Sunday newspaper round-up: Royal Mail, Xstrata, Google

11th Nov 2012 13:54

Royal Mail will unveil a sharp jump in profits this week, accelerating plans for a privatisation next year that could raise 2bn pounds. Officials and bankers working on the sale say Tuesday's figures are the crucial test of whether the business will be ready for a float in the third quarter of 2013. Industry sources indicated the test had been passed, and that the government has sanctioned a roadshow of prospective investors after Christmas. Royal Mail is this week likely to show an increase in profits across the board but crucially at its core British business. PIL (parcels, international, letters) has been a drag on Royal Mail's performance, turning over more than 7bn pounds a year but losing money. It made a marginal return to the black last year ? a profit of 23m pounds out of Royal Mail's overall surplus of 211m pounds? but is expected to have shown greater improvement over the past six months, writes The Sunday Times. The Sunday Telegraph understands that a number of leading investors in Xstrata are still prepared to vote against the merger, despite the apparent backing of Qatar Holding which owns a 12% stake. In addition, it is known that bankers on both sides of the transaction have been speaking to leading investors to point out the intricacies of the staged voting process which is linked to a controversial retention package for Xstrata executives. The deal could be backed and still fail if the vote goes the wrong way on the packages. With just over a week until the crunch series of votes on November 20 in Switzerland, both sides are concerned that the wrong breakdown of shareholder votes - and a low turnout - could jeopardise the deal. In a worrying sign for looming negotiations over the EU's long-term budget, talks aimed at agreeing next year's spending plan collapsed abruptly on Friday evening amid a clash between member states and MEPs. Hours after the meeting began, the parties had not even begun to discuss the 2013 budget, according to people familiar with the discussions, because they were still feuding over how to deal with at least €9bn in unpaid bills from this year. The parties have agreed to restart talks on Tuesday afternoon in hopes of reaching a deal before a special conciliation period expires that evening. If no deal can be found, the commission may have to draft a new proposal. Janusz Lewandowski, the EU budget commissioner, had requested an €8.9bn amending budget to cover the shortfall. The UK and other member states dismissed that as the equivalent of a 9.5% increase in this year's budget - something that they deem unacceptable amid the spending cuts they are imposing at home, The Financial Times reports.London has lost its top spot as the world's biggest financial centre by jobs and will drop into third place by 2015. The City was narrowly ahead of New York and Hong Kong on people employed last year, but will fall behind the American financial centre this year. It will be overtaken by Hong Kong within three years, with Singapore not far behind, according to the latest forecasts from the Centre for Economics and Business Research (CEBR). The consultancy said London was losing its dominance because of a "shift to the east", but it blamed "short-sighted over-regulation, penal taxation and banker bashing" for accelerating the trend. There is growing concern among MPs that red tape is driving away bankers. Last week Andrew Tyrie, chairman of the Parliamentary Commission on Banking Standards, said he was examining whether the "shrinkage" of the City was a result of excessive regulation. A report into competitiveness by The City UK, the lobby group, found that more than half of decisions on where to locate businesses were going against Britain, The Sunday Times says. Three of Britain's biggest water companies paid little or no tax on their profits last year while generously rewarding their executives and investors, the Observer has revealed today. Thames Water and Anglian Water paid no corporation tax on the profits made from their utility businesses while Yorkshire Water kept its payments to the Revenue in the low millions. All the companies made hundreds of millions of pounds in operating profits and some have rewarded their senior executives with performance-related bonuses and investors with huge dividends. Martin Baggs, the chief executive of Thames Water, which enjoyed a £76m tax rebate in 2012, was given a bonus of £420,000 on top of his £425,000 salary and is in line for a further windfall of £1m based on company performance through to 2015.The key consumer prices index (CPI) for October is expected to have reversed its recent fall to rise from 2.2% in September to 2.5%, when the Office for National Statistics publishes the figures on Tuesday. In its three-monthly update on the economic outlook on Wednesday, the Bank will admit that inflation is proving to be more "sticky" than hoped. However, it is expected to sound a more positive note on UK growth than in previous reports. Philip Shaw, the UK economist at Investec, said October's inflation figures will have been affected by rising food prices and the tripling in university tuition fees, which will have an impact on the data for the first time. Recent increases in energy bills will feed into the November and December figure, potentially pushing inflation back up towards 3%. "We estimate that CPI could reach as high as 3.5% by mid-2013. If our analysis is correct, it is not surprising that the MPC decided not to sanction further QE," he said, The Sunday Telegraph reports. Paul Walsh proved the benefits of playing the waiting game when the Diageo boss finally added a barrel-load of the Indian market to his drinks cabinet, with his acquisition of United Spirits. Nevertheless, Walsh is said to have paid top dollar, at 20 times underlying earnings against an average of 17 in similar deals over the past decade. However, this deal is hugely significant for Diageo in a market where the aspirational middle class will grow from 120m to 600m by 2025 and in which United Spirits has a 42% market share against a mere 1% currently held by Diageo. It also has repercussions in Scotland, as United Spirits owns Scotch whiskies Whyte & Mackay, Jura and Dalmore. Hence, competition issues may arise. There is some encouragement for the broader Scotch whisky sector as well, as the deal puts Diageo in a better bargaining position with the Indian government on matters such as alcohol duties, which currently discriminate against imported brands. The news was certainly positive for Diageo shareholders, who enjoyed a slight lift on Friday. Analysts predict as much as 15% upside, The Scotsman on Sunday explains. Executives at Xstrata are attempting to orchestrate a management coup at Lonmin, the platinum producer that was shut down after 34 striking workers were killed by police. Lonmin last week launched an $817m (£514m) rescue fundraising. Xstrata, the FTSE 100 miner, is its largest investor with a 25% stake. It does not want to stump up the cash unless it can clear out the executive team. The world's third-largest platinum producer has been hit by a falling commodity price, soaring costs and staff unrest. Xstrata is sitting on a $2.5bn loss thanks to the collapse of the share price. If it cannot inspire a coup before the fundraising, which will be voted on at a meeting on November 19, Xstrata is likely to call an extraordinary meeting to sack management. The situation is further muddied by the vote the next day on Xstrata's $33bn takeover by rival Glencore, The Sunday Times says. Amec has lost its second top executive in a month amid a falling out between Samir Brikho, chief executive, and his lieutenants over strategy. Mike Saunders, president of the company's power division, tendered his resignation within the past fortnight. He has been responsible for the contract to decommission and dispose of radioactive materials at the Sellafield nuclear waste dump. His departure follows the resignation of Neil Bruce, chief operating officer, who stepped down with "immediate effect" last month. A week later Brikho announced a revamp that carved up operations along geographical lines among a trio of executives. At an event with analysts to review Amec's oil and gas arm, which provides about 40% of sales, Brikho reiterated the target of growing the operation by at least double digits this year and next. Investors fear the upheaval in the top team could throw that forecast off course, The Sunday Times reports. Power supplier SSE will reignite the political row over energy company earnings this week when it is expected to report a leap of as much as 30% in first-half profits. The company - formerly known as Scottish and Southern - was the first of the "Big Six" energy suppliers to raise prices for customers this year, announcing a 9% increase in August. The company insisted the rise had, "regrettably, become unavoidable" but found itself in a clash with the Government after blaming part of the increase on mandatory green levies and social costs. On Wednesday it is likely to face attacks from consumer groups who say that hard-pressed consumers struggle to understand why companies with rising profits cannot shield them from bill increases, The Sunday Telegraph says. With consumers dealing with rising living costs and static incomes, searching for a better deal on household bills has become a way of life for some, and a growing need which MoneySupermarket has shown ability tapping into. This trend will only become more powerful when the Retail Distribution Review goes into. However, a recent Numis analyst note estimated that half of MoneySupermarket's profits come from Google traffic and that insurance is the company's biggest division. David McCann, at Numis, believes that because Google can use its position as a prime search engine to push other comparison sites down search rankings, Moneysupermarket is at risk. Plumb disagrees. "We've got more customers buying from us than ever before, and it's still a young business in a growing market. Only half of people have ever switched their energy provider. Only 20% of car owners buy their car insurance through an aggregator site. We've got big ambitions," he says, according to The Sunday Telegraph. AB