News Column

TOP NEWS: Strong Results From Shell Highlight UK Corporate Earnings

July 31, 2014

Arvind Bhunjun



LONDON (Alliance News) - The following is a summary of top news stories Thursday.

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COMPANIES

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Royal Dutch Shell PLC said its pretax profit jumped in its second quarter due to lower purchase charges, divestment gains and higher interest payments but fell in its first half after it was hit by write-off charges in the first quarter. The European oil and gas giant said its second quarter pretax profit increased 70% to USD9.12 billion for the three months ended June 30 from USD5.37 billion the previous year.

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Meanwhile, Shell's plans to sell a major stake in Australian oil and gas producer Woodside Petroleum Ltd for USD2.68 billion may be falling through after too few Woodside shareholders voted in favour of the plan. On Thursday, ahead of its general meeting to vote on the deal, Woodside said preliminary votes showed that roughly 71.3% of votes cast so far were in favour of the deal and 28.7% against. For the deal to proceed, the resolution requires that a 75% majority of votes are cast in favour of the buy-back.

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Centrica PLC, the parent company of British Gas, said its pretax profit dropped in its first half as higher revenues were offset by a jump in costs due to extreme weather in the US and a fall in performance at British Gas. Centrica said its pretax profit fell 40% to GBP890 million for the six months ended June 30 from GBP1.49 billion the previous year, with a decline expected by shareholders after two separate profit warnings by the company earlier in 2014. The company increased its interim dividend by 4% to 5.10 pence.

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BGGroup PLC said its pretax profit soared in its second quarter due to strong performance at its liquefied natural gas division, allowing the company to increase its interim dividend by 10%. The FTSE 100-listed natural gas company said its pretax profit jumped 47% to USD2.13 billion for the three months ended June 30 from USD1.45 billion the previous year as revenues increased 25% to USD5.51 billion from USD4.41 billion.

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Oil and gas explorer and producer Afren PLC saw its shares slump after its board suspended the chief executive and chief operating officer pending an investigation into alleged evidence of unauthorised payments that were potentially for the benefit of the executives. In a statement, the company said that in the course of an independent review on the board's behalf by Willkie Farr & Gallagher (UK) LLP of the potential need for disclosure of certain previous transactions to the market, evidence had been identified of the receipt of unauthorised payments potentially for the benefit of CEO Osman Shahenshah and COO Shahid Ullah.

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Lloyds BankingGroup PLC said its first-half underlying profit increased by 32%, boosted by a significant reduction in impairment charges as the bank comes closer to the end of a three-year turnaround plan to return the itself to health following the upheaval of the financial crisis. In a statement, Lloyds said that it made a GBP3.82 billion underlying profit in the six months ended June 30, compared with GBP2.90 billion in the corresponding period last year. Underlying income fell to GBP9.25 billion from GBP9.46 billion as an increase in net interest income. Costs were reduced to GBP4.68 billion from GBP4.75 billion, while impairment charges fell by 58% to GBP758.0 million. Lloyds reiterated that it will apply the Bank of England'sPrudential Regulation Authority in the second-half to restart dividend payments.

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TSB BankingGroup PLC reported a jump in first-half pretax profit, aided by a one-off GBP63.7 million gain on its withdrawal from Lloyds Banking's defined-benefit pension schemes. TSB said it made a GBP128.5 million pretax profit in the six months ended June 30, compared with GBP36.1 million in the corresponding period last year. Income increased by GBP297.9 million to GBP463.2 million, while operating expenses rose by GBP228.4 million to GBP333.5 million. On a management basis, which strips out volatility arising from derivatives and the employee pension withdrawal gain, pretax profit rose to GBP78.6 million from GBP36.1 million.

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Schroders PLC reported a rise in its assets under management over the course of the first-half, as net inflows and investment returns continued into the second-quarter. In a statement, Schroders reported GBP271.5 billion of assets under management at the end of June, a 1.3% increase during second-quarter and a 3.3% increase across all of the first half. The FTSE 100 asset manager reported net inflows into institutional, intermediary, asset management, and wealth management over the first-half, though institutional saw a GBP300.0 million net outflow in the second-quarter alone. First-half pretax profit increased to GBP233.9 million from GBP221.7 million. Schroders increased its interim dividend to 24.0 pence from 16.0p.

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AstraZeneca PLC raised its full-year revenue and earnings guidance, despite seeing profit fall sharply in the half year to end-June. The company now expects revenue for the full year to be in line with 2013 at constant currency, up from its previous guidance. AstraZeneca recommended a first interim dividend of USD0.90, as part of its aim to set its first interim dividend at around a third of the previous full-year's dividend of USD2.80. The pharmaceutical giant posted a pretax profit of USD1.50 billion in the recent half year, down from USD2.39 billion in the same period a year before, as revenue rose to USD12.87 billion from UDS12.62 billion, although this was offset by higher cost of sales, selling, general and administrative costs.

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Alcoholic beverage giant Diageo PLC posted a fall in both profit and sales in its last financial year, hit by a combination of weaker consumer demand, a hefty slowdown in Asia and other emerging markets, currency rate movements, and de-stocking issues in Asia. Diageo, the world's largest spirits producer and a major producer of beer and wine, reported a pretax profit of GBP2.71 billion for the financial year ended June 30, lower than the GBP3.06 billion profit it recorded a year earlier. The group declared a 9% increase in its final dividend for the year to 32.0 pence.

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BAE Systems PLC said it remains on track to deliver earnings in line with its expectations for the full-year and increased its interim dividend, as it reported a drop in sales and operating profit in its first-half. In its first-half results for the six months to June 30, 2014, the defence, security and aerospace company reported sales of GBP7.61 billion, down from the GBP8.49 billion reported for the comparable period last year.

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Aircraft and marine engine maker Rolls-Royce Holdings PLC reported lower profit for the first half of the year as it had predicted, blaming lower defence spending and weaker trading in marine, and said its recovery would take time as it invested in revamping its plants and delivering its order book. Its prediction is proving correct. Its profit before tax and financing fell GBP491 million for the six months to June 30, from GBP848 million a year earlier, as revenue dropped to GBP6.63 billion, from GBP7.35 billion. It actually swung to a net profit for the period of GBP544 million, from a loss of GBP385 million a year earlier, but this was almost completely down to a GBP1.4 billion increase in the mark-to-market value of derivative contracts it holds.

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BTGroup PLC maintained its outlook for the full-year, as it saw pretax profit rise in its first quarter to the end of June on lower costs, despite seeing a decline in revenue. The telecommunications company posted a pretax profit of GBP546 million, up from GBP449 million, despite seeing revenue decline to GBP4.35 billion from GBP4.45 billion, as operating costs lowered and it posted fewer exceptional charges. Revenue was hit by GBP71 million from the strength of sterling, and a GBP46 million reduction in transit revenue.

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Inchcape PLC said that it expects to deliver a "robust underlying constant currency performance" in its full-year as broad-based growth across its markets and categories drove sales and pretax profit higher in its first-half. In its half-year results for the six months to June 30, 2014, the automotive group said reported sales rose 9.2% at constant currency to GBP3.3 billion, a 0.7% rise in actual currency. Profit before tax for the period came in at GBP162.1 million, up from GBP138.5 million last year. The company increased its interim dividend for the period to 6.3 pence per share from the 5.7 pence per share paid in 2013.

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Kazakhmys PLC said its copper production fell in its second quarter and first half as the company reduces activity as part of its ongoing restructuring plan. The FTSE 250 miner said its copper cathode equivalent production fell 2.8% to 69,700 tonnes for the three months ended June 30 from 71,700 tonnes in the previous year, with particular falls in production at its Khezkazgan region in Kazakhstan as mining activity was reduced in its high cost zones. However, the company did say its copper in concentrate production increased 1.9% to 79,600 tonnes, and the average grade it received for copper during the three month period increased to 1.01% from 0.94%.

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Essentra PLC said that revenue and adjusted pretax profit rose in its first-half, buoyed by more sizeable business wins, the successful commercialisation of new products and further cost reduction and efficiency plans in its second quarter. The company maintained its positive trading momentum during the period with adjusted pretax profit up 6% to GBP64.2 million from GBP60.3 million at actual exchange rates, a 16% rise at constant currency. Essentra increased its interim dividend for the period to 5.7 pence per share, up 19% on the 4.8 pence per share paid last year.

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Balfour Beatty PLC said it has ended its merger talks with peer Carillion PLC because Carillion had demanded that Balfour halted its planned sale of US project management business Parsons Brinckerhoff, a demand it called unexpected and contrary to early agreements.  In a tersely worded statement that comes just a week after news of the potential GBP3.05 billion merger of the British infrastructure and construction companies broke, Balfour accused Carillion of misleading it.

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Thomas CookGroup PLC said it continued to see strong demand in the UK, Germany and Northern Europe in the third quarter of its financial year, helping to improve both underlying profits and margins, although it reported lower revenue and a bigger loss on a statutory basis due partly to restructuring costs. The UK-based travel operator said all of its businesses delivered improved results in the quarter excluding restructuring costs and provisions for onerous contracts and legal disputes, contributing to a GBP32 million increase in underlying group earnings before interest and taxes. Its EBIT margin increased to 1.5%, having been non-existent the year earlier.

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Merlin Entertainments PLC declared its maiden interim dividend after swinging to a profit in the first half of the year, boosted by a flood of visitors through its gates. The group said profit and revenue growth in the first-half was driven by growth from its existing estate along with the continued international roll out of its brands. Besides that, Merlin Entertainments said profits were boosted by better weather in Northern Europe and throngs at its LEGOLAND parks, following successful promotional activity around the release of 'The LEGO Movie. Merlin Entertainments reported a pretax profit of GBP29 million, compared to a pretax loss of GBP1 million the prior year. The group declared a maiden interim dividend as a listed company of 2.0 pence per share, and gave a positive outlook for the remainder of the year.

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Countrywide PLC saw its shares rise strongly after promising bigger payouts to its shareholders, and as the recovery in the UK housing market fueled a three-fold jump in pretax profit before exceptional items in the first half of the year. The company reported a pretax, pre-items profit of GBP37.1 million for the six months to June 30, up from GBP12.3 million a year earlier. It swung to a pretax profit of GBP33.3 million, compared with a loss of GBP10.1 million in the first half of 2013, as it also booked a GBP14.6 million profit on the disposal of most of its stake in property website Zoopla Property Group PLC when that company did an initial public offering last month.

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Shopping centre owner Intu Properties PLC saw its share rise after strong investment demand for prime shopping centres drove up property valuations, and it said the UK's economic recovery was encouraging retailers to let more space. The company's net asset value per share rose to 372 pence on June 30, from 346 pence a year earlier, buoyed by a GBP573 million, or 44 pence a share, property valuation gain. That represented a 7.6% like-for-like valuation gain, ahead of the benchmark IPD monthly index, retail, which was up 3.5% on the year.

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Hyder Consulting PLC saw its shares surge after it reached an agreement to be acquired by Arcadis UK Investments BV, a wholly-owned subsidiary of Arcadis NV, at a 39% premium. The deal would see Arcadis acquire the entire issued share capital of Hyder for 650 pence per share, valuing the firm at GBP256.2 million.

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MARKETS

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UK stocks are trading in the red, with investor sentiment weighed down by a number of global issues including sanctions on Russia, a warning from the International Monetary Fund over Chinese growth, Argentina defaulting on its debt for the second time in thirteen years, and a continued weakening of inflation in the eurozone.

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FTSE 100: down 0.3% at 6755.22

FTSE 250: down 1.1% at 15462.24

AIM ALL-SHARE: down 0.2% at 771.09

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The euro is surprisingly flat against the dollar even though EU inflation fell to its lowest level since November 2009.

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GBP-USD: down at USD1.6879

EUR-USD: flat at USD1.3388



GOLD: flat at USD1295.41 per ounce

OIL (Brent): down at USD105.85 a barrel



(changes since end of previous GMT day)

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ECONOMICS AND GENERAL

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Eurozone inflation slowed in July to the lowest in four-and-a-half years largely due to a fall in energy prices, data showed. Inflation slowed to 0.4% in July from 0.5% in June, flash data from Eurostat revealed. It was expected to remain unchanged at 0.5%. It is the lowest rate after prices started rising since November 2009. Core inflation excluding energy, food, alcohol and tobacco, held steady at 0.8% in July. Energy prices were down 1% and food, alcohol and tobacco prices slipped 0.3%. At the same time, non-energy industrial goods remained flat and cost of services advanced 1.3%.

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Consumer confidence in the UK took a hit in July, research firm GfK said on Thursday, with an index score of -2. That was well shy of forecasts for +2, and it was down from +1 in June. The July reading marked the first decline in six months. "The almost relentless rise of the last six months couldn't continue indefinitely, and the government will be hoping this is just a temporary setback rather than the forerunner of a wider decline in confidence," Nick Moon, managing director of GfK NOP Social Research, said in a statement.

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The Federal Reserve is cutting its monthly purchases of government-linked bonds to USD25 billion, down from the USD35-billion level set at the central bank's last meeting in June. The latest cut continues a policy launched in January of regularly trimming the stimulus programme as it works to end its so-called quantitative easing by the end of the year. Until this year, the Fed had been buying USD85 billion of bonds every month. The US central bank noted economic activity had rebounded in the second quarter and labour conditions improved, even as "there remains a significant underutilization of labour resources." It also said household and business spending was improving, but recovery in the housing sector remained slow. The US economy grew at an annual rate of 4% in the second quarter, the Bureau of Economic Analysis said earlier Wednesday. The figure marks a turnaround after gross domestic product registered its first decline in three years in the previous quarter.

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The International Monetary Fund said China should target 6.5-7% growth for 2015, lower than the 7.5% goal for this year, and deploy stimulus only if growth were to slow significantly below the target. While most of its directors estimate 6.5-7% growth, a few others assessed a lower target as more appropriate, the IMF said in a report published late Wednesday. The Washington-based fund reiterated that the growth will slow to 7.4% in 2014 and to 7.1% next year.

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Fighting between government forces and pro-Russian separatists in eastern Ukraine continued to rage Wednesday, as the international community kept up the pressure on Russia to stop meddling in the crisis. The US and EU this week issued economic sanctions against Moscow, their toughest measures yet. The Group of Seven industrialized nations warned Wednesday that they are ready to "further intensify the costs" of Russia's "adverse actions."

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Two weeks after starting its ground offensive in the Gaza Strip, Israel has mobilized 16,000 more reserve troops. Israel Radio reported Thursday they will relieve some of the troops currently operating in the strip. The Israeli security cabinet instructed the army to further expand the offensive. The full Israeli cabinet is scheduled to hold a special session Thursday to discuss the future of the offensive.

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The US House of Representatives Wednesday voted to bring legal charges against President Barack Obama on the politically charged issue of health insurance reform. The House voted mostly along party lines 225-201 to go forward with the lawsuit in a measure initiated by US House Speaker John Boehner, a Republican. Boehner said the lawsuit would challenge Obama's "attempts to make his own laws" on the hot button issue of health insurance reform. Democrats charged that Republicans were choosing lawsuits over legislating. Democratic Representative Sander Levin reeled off a long list of issues including immigration reform that needed attention but were blocked by Republicans.

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Standard & Poor's has lowered a Argentina's credit rating to selective default, indicating that Argentina defaulted on some of its foreign currency obligations. The US private ratings agency said it took the step when the grace period expired Wednesday on a payment owed to bondholders. The country was barred from making that payment by a US court ruling unless it also paid hedge funds that hold defaulted debt. The agency said if Argentina makes the payment, it could revise its ratings on Argentina.

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