City bracing itself for big fall in profits at BP

THIS will be another big week for results as full-year earnings from the likes of oil giant BP and multi-national drugs company GlaxoSmithKline are published.

THIS will be another big week for results as full-year earnings from the likes of oil giant BP and multi-national drugs company GlaxoSmithKline are published.

The City is braced for a 34% fall in profits at BP in the final three months of the year after it landed the biggest fine in US history settling claims over the Deepwater Horizon oil spill disaster.

Analysts predict fourth-quarter underlying replacement cost profits will fall to £2bn, from £3.2bn in the same period the previous year, well below third-quarter profits which were £3.3bn.

The group, which reports tomorrow, agreed the £2.8bn settlement with the United States Department of Justice and the Securities and Exchange Commission in November, which it will pay over six years.

But Jon Rigby, analyst at UBS, said it still left the last big-ticket item of the civil claims relating to the oil rig accident in 2010, which killed 11 workers and spilled millions of barrels of oil into the Gulf of Mexico.

BP is becoming a smaller company as it sells off large chunks of its business as part of its pledge to raise cash to pay the costs of the 2010 Deepwater Horizon disaster. In November the group agreed to sell a range of North Sea oil fields to Taqa, the Abu Dhabi National Energy Company, for £687m.

Lucozade and Ribena owner GlaxoSmithKline is expected to end a troubled year on a more positive note when its reports full-year results on Wednesday.

Experts at UBS predict sales declines will ease in the final quarter of 2012, down 3% on the previous year to £6.8bn in a slight improvement after a 5% slump to £6.5bn in the third quarter, which was dragged down by government cutbacks in Europe.

At its last update in October, the drugs giant called on European governments to halt aggressive price cuts on medicines or suffer unintended consequences.

Glaxo’s results will come after rival AstraZeneca reported a 38% drop in pre-tax profits to £4.9bn for 2012 and said the loss of exclusivity on several brands would continue to hurt performance this year.

Glaxo, which also makes hot drink Horlicks, has already warned that austerity drives across Europe, which have seen medicine prices slashed by more than 7%, will impact the development of new drugs across the continent.

The group said at its last update that while it hoped better performances in emerging markets and Asia would see a return to sales growth in the fourth quarter, the worse-than- expected conditions in Europe will mean full-year sales were likely to remain flat.

Experts predict full-year sales will come in 3.5% lower compared with the previous year at £26.4bn and are pencilling in an 11% slump in full-year profits to £7.6bn.

The City will also be hoping for an update on a batch of drugs which it is hoping will get approval this year, including a medicine for patients with chronic obstructive pulmonary disease and a treatment for type two diabetes.

Thomson and First Choice parent company TUI Travel will report back on whether the package holiday comeback has continued when it updates investors on its first quarter on Thursday.

At its last update in December, the group said UK holidaymakers looking to escape to the sun after last year’s dismal summer also resulted in a surge in bookings for next summer, up 12%.

And its unique holidays – including Couples, Sensatori and SplashWorld – were already up 18% for summer 2013, accounting for 83% of bookings.

The group said it had an outstanding year last year with strong bookings for more profitable unique holidays, targeted at groups and those looking for luxury all-inclusive resorts.

Online grocer Ocado is set to reveal another multi-million-pound loss on Thursday after battling to compete with the major supermarkets last year.

The City expects the group to book a loss of between £2m and £3m after being hit with the cost of its second delivery centre in Dordon, Warwickshire, and sales dented by the Olympics and Diamond Jubilee in its third quarter.

Investors will be wondering when the group is going to make a profit, after it suffered a £2.4m loss in 2011 as it struggled with capacity constraints at its Hatfield distribution centre.

But things have been looking up for the group since its banks extended its loan facilities in November.

It landed retail veteran Sir Stuart Rose, who became chairman this month, and reported a 14.2% leap in sales to £91.6m over the six weeks to January 6, with a pre-Christmas rush of orders seeing revenues jump 17.1% in the final week before Christmas.

Andrew Wade, analyst at Numis, said he was encouraged by the appointment of Sir Stuart with his significant retail experience, across both food and general merchandise.

He said Ocado shares had been strong in recent weeks as investors recognised the recent re-acceleration in sales momentum and looked to the potential growth as its new delivery centre opens at the end of its first quarter.

 
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