The week ahead in business: results expected from easyJet and Centrica

Low-cost airline easyJet is set to deliver another round of strong figures in a week when the City will also get updates from Royal Mail and Centrica

Shares in easyJet soared to a record high yesterday
easyJet

Annual results from budget airline easyJet on Tuesday should show more strong growth, despite testing economic conditions in many of its markets.

The Luton-based carrier recently upgraded its profits guidance for the 12 months to September 30 to between £575m and £580m - with the higher figure representing a possible increase of 21% on last year.

The latest upward revision for the low-cost airline, which attracts both business and leisure fliers, comes against the backdrop of a choppy year for some of Europe’s major carriers, with Air France-KLM and Lufthansa both issuing profits warnings due to rising competition on some routes.

The short-haul airline sector has fared much better, with rival Ryanair recently upgrading its full year profits guidance by 18% and regional carrier Flybe achieving a 9% rise in passenger revenues per seat in the last six months.

EasyJet recently took advantage of a two-week strike by Air France pilots to earn an additional £5m in sales as passengers switched airlines.

Even though easyJet expects its capacity growth in the second half of the year to dip slightly by 0.1% to 6.3%, it forecasts that revenues per seat will rise from around 1% to about 2% in the same period.

Passenger numbers for September were up 7.5% year on year to 6.14m.

It added that more than a quarter of seats for the first half of the next financial year have now been sold, slightly ahead of the prior year.

EasyJet faces aggressive competition from Dublin-based Ryanair, which said average fares will fall by between 3% and 5% in the current quarter before a promotional drive cuts fares by between 6% and 10% in the new year.

As a result, the airline expects to carry 89m customers in the year to March 31, a rise of 9% on a year earlier

Analysts as Credit Suisse said: “EasyJet has proved itself in a testing 2014 and would seem well equipped to continue demonstrating commercial momentum as capacity headwinds ease.”

British Gas
British Gas
 

British Gas owner Centrica delivers its latest trading update on Thursday as a mild start to the autumn and a competition probe weigh on prospects for investors.

The interim management statement will be the last under outgoing boss Sam Laidlaw, who will be replaced by BP executive Iain Conn in January.

Mr Conn will have to deal with continuing political pressure over household bills as next year’s general election approaches, while a full-scale competition probe is also under way.

Falling wholesale gas prices have meanwhile resulted in regulator Ofgem calling on the so-called Big Six energy suppliers including British Gas to explain why they are not cutting household tariffs. They argue that they buy gas much further in advance.

British Gas and other suppliers announced above-inflation price hikes this time last year - though these were later scaled back after Government policy changes - but Centrica pledged earlier this year that it would leave tariffs unchanged in 2014.

The latest update comes after recent data from industry body Energy UK showed a customer exodus from the Big Six - who also include SSE, Scottish Power, E.ON, EDF and npower - to smaller suppliers.

There were a record 138,000 net switches to smaller suppliers in October, the industry figures said.

Meanwhile, SSE has recently said that it lost 100,000 customers since June, adding up to half a million accounts in the past year.

In May this year, Centrica said profits would be lower than expected partly due to the mild winter and the loss of 180,000 residential accounts in the year to date.

Since then, the group has reported profits for UK residential energy supply down 26% to £265 million for the first half of 2014, while the wider group’s adjusted operating profit was down 35% to £1.03bn.

Analysts at Morgan Stanley said the squeeze on the bottom line may mean the new chief executive wanting to revisit its dividend policy and cut costs.

They said the profit margins from the British Gas retail business - the focus of controversy over the money suppliers are making from hard-pressed households - were unlikely to recover.

Royal Mail
Royal Mail
 

Royal Mail is expected to report lower half-year results on Wednesday as its delivery operations come under pressure at home and in Europe.

Operating profits before transformation costs are forecast to be down by 8.1% to around £260m in the wake of tough competition in its profitable parcels business in the UK and its European delivery unit, called GLS.

The group said in first quarter trading in July that UK parcel revenues for the three months to June 29 fell by 1% though volumes were up 1%, as it battles large rivals such as Dutch-owned TNT and DHL from the US.

It added that parcel revenues for export will be impacted by the strong pound, and that total parcel sales for the year are likely to be lower than forecast.

Letter volumes, which are expected to see a steady decline as people increasingly rely on texts and emails, fell by a lower-than-expected 3% and revenues rose 3%.

At its European arm GLS, volumes and sales both rose 6%, but it added that price competition in Germany was “challenging” and it was still in a middle of a turnaround of its loss-making French unit.

In February industry watchdog Ofcom said its was investigating a compliant lodged by TNT’s UK arm against Royal Mail’s wholesale mail price increases.

In August, Royal Mail said that in order to improve efficiency it was introducing earlier collection times for thousands of post boxes so that mail could be picked up by delivery staff, a move which Labour said was disappointing for consumers and businesses.

Royal Mail’s controversial £3.3bn stock market flotation last October saw its shares soar from 330p to more than 450p on the first day of trading, adding over £1bn to its market value. They later climbed to more than £6, but now trade at around 470p.

Brokers at Barclays said: “We expect limited change to underlying trends from those seen in the first quarter in the UK letters market and that price pressure in the parcel market is likely to have continued into the second quarter.”

It is also poised to pay a fine of around £12m after it reached a settlement with competition authorities investigating its loss-making French parcels operations.

The group said it had set aside a total of £18m to include its legal costs in relation to the probe into GLS France.

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