Express, backed a merger with Stagecoach in 2009 but the family has yet to confirm how they will vote at the meeting.

National Express put up a staunch defence, calling on its shareholders to reject the Elliott resolutions and saying it was already working on plans to bring new blood onto the board to represent the interests of all shareholders.

It has also released a bullish trading update that was viewed by many in the City as a defence against Elliott's campaign.

Chief executive Dean Finch said the latest figures showed the group's strategy was 'sound and will deliver significant shareholder value over the long-term'.

Budget airline easyJet will report a deterioration in first-half losses as rising fuel costs and falling consumer spending power create tough trading conditions.

The airline warned in January that losses would increase to between £140m and £160m in the six months to March 31, up from £78.7m the previous year, as it struggled to pass on the soaring cost of fuel to cash strapped consumers.

It also revealed that the snowy weather and strikes in continental Europe had wiped £31m from its profits in the first quarter.

Analysts now predict that the group will report losses of £159.7m - at the top end of the range predicted by the company - after the period was hit by the continued rise in the price of oil.

EasyJet may reveal that some of its routes to Egypt were disrupted by the uprisings in the Arab world.

But passenger numbers generally remained strong in the first three months of 2011 after it won customers from more expensive rivals.

However, rival Flybe signalled testing times for the sector after the number of its passengers flying on holiday or to visit friends and family dropped in February and March.

EasyJet has said it is combating the rise in the cost of fuel by cutting costs and making efficiencies through increasing passenger numbers. Investors will be keen to hear how both of these are progressing as the airline gears up for its key summer season.

BG Group will put out first quarter results and Imperial Tobacco will announce half-year results. G4S will have a trading statement.

British Retail Consortium/KPMG retail data for April is due, as is RICS' April housing market survey.

WEDNESDAY

Sainsbury's - the UK's third largest supermarket chain - is expected to dispel some of the gloom surrounding the sector when it reports an 8% increase in profits.

Analysts predict the chain will post underlying profits of £659m in the year to March, despite being forced to sell more of its goods on special offer to attract cash-strapped consumers.

Sales in recent years have been buoyant as chief executive Justin King rejuvenates the chain under his Making Sainsbury's Great Again strategy.

But after several months of strong growth, Sainsbury's recently shocked the market when it reported that same-store sales were up just 1% in the fourth quarter. This was lower than the 3.6% it posted in the previous quarter and worse than the City's expectations.

Tesco has also posted disappointing UK sales since, prompting analysts to predict that the UK supermarket sector faces a perfect storm as food prices soar at a time when consumer spending power is being squeezed by the Government's cut-backs and sluggish economic growth.

Competition is also intensifying as big supermarket chains open more stores and cut price rivals Aldi and Lidl increase their presence in the UK.

Shareholders will be looking out for any guidance on the recent sales performance and will be hoping that it received a boost from the late arrival of Easter and from selling party food for the royal wedding.

The supermarket, whose adverts often feature celebrity chef Jamie Oliver, recently launched a new campaign showing shoppers how they can feed a family of four for a week for £50 to highlight its value credentials and win back sales from its discount rivals.

The Bank of England will issue its latest inflation report. Nick Raynor, investment adviser at online broker The Share Centre, said it may well focus attention on the growing disparity between price inflation and wages.

'With inflation staying stubbornly over target, the consensus was moving towards an imminent rise in interest rates. However, with recent GDP data being disappointing, and growing concerns over real wages falling, over the last week or so there have been signs of a switch in opinion.' he said.

'Bank of England governor Mervyn King also seemed to hint that rates will not be rising soon, when he recently warned that any rise would hit struggling households.'

Prudential, ITV and Wood Group will put out trading stratements.

The Office for National Statistics is due to publish March trade figures.

THURSDAY

BT has come a long way since the dark days of early 2009, when its shares were at a record low of around 70p and its future was threatened by crippling cost-overruns in corporate IT services and from a huge pension fund deficit.

The company's army of smaller investors, who bought shares when the group was privatised in November 1984, also saw a cut in the company's dividend.

It has been painful recovery, with £2bn of cost savings and thousands of job cuts, but analysts expect chief executive Ian Livingston will announce a 70% jump in full-year profits to around £1.7bn on Thursday, as well as an improved dividend payment. Shares have already bounced to nearly 200p.

The turnaround has been helped by a reshaped and more efficient global services arm and a switch in the pension fund to CPI-indexation, which slashed around £2.9bn from the deficit to leave a £5.2bn shortfall.

The group has also made headway in retail, with higher-margin broadband business helping offset declining landline operations.

When BT last updated the market, it said 356,000 broadband customers were added by customers using BT's network in the three months to December 31, up on the 253,000 gained in the previous quarter.

The firm said 53% - or 188,000 - of these new additions connected using BT's own broadband service, the highest proportion since 2003.

The group's broadband television service BT Vision added 40,000 customers in the quarter, compared to 24,000 additions in the previous three months. This brought the total to 545,000.

BT is currently spending £2.5bn on rolling out fibre-optic cabling in order to deliver superfast broadband, dependent on it securing a decent return on its investment.

The Council for Mortgage Lenders will put out buy-to-let data and arrears and possession figures for the first quarter. The ONS is scheduled to release mortgage and landlord possession statistics.

3i will issue full-year results, while RSA Group, Allianz Group and Old Mutual will have first quarter trading statements.

FRIDAY

Petrofac and Intertek will release trading statements.