Market Watch: Drug disputes to dent GlaxoSmithKline results

Published on Thursday 15 July 2010 13:21

THE half-year results season will get into gear next week with updates from drugs giant GlaxoSmithKline and outsourcing firm Capita.

GlaxoSmithKline's second-quarter results on Wednesday will see a huge 1.57 billion provision for legal disputes put a significant dent in profits.

The bill comes on top of the 2.3bn which the firm has already put aside and represents a "substantial proportion" of its legal cases.

Glaxo has agreed a 500 million settlement with the US government over a factory in Puerto Rico following allegations the firm was not following proper manufacturing procedures.

The provision will also go towards settling claims over drugs such as its diabetes treatment Avandia, which has been under a cloud since 2007 amid claims - denied by Glaxo - that it increased the risk of heart attacks.

Before the legal bill was announced, analysts were expecting underlying profits of 1.98bn for the second quarter, down from 2.25bn a year earlier.

Bookmaker William Hill will reveal its takings from a record 1bn betting spree during the World Cup when the firm updates on recent trading on Tuesday. The football festival was the biggest gambling event of all time - generating record betting turnover as well as some spectacular punts from high-rolling gamblers.

Spain's victory earned one customer 275,000 and generated a profitable return for bookmakers after the European champions' opening defeat to Switzerland deterred some would-be backers. The Spaniards are the only team to have won the World Cup after losing their first game. William Hill, however, hoovered up the patriotic bets on a poor England team.

The World Cup boost should add to the momentum after a decent first quarter when the layers cleaned up at the Cheltenham festival despite favourite Tony McCoy's Grand National win at the fifteenth attempt.

BoA/Merrill Lynch analyst Roohi Siddiqui said: "We regard continuing strong trends in online and an improvement in machines as key catalysts for the stock in 2010, with the World Cup providing an additional boost."

Outsourcing giant Capita, which posts interim results on Thursday, is positioning itself to capitalise on opportunities thrown up by the coalition's drive to slash the deficit.

The firm is increasing its focus on the central government market to help cash-strapped government departments - some of whom will be facing budget cuts of 25 per cent or more - deliver more for less.

Capita last updated the market when political parties were still thrashing out the shape of the new government. The group's comments on the outlook now the dust is beginning to settle will be viewed with interest - particularly any contract delays - as well as the size of its bid pipeline, which stood at 3.7bn in February.

In May, the firm said it had won 11 new contracts worth 322m, including deals with insurers Aviva and AXA as well as Nottinghamshire County Council.

The group - which is seeing "significantly higher" levels of bidding across both private and public sectors than a year earlier - has also won a 67m deal for customer services from Sheffield City Council as well as a tie-up with Virgin Money. The firm has also spent more than 100m this year, most recently paying out 60m for medical reporting and health screening firm Premier Medical Group.

Investors in mobile phone giant Vodafone will be hoping for signs of further improvements in key markets such as the UK when it updates on Friday.

The group said on releasing annual profits in May that it had seen better revenue trends in its more difficult domestic market and was hopeful the wider group would deliver a return to organic revenues growth in the current financial year.

Vodafone's annual figures beat market expectations, with profits of 8.7bn for the year to 31 March.

The group saw UK sales fall 4.7 per cent in the year amid "intense" competition, but the decline slowed in the fourth quarter to 2.6 per cent from 3.2 per cent in the previous three months.

Its emerging markets division - targeting India and Africa in particular - is expected to see yet more revenue growth, according to Vodafone.