UK bank results to come under intense scrutiny
First quarter figures from Lloyds Banking Group and Royal Bank of Scotland come amid intense scrutiny on the taxpayer-backed players after Lloyds revealed the collapse of its planned sale of 632 branches.
Lloyds has been left with little option but to seek a flotation of the estate after the Co-operative Group admitted defeat and withdrew from the deal – a move that followed just six months after Santander pulled out of its £1.65 billion takeover of more than 300 RBS branches.
It marks the latest blow after a difficult 2012 for the part-nationalised banks, dominated by scandals across the industry.
They have also raised alarm bells with regulators after the Bank of England uncovered a £25 billion capital hole among Britain’s major lenders – with Lloyds, RBS and Barclays believed to account for £9 billion of the shortfall between them.
But their first quarter updates are expected to see the groups seek to move on from last year’s hefty mis-selling fines and the impact of the Libor rate rigging affair.
Lloyds, which is first up on Tuesday, is expected to reveal bottom-line pre-tax profits of £1.1 billion for the first three months against £288 million a year earlier, thanks to the absence of last year’s mammoth charges for mis-selling of payment protection insurance (PPI), according to Investec Securities.
The group, which is 39% owned by the Government, set aside £375 million to deal with PPI claims in the first quarter of 2012 alone – although the year’s final bill ended up at an eye-watering £3.6 billion, plus another £400 million for interest rate swap mis-selling claims.
Despite its PPI hit, shares in Lloyds have made a marked recovery since the start of 2012. It was the the top-performing FTSE 100 stock last year after shares surged 80% and has seen a 27% rise in the past six months.
Lloyds boss Antonio Horta-Osorio has linked his potential £1.5 million shares award to the group’s share price, with a condition that the Government must have sold at least a third of its stake above 61p – the average price at which shares were bought during the bank’s bailout in 2008 – for the payout to be triggered.
With shares just a few pennies off this level, it raises the prospect of an imminent return to the private sector.
But Ian Gordon, analyst at Investec, said: “Although we do recognise that Lloyds shares have enjoyed a sharp correction, we remain unwilling to turn positive on the stock.”
RBS follows with its statement on Friday amid further pressure on boss Stephen Hester after more IT woes at NatWest and the Financial Conduct Authority’s decision to investigate its computer meltdown last summer.
A fault with NatWest’s banking app earlier this month left RBS red-faced as it marked the third glitch in nine months.
Mr Gordon is forecasting that the 81% state-owned group will reveal weak underlying profits of £100 million in the first quarter, hit by a poor performance at its shrinking markets divisions.
While Barclays saw its investment banking profits jump 11% in the first quarter, RBS is set to count the cost of a change in culture and staff morale after its Libor rigging settlement.
Mr Gordon said: “The key area of concern in the first quarter is likely to be the markets division, where we expect a uniquely poor revenue performance – in the most important revenue quarter of the year.”
Full-year figures from Argos and Homebase parent Home Retail come after a resurgent year for its catalogue chain, thanks to buoyant sales of tablet computers and consumer electronics.
Home Retail, which recently launched a digital makeover of its Argos business, pleased the market by hiking profit forecasts last month following a robust fourth quarter.
Argos sales jumped by 4.3% to £501 million in the eight weeks to March 2 and were up by 5.2% on a like-for-like basis, despite weaker trading in homewares.
But another tough year for DIY chain Homebase offset progress at Argos and the group is expected to see overall profits fall 11% to £90 million.
Operating profits at Homebase are set to almost halve to £12 million from £22.8 million a year earlier after adverse weather dampened demand for home improvement products.
Homebase sales fell 5.2% over the year, with a 1.5% drop in the last eight weeks.
However, the focus is likely to settle on the turnaround story at Argos after Home Retail announced plans in October to scale back circulation of its Argos catalogue and revitalise the business through its digital presence.
Its 700-plus stores have been kitted out with internet access and Wi-Fi, with a fast-track collection service and customer service for orders.
Internet sales now account for 43% of Argos’ total revenues, up from 40% a year ago, as more shoppers take advantage of the chain’s new tablet and smartphone apps, as well as click and collect services.
Home Retail hopes to grow Argos turnover from this year’s £3.9 billion to £4.5 billion in 2018 in an “ambitious but achievable” overhaul after a period of declining sales.
Premier Inn and Costa Coffee owner Whitbread is expected to report another double digit hike in annual profits on Tuesday after shrugging off the horse meat scandal and adverse weather earlier this year.
The leisure group, which also owns the Brewers Fayre chain, saw underlying sales growth slow to 2.7% in the 11 weeks to February 14, down from 3.3% the previous quarter.
It said its performance was slightly suppressed by the impact of blizzards on its restaurants arm, while the group was also dragged into the horse meat crisis and withdrew lasagne and beef burger products from its menus following the discovery of equine DNA on February 14.
But analysts are still expecting full-year profits to leap 14% higher to £347.6 million thanks to more robust results at its Costa coffee arm.
The chain delivered a 32.2% leap in total sales in the first 11 weeks of the final quarter and a 5.5% rise when changes in store space are stripped out.
Its Premier Inn brand has also benefited over the past year from an ad campaign featuring comedian Lenny Henry.
Jarrod Castle, analyst at UBS, hailed Premier Inn as the easyJet of the hotel sector, while he said Costa was successfully tapping into Britain’s “coffee culture”.
He added: “Although we expect overall growth to decelerate, we still see double-digit Costa Coffee store growth for the next three years and expect high-single-digit room growth at Premier Inn.”
Satellite broadcaster BSkyB unveils third quarter results on Thursday as it faces a rising threat from BT in the television market.
The figures come ahead of the launch this summer of the rival company’s sports channel, which has won the right to screen 38 Premier League games a season.
The update covers the three months to March 31, with analysts Investec expecting only a modest boost of around 15,000 in pay TV numbers over the traditionally slow post-Christmas period.
Better figures were expected for online service Now TV – launched last year to compete with the likes of Netflix and Lovefilm – as well as BSkyB’s broadband offering.
The company reported an 8% jump in profits to £647 million in the six months to December 31 after it gained 80,000 new customers.
Figures were boosted by users signing up for new products such as on-demand downloads and Sky Go mobile services, as well as millions of viewers attracted to the first season of the Sky Sports Formula One channel.
Ahead of the latest results, observers pointed to the looming challenge from BT. Investec expressed scepticism over the scale of the threat – though warning a low-cost BT wholesale offer to pubs and clubs could hit Sky’s margins.
Analysts Paul Richards and Gareth Davies, of Numis, said Sky’s offering was “market leading” and that rival packages offered by BT as well as Talk Talk were mainly attractive for their broadband customers who have Freeview.
Numis predicted pre-tax profits for BSkyB of £300 million for the quarter.
Half-year figures from online retailer ASOS are expected to show another double digit hike in profits on Tuesday after the group notched up yet more impressive sales growth.
ASOS, which stands for As Seen On Screen, said UK sales rose 28% in the three months to the end of February, with global sales up 37% to £186.5 million.
In a sign of its increasing might in the retail sector, it also recently secured a place in the top 10 of the Interbrand UK retail survey, joining the likes of Tesco, Marks & Spencer and Next.
The fashion website, which has six million customers, is expected to report a 16% rise in first half profits to around £25 million after banishing fears that its home market was stagnating.
Its move to refocus marketing efforts on its core twenty-something customer base and to deliver more price cuts helped boost UK sales, although it admitted recently this tactic had impacted margins.
The group has also been benefiting from initiatives such as “Complete the Look”, where the website suggests other clothes and accessories to go with an outfit.
Its international arm, which has been a major driver of growth in recent years, has also performed well with sales 45% higher at £110.9 million in the second quarter, driven by improvements in the United States and Europe.
It therefore came as a blow to investors when the group announced the departure of international director Jon Kamaluddin after nine years with ASOS.
Seen as one of the key architects of its success, he is set to leave by December in what will mark the second high profile departure following product director Robert Bready’s decision to step down.
But it secured a coup in hiring former Marks & Spencer clothing supremo Kate Bostock to the team.
Analysts at Panmure Gordon said recently that ASOS was clearly moving into the “very big league”. They added it had the “ability to outperform peers and sidestep the issues which the majority of bricks and mortar retailers face”.
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