July 26, 2010

Some of the UK's biggest firms will be in the spotlight this week during a major test of confidence.

The biggest crisis in BP's long history threatens to tip the oil giant into the red for the first time since 1992 tomorrow as it gives more details on the havoc wreaked by the Gulf of Mexico spill.

Although the final bill is not yet known, the provisions for the impact of the Deepwater Horizon disaster could submerge the 3.3bn in underlying profits expected for the second quarter, a 60 per cent rise on a year earlier.

BP reported its first quarter figures just a week after the explosion when the magnitude of the disaster was not yet apparent and media scrutiny was focused on the looming General Election.

But since then the company has axed its dividend for the first time since the Second World War - and the company and its chief executive Tony Hayward found themselves at the centre of a storm not seen since disgraced Royal Bank of Scotland boss Sir Fred Goodwin refused to give back his pension.

Shares are down more than a third from their peak - hitting pensions on both sides of the Atlantic - while the firm has set up a 20 billion dollar compensation fund to assuage fury in the US.

The cost of the clean-up is estimated at around 2.6bn so far, with assets in the US, Canada and Egypt sold to rival Apache raising 4.6bn for the cause.

Although BP should finally kill the leaking well next month with the completion of a relief well - and begin restoring its battered reputation - heavy financial penalties also await.

Charles Stanley analyst Tony Shepard said the Gulf spill would be a "permanent feature in the results for some time," adding: "There is no doubt BP has valuable assets and attractive cashflows going into the ...ure but uncertainty remains over the potential liabilities."

Rival Royal Dutch Shell's results on Thursday should be far less eventful, with Mr Shepard expecting a 25 per cent increase in underlying profits to around 2.6bn for the second quarter.

The firm - left in the slow lane by BP until the Gulf of Mexico spill - is looking to dispose around 15 per cent of its refining capacity as well as developing new production sources, with 13 projects due to come onstream over the next year.

"The group has a rich selection of potential new projects which are expected to add some 8 billion barrels of oil equivalent resources and which will help underpin production growth to 2020," he added.

Transport group National Express expects to show "good progress" in boosting half-year profits on Thursday thanks to a major cost-cutting drive under former Tube Lines boss Dean Finch.

Mr Finch is getting to grips with the tough task of reviving the business following a disastrous year for its rail arm, which returned its loss-making East Coast franchise back to the government in November.

At this stage last year, the East Coast deal sent the firm plunging into the red with a 48.1m pre-tax loss. But a cost crackdown by the new chief executive is helping shore up results, while the firm says revenue trends are "resilient".

BoA/Merrill Lynch analyst Mark Manduca forecasts pre-tax profits of 155.6m for the full year, 34 per cent ahead of 2009. But analysts will also be interested in the firm's view of the likely impact of Budget cuts on prospects going forward.

British Gas parent Centrica will see profits from its residential business almost double in results for the first half of the year as shivering households cranked up the heating in a bitterly cold winter.

Citigroup analyst Peter Atherton is expecting operating profits of 583m from British Gas for the first six months of 2010 - up from 299m previously - with its business division also forecast to double profits to 132m.

Although the high profits on Wednesday are sure to spark anger in some quarters, Centrica says a reasonable level of returns is needed to invest in new sources of production.

Both British Sky Broadcasting and telecoms giant BT report on Thursday, but the figures come at a tense time for relations between the two firms.

BT, which reports first quarter figures as BSkyB posts annual results, announced earlier this month that it was slashing the cost of watching Premier League football to as little as 6.99 a month in a major push into the pay-TV market.

But in a canny move, rival BSkyB increased prices for its sports customers from September in a move triggering higher charges for wholesale customers such as BT.

Friday's update from British Airways will reveal the impact of a nightmare first quarter for the airline, which has already said that it "could hardly have had a worse start" to the year.

The opening three months of BA's financial year saw it hit by Iceland's volcanic eruption, which closed most of European airspace for almost a week in April, and crippling strike action.

BA has already lost around 120 million from the volcanic disruption, while it said the first wave of industrial strikes cost it 43 million - with the group widely thought to be facing a total bill from the disputes of 150 million.