Heavyweight results to reflect the global turmoil

THE corporate impact of the UK’s slide into recession will be shown this week when Marks & Spencer and British Airways publish results.

THE corporate impact of the UK’s slide into recession will be shown this week when Marks & Spencer and British Airways publish results.

Falling first half sales at retail titan Marks & Spencer are expected to have decimated the group’s profits, when it reports interim figures on Tuesday.

The group saw its worst sales performance for more than three years in the three months to the end of September, reporting a like-for-like slide of 6.1%.

Its concerted marketing efforts - led by the "Meal for two for £10" deal - failed to halt a 5.9% decline in comparative food sales as cash-strapped shoppers switched to cheaper stores.

The poor quarter, which was the worst since the beginning of 2005, contributed to a first half sales fall of 5.7% on a like-for-like basis.

And analysts are expecting pre-tax profits to have dived 36% to £290m from £451.8m a year ago.

Its comments on current trade will be key, with the vital Christmas trading season around the corner, although the view among retail experts is that trade will only have got tougher.

Freddie George, retail analyst at Seymour Pierce, said: ``After an indifferent summer season, the autumn ranges still do not look right and food is becoming a major problem."

Weakening John Lewis department store sales have set the tone for what looks likely to have been a difficult autumn for middle-market stores, such as M&S.

Pali International analyst Nick Bubb downgraded his rating on the group to ``sell" last week as he said evidence of a poor October on the high street was expected to contribute to an even worse second half performance - with sales possibly down by 6.5%.

M&S boss Sir Stuart Rose, now executive chairman, had already warned that margins were likely to be hit by its price-cutting promotions.

Mr Bubb is now pencilling in full-year profits of £640m - a far cry from the previous year’s record breaking figure of more than £1bn.

Primark parent and food giant Associated British Foods is expected to reveal the benefits of further impressive growth in its high street clothes chain when it reports full-year figures on Tuesday.

The Primark business has seen continued sales strength as its affordable fashion offering has fared well amid the consumer spending downturn.

And AB Foods is expecting the clothes sales success to offer a welcome lift as the business suffers elsewhere.

The group warned in September it was heading for falling profits in its sugar division, due to lower prices, as well as rising debt costs from acquisitions.

Analysts are expecting pre-tax profits of around £628m for the year to the end of September - up 2.4% on the previous year.

Primark’s sales growth accelerated to 4% in the fourth quarter, following flat growth in the previous quarter because of poor weather and the timing of Easter.

The group’s grocery arm - which trades as household names such as Allinson, Kingsmill and Ovaltine - is also forecast to have buoyed group-wide performance.

Panmure Gordon analysts are pencilling in profits growth of 22% for the grocery division, an 18% hike in earnings at Primark and a 23% decline in sugar profits.

While they think debts will have risen to some £800m, the prospect for lower cost pressures could offer a boost next year, added Panmure. ``Input costs such as energy and edible oil have fallen significantly in recent months and if sustained, create a more benign cost outlook."

Bus and rail firm FirstGroup is on track for a 40% rise in profits when the company posts interim results on Tuesday.

Bus revenues have soared as customers ditch their cars in the face of steep petrol prices - helped by initiatives such as First’s ``Fuel for Thought" campaign and a ’FuelBuster’ ticket allowing passengers to fix their travel costs for six months.

Meanwhile strong revenue growth has also continued across its rail business, which boasts the First ScotRail, First Capital Connect, First TransPennine Express and First Great Western.

But the Aberdeen-based group did note a marginal slowdown in FCC’s growth during September - despite a better showing from its wider rail division - which analysts put down to a slowing London jobs market.

Nonetheless consensus estimates forecast a 40% rise in underlying pre-tax profits to £105m for the six months to September 30.

The haul is also likely to be helped by its enlarged US operations following last year’s acquisition of yellow school bus and Greyhound owner Laidlaw.

Credit Suisse analyst Gerald Khoo said FirstGroup has strong exposure to two key themes in public transport - passengers switching due to rising costs, and increased outsourcing of US school bus services as local education budgets come under pressure in a recession.

``The recent trading update showed that the group’s performance is on track, with particularly good momentum in UK Bus where volume and revenue growth are accelerating and margins improving," he added.

British Airways’ half-year results on Friday will bear the scars of a torrid period for the airline industry amid soaring oil prices.

The carrier is expecting fuel costs to top £3bn in the current year - the equivalent of more than £8m a day.

Oil has since retreated from July’s record high above 147 dollars a barrel, but the firm warned in September that the pound’s slide against the dollar had given it a fresh headache.

Added pressure has come from a deteriorating economic environment, forcing airlines to consolidate to weather the storm.

BA, whose stock has fallen by more than half so far in 2008, is in discussions over an all-share merger with Spanish carrier Iberia but the deal will take longer than first thought due to the slowdown.

The firm said last month that trading conditions ``continued to be challenging", with long-haul premium traffic softening after the summer and forward bookings affected by financial market turmoil and the uncertain outlook.

BA, which is cutting costs through moves such as voluntary redundancy to 1,400 staff, hopes it will break even at the operating level this year.

But analysts will be scrutinising results for the six months to September 30 for any hints of downgrades.

The company’s pre-tax profits between April and June slumped to £37m, against £298m for the same period last year and consensus forecasts predict a £23m pre-tax loss for the year to March.

Supermarket milk supplier Robert Wiseman’s results on Friday will be dented by delays in passing on rising costs to its customers.

Panmure Gordon analyst Andrew Saunders expects pre-tax profits of just £11m in the six months to September 27, compared with £18.2m last year.

But higher oil prices and plastic and bulk cream costs seen so far this year are now being passed on to its customers, which Wiseman expects will lead to a strong second-half recovery.

The Glasgow-based business, which supplies Tesco and Sainsbury’s, sees full year results in line with expectations, despite trading conditions ``amongst the most difficult we have ever faced as a business", according to chairman Alan Wiseman.

But the firm’s new dairy at Bridgwater is performing as planned and processing over 4 million litres per week. The company begun work on lifting capacity to 350 million litres a year and estimates it could take capacity to 500 million litres.

Wiseman has also bought land in Wiltshire for a depot which would help it deliver more efficiently to its growing business in the South-East.

Mr Saunders said: "The business looks to have made a determined start to the year despite higher operating costs, and has continued to win new volume while opening up its new western dairy at Bridgwater."

The embattled banking sector will come under further scrutiny this week as Lloyds TSB and Royal Bank of Scotland are expected to issue trading updates.

Lloyds has said it will provide a snapshot of trading when it releases the circular to shareholders regarding its planned rescue takeover of Halifax Bank of Scotland, as will HBOS when it publishes its documentation in mid-November.

Lloyds has been tight-lipped on the timetable of its announcement so far, saying only that it will be during the first week of November.

But crucially it is understood that it will give an idea of its future financial footing, taking the HBOS acquisition into account.

The tie-up between the two has become controversial as the implications of the deal and the Government’s part-nationalisation funding support have begun to emerge.

There have been fears that the takeover may not get the go-ahead from investors, although the Government has been vocal in maintaining it believes the deal should go through.

Meanwhile, NatWest parent Royal Bank of Scotland could reportedly dish up some more bad news when it updates alongside the publication of its prospectus to raise further funds as part of the Government’s £37 billion bank bail out.

There are fears that RBS is preparing to announce additional losses - of between £4 and £5bn, according to reports. It is thought that the group has been hit further by exposure to US mortgages.


David Whetstone
Culture Editor
Graeme Whitfield
Business Editor
Mark Douglas
Newcastle United Editor
Stuart Rayner
Sports Writer