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FINANCIAL TIMES: Rolls-Royce's soaring shares under the spotlight: “While Shell warned that it only replaced between 15 and 25 per cent of the reserves it depleted last year, BP's replacement ratio is expected to be more than 100 per cent.” ( 7 Feb 05


Published: February 7 2005


* Expect more wailing and gnashing of teeth fromcertain politicians and trades unions as BP unveils record profits for 2004. ABN Amro expects clean net income of about $16.8bn. Royal Dutch/ Shell's record profits last week were described as "disgraceful" and BP can expect similar treatment. However, this is one of the few issues on which the two energy giants can be compared. While Shell warned that it only replaced between 15 and 25 per cent of the reserves it depleted last year, BP's replacement ratio is expected to be more than 100 per cent. Particular attention will be paid to how BP is performing outside Russia, where its has a successful joint venture, TNK-BP, that accounts for a quarter of its production. Shell disappointed on its search for "big cat" oil discoveries of more than 100m barrels. Analysts will be looking for any better news from BP in areas such as the ultra-deep waters offshore Angola and Sakhalin Island in Russia's Far East.




* Reckitt Benckiser, the consumer products company reporting full-year results, has earned a reputation for coming in ahead of expectations. It increased its target for revenue and earnings growth in 2004 at the time of the third-quarter figures in October, so analysts are confident in predicting pre-tax profits in the region of £770m compared with £660m in 2003. Although there have been concerns about higher raw material prices, Reckitt has proved its ability to increase profit margins and should be on course for operating margins to reach 20 per cent by 2006.




* Barclays is expected to report pre-tax profits of £4.54bn for 2004. Results at the UK's third-largest bank are expected to be lifted by a strong performance from Barclays Capital, the investment banking division, and from business banking. Analysts will be looking at the rate of cost growth which remained ahead of income growth in the third quarter. Analysts have been concerned that cost growth in 2005 could outstrip income growth. Investors will seek an update on how talks are progressing to acquire a majority stake in Absa, the South African bank, for £2bn. They will also be looking at how the UK business is performing and whether there has been a slowdown in demand for consumer credit and mortgages.


* Investors are primed for disappointing 2004 annual results from Unilever, the maker of foods, home and personal care products. They are interested in possible management reforms that could give a clearer idea of who will control the strategy to reinvigorate top-line growth and respond to the competitive threat from a combined Procter & Gamble and Gillette. In its strategy presentation Unilever is expected to announce the end of its traditional system of control by two co-chairmen, to be replaced by a more conventional chairman and chief executive structure. Insiders say the most likely outcome is that Antony Burgmans, co-chairman, will become sole chairman, while his counterpart Patrick Ciscau will become chief executive. Since Mr Burgmans is the older of the two, and has been chairman longer, he is expected to be replaced eventually by a non-executive chairman, who would be more in keeping with UK corporate governance guidelines. Some investors are keen to end the two-headed structure of Unilever, believing it could impede potential acquisitions if that were the route Unilever chose to take to compete with P&G/Gillette. In November Mr Burgmans acknowledged that sales were disappointing and announced an advertising blitz in the fourth quarter that was expected to squeeze margins. He said his top priority was to reinvigorate top-line growth. That is likely to remain the company's central message on Thursday. Shares in Rolls-Royce have enjoyed a virtually unbroken recovery run for nearly two years. The UK jet engine maker has overcome investor fears about cash flow, debt levels and accounting issues, and convinced the market of the virtues of its long-term business model. The share price has more than quadrupled from the low point of 62p in March 2003 to a peak of 269p in November - a level not seen since the late 1990s. It has again been trading above 260p in recent days based on expectations of strong results this week, in particular on the improving outlook for civil aerospace. Rolls-Royce is well represented on Boeing's and Airbus's current aircraft ranges, and has secured coveted access as engine supplier to both groups' leading future programmes, the Boeing 787 and the Airbus A380 superjumbo. At the same time, its growing base of installed modern engines has ensured an increasing flow of after- market revenues during the prolonged recession in civil aviation. Air travel is growing strongly again and last year moved ahead of its level in 2000 for the first time. In recent days Boeing and Airbus have confirmed the promising outlook, with future aircraft deliveries set to be on a rising trend for at least three years. Roll-Royce is well-positioned to take full advantage of the upturn.


* Analysts will be watching closely for news of progression of new compounds towards commercialisation when GlaxoSmithKline, the UK-based pharmaceuticals group, reports its 2004 results on Thursday. Duncan Moore, analyst with Morgan Stanley, said he anticipated much profits growth was likely to be the result of cost- cutting and said he would be watching for a pledge to buy back shares. GSK has placed much store on restructuring its research and development facilties, and is likely to emphasis the growing volume of new compounds moving into phase 2 and final phase 3 trials. However, Mr Moore said existing products were coming under pressure and predicted only modest drug launches this year. Goldman Sachs is predicting net income of £4bn on sales of £20.2bn for the year, down from £4.2bn on sales of £21.1bn last time.

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