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News : International Last Updated: May 6, 2011 - 4:45 AM


Markets News Thursday: Aer Lingus warns of lower 2011 profit; Lloyds Banking Group takes £1.14bn charge in respect of Irish operation
By Finfacts Team
May 5, 2011 - 8:58 AM

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Aer Lingus: Traffic & IMS: The airline said today that year-on-year comparison of Aer Lingus’ booked passenger numbers in April 2011 is impacted by two events. In April 2010, seven days of Aer Lingus’ operations were impacted by the closure of Irish and UK airspace and parts of European airspace due to ash clouds resulting from the eruptions of a volcano in Eyjafjallajoekull, Iceland. In addition, Easter 2011 occurred in April in 2011 whereas in 2010 the Easter holiday period commenced in the last week of March.

Aer Lingus’ total booked passenger numbers in April 2011 were 822,000, an increase of 19.3% compared to April 2010. Short haul booked passengers were 750,000, a 19.8% increase on April 2010 while long haul booked passengers in April 2011 were 72,000, a 14.3% increase on April 2010.

Aer Lingus’ booked load factor in April 2011 decreased by 4.9 points on April 2010 to 70.9%. Short haul booked load factor was 71.9%, a decrease of 5.1 points on April 2010, with capacity increasing by 27.6% due to the impact of the ash clouds in April 2010. Short haul load factor in April 2010 was inflated by customers disrupted due to the ash cloud re-booking their flights multiple times. Flown short haul load factor in April 2011 was 70.1%, which represents a decrease of 1.7 points on flown short haul load factor in April 2010. Long haul booked load factor was 69.0%, a decrease of 4.5 points on April 2010, with capacity increasing by 21.6% due to the impact of the ash clouds in April 2010.

Aer Lingus Regional’s total booked passenger numbers in April 2011 were 64,000, an increase of 93.9% compared to April 2010. Aer Lingus Regional commenced services on 28 March 2010 with three aircraft operating from Dublin and Cork. The Aer Lingus Regional fleet has since grown to six aircraft and now also offers services from Shannon.

In a trading update, Aer Lingus warns today that its so-called Greenfield cost saving programme, which is planned to save €97m in costs, may not be enough to secure the future of the airline.

Aer Lingus says because of the continued weakness of the Irish economy and pressures on costs, it is assessing whether the programme is sufficient to protect profitability or whether future measures are required.

In its interim management statement, Aer Lingus says that despite a difficult start to the year, it will generate an operating profit before exceptional items for 2011, but now at a "significantly" lower level than in 2010.

Goodbody's Eamonn Hughes comments: "Aer Lingus (AL) has reported a Q1 operating loss of €53.7m, a €15.8m yoy deterioration. AL explains this was in line with its expectations and given our pre Q1 IMS FY11 operating profit forecast of €25m represents a €32.6m yoy deterioration, directionally, it is no real surprise. Net debt (net of restricted cash) was down modestly in the quarter from €347m in December to €330m, which strikes us as reasonable against wider losses in the period and 2 new A-320 finance leases in the quarter (with a further 2 due in Q2). Passenger revenues were down 5.6% in the quarter, with scheduled fares down 4% and ancillaries down 15%.

Total revenues were 4.8% lower. However, the company did well on the yield front in the period, with short haul (SH) yields up 9.0% and long haul (LH) yields up 10.7%. This is a bit better than we envisaged, helped by a later bookings profile and SH seems to have benefited from a greater proportion of business traffic, with mix and surcharges factors on LH. Ancillaries were 4% weaker per pax as baggage penetration levels weakened, but this was already flagged. The fuel bill was 5% lower and 9% lower staff costs showed the benefits of Project Greenfield. Other operating costs were up near 10%, led by airport charges and dealing with the cost of the strike. Elsewhere, AL flagged that it is assessing whether Greenfield “is sufficient to protect future profitability or whether further measures are required”. This doesn’t surprise us given the low ROEs, particularly after the higher oil price (and rising airport charges).

We take the opportunity again to revise for the latest oil price and FX rates, AL’s hedging update (fuel & FX) and revenue trends (AL is guiding low single digit growth in yields over Q2 & Q3). However, changes to estimates are modest, since we had already positioned our forecasts 'at a significantly lower level than in 2010,' so are paring our FY11 Operating Profit forecast by €4m to €21m. While it looks like a material adjustment at 16%, it must be put into context of the weak profit level at the airline. We pull FY12 back €10m to €27m. Our fair value slips by €0.02 to €1.03. We reiterate our Add recommendation."

IMS

Basel III to Affect Capacity to Lend: ING CEO: "Yes, we will be able to comply with deposit franchise, but in common with others, we would say that if they put this model in as it currently is, it will have repercussions in the economy and the capacity of banks to lend,” Patrick Flynn, CFO of ING Groep, told CNBC about the Basel III rules:

Lloyds Banking: The Lloyds Banking Group in which the British government has a 43.4% stake, said today that it was providing for a £3.2bn sterling charge to cover for losses from the misselling of protection insurance and it also incurred a £1.14bn hit in respect of its Bank of Scotland (Ireland) operations.

The bank said it made the provision against payment protection insurance (PPI) claims after UK banks lost a UK court case on the selling of policies to millions of customers. The provision followed discussions with the UK Financial Services Authority.

Lloyds reported a statutory loss of £3.5bn in the first quarter, compared to a £721m profit a year ago. It said its pre-tax profit was £284m before the PPI provision and other one-off items.

The group impairment charge of £2.6bn sterling is £500m higher than expectations because of its Irish losses.

It said the bad debts charge for Ireland was £1.144bn in the first quarter, as it is now allowing for further potential falls in commercial property prices in Ireland of about 10%.

Economic View: Room for tentative optimism from April’s Exchequer returns; Goodbody chief economist, Dermot O’Leary comments  - -"When a government is still running a deficit of c.€10bn between revenues and expenditures for the first three months of the year, one should not get too excited, but the latest Irish Exchequer returns provide some tentative evidence of progress in the public finances.

April was a good month for tax revenues. On a gross basis, taxes were up by 19% yoy in April, although the Department of Finance states that this was helped by an unexpected early payment of Deposit Interest Retention Tax (DIRT). Even excluding this, tax revenues were up by 12% yoy. For the year to date, tax revenues are now up 7% yoy (flat excluding DIRT effect) and ahead by 1% relative to forecasts set out in the Budget last December. The main outperformer is corporation tax, thanks to continued improvements in exports, although the tax take from corporation tax is low at this stage of the year. The most disappointing category in the first four months was VAT, which fell by 4% yoy and is over €100m (3%) behind targets.

Were it not for the unexpected early payment of the DIRT, income taxes would also be below expectations, although there was improvement in this category in April. Comparisons with 2010 are difficult in this category due to reclassification issues, but the purest comparison – that of PAYE receipts – shows taxes up by 5% yoy.

On the spending side, restraint continues to be evident. Total expenditure was €280m (2%) lower than expectations in the first third of the year, with most of this undershoot coming from current spending. Annual comparisons are again complicated by reclassification issues, but the Department of Finance states that voted spending is effectively flat year-on-year when one accounts for this issue. In total, Ireland was running a deficit (excluding costs of promissory notes (€3.1bn) which were already included in the General Government deficit and debt data last year) of €6.9bn, effectively in line with the outturn for the first four months of 2010.

After hitting the targets set out by the IMF/EU in Q1, there was some concern that lower tax receipts, due to weaker economic growth prospects, may make it difficult for Ireland to hit its targets for the rest of the year. Although still early in the year, the April data do provide some room for optimism."

Intel Leads the Pack: Mali Venkatesan, research manager of semiconductors at IDC says the 3D transistor is a game changer for Intel, and puts them twelve to eighteen months ahead of the competition:

Tax revenues ahead of schedule in year to April: Davy economist, Conall Mac Coille comments  -- "Tax revenues in the year to April were €108m, or 1.1%, higher than expected in Budget 2011. This compared with a 1.8% shortfall in the year to March.

In the first three months of the year, income tax and value added tax (VAT) receipts were approximately 5% lower than expected.

These shortfalls highlighted fears that weak domestic demand would restrain tax revenues in 2011.

But income tax receipts are now 1.5% ahead of target in the year to April, and the shortfall in VAT receipts has diminished to 3.1%. Excise duties and corporation tax continue to outperform expectations.

Some of the improvement in the income tax performance was due to early payments on deposit interest retention tax. Nevertheless, income taxes still outperformed expectations accounting for the impact of these early payments.

Spending lower than expected

Total net voted spending was up 3.3% year-on-year but 1.8% below target in the four months to end-April. Some of the underspend related to strong PRSI receipts (which are netted off expenditure).

Overall, the exchequer deficit was €9.9bn in the four months to April, up from €7.0bn in the corresponding period of 2010. But this increase largely relates to €3bn payment of promissory notes already included in the national debt.

Today's release suggests that tax revenues are more likely to meet the targets set out in Budget 2011."

US Markets

In New York Wednesday, the Dow feel 84 points or 0.66% to 12,724.

The S&P 500 slid 0.69% and the Nasdaq slipped 0.47%.

Asia Markets

The MSCI Asia Pacific Index ex-Japan fell 0.2% Thursday.

Japan's markets were closed for a holiday; China's Shanghai composite index added 0.19%; Australia's S&P/ASX 200 rose 0.29% and the Bombay Stock Exchange's Sensex index gained 0.08% in Mumbai.

Asia benchmarks

Finfacts Reports

Irish services sector activity in April moved towards stagnation
European Central Bank expected to keep benchmark rate unchanged at 1.25% today
Chinese direct investment abroad could total $1-$2trn by 2020
Irish pension funds make modest gains during April
Irish Exchequer Returns: Deficit at end-April 2011 was €9.9bn; Debt servicing of national debt cost €1.8bn
Markets News Afternoon: US service sector slowed in April; Private sector employment grew at modest pace
Report says more years before recovery of Irish housing market after largest price contraction in Western Europe
Eurozone retail sales volume fell in March
Irish pension funds still hold average equity allocations of 50% compared with 26% in Netherlands and 30% in Switzerland
NAMA reports 2010 loss of €714m; Only 23% of loans are performing

In Europe, the Dow Jones Stoxx 600 is up 0.07% in early trading Thursday.

The ISEQ has risen 0.02% in Dublin.

Dragon Oil has gained 3.75%.

European Benchmarks

Irish Share Prices

Irish Stock Market Capitalisation by Company

Key Index Performance Statistics

Euribor Rates

AIB Daily Report

Bank of Ireland Daily Report

Currencies 

The euro is trading at $1.4878 and at £0.9002.

For live currency updates, check the right-hand column of the Finfacts home page.

The US dollar fell to $1.6038 per euro on Tuesday, July 15, 2008 - an-all time record.

Commodities

The Baltic Dry Index, a measure of shipping costs for dry commodities, hit an all-time High of 11,771 on the 21st of May, 2008. From that time it reversed and on the 5th of December, 2008 it hit a low of 663 - - close to a 1986 low.

The BDI closed at 3,005 on Thursday, Dec 31st - - a rise of 289% in 2009. The index averaged 59% lower in 2009 than a year earlier.

On Thursday, July 15, 2010, the index  fell for the 35th straight session, by 9 points, or 0.537%, to 1,700 points, Bloomberg report.

On Friday July16th, the BDI rose 20 points or 1.12% to 1,700 to break the 35-session losing streak.

On Wednesday this week, the BDI rose 10 points or 0.77% at 1,302.

The Financial Times reported earlier in January, that Australia’s flooding and fears of ship oversupply has pushed down a gauge of the cost of hiring ships to carry coal, iron ore and other dry bulk by nearly half since October to the lowest level since the aftermath of the financial crisis. The Baltic Dry index, the widely watched measure of dry bulk charter rates, fell to 1,453, nearly half the 2,784 peak reached on October 27, 2010.

Crude oil for June 2011 delivery is currently trading on the Chicago York Mercantile Exchange (CME/Nymex) at $109.07 per barrel, down 17 cents from Wednesday's close. In London, Brent for June delivery is trading on the International Commodities Exchange at $121.37. The North Sea benchmark accounts for two-thirds of the global market.

The margin between the US benchmark WTI (West Texas Intermediate) used on the New York Mercantile Exchange and Brent is $13.

The FT said in early February that a surge in oil inventories in Cushing, Oklahoma, where WTI is delivered into America’s pipeline system, has depressed the value of the benchmark against other yardsticks. The International Energy Agency said on Thursday that with “few relief valves” to cut the stock overhang in Cushing, the price dislocation “may persist for months [or years] to come”.

Gold spot price

The spot price of an oz of gold is trading in New York at $1,519.10, up $2.60 from Wednesday's close.

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