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RBS and Next updates to give insight into Brexit vote impact

Published 29/07/2016

Royal Bank of Scotland will publish results later this week
Royal Bank of Scotland will publish results later this week

State-backed Royal Bank of Scotland and Next will be the latest companies to update the City on how Britain's decision to quit the European Union is affecting their businesses next week.

Royal Bank of Scotland posts its half-year results on Friday, with the City keeping a close watch for Brexit warnings or concerns over how ultra-low interest rates could hit its performance.

The taxpayer-backed bank is expected to book underlying pre-tax profits of £1.016 billion for the second quarter, with total income slated to come in at £3.15 billion for the same period, according to consensus figures.

Although the update comes too early to gauge the impact of the referendum result , City experts will be looking for any detail as to how the Brexit vote may affect plans to shore up its financial performance in the long-term.

Michael Helsby, research analyst at Bank of America Merrill Lynch, said RBS may be forced to slash costs even further if the Brexit vote triggers a fresh independence referendum in Scotland.

He said: "Post Brexit we worry that RBS's strong management focus and delivery will be hampered as rates are cut, bad debts rise and volume growth is limited.

"The cost lever is already being pulled hard, but with the possibility of a Scottish referendum in the background it may not be able to be pulled harder ."

The announcement will come hot on the heels of results updates from Lloyds Banking Group and Barclays this week, which have both warned of the mounting risks caused by Britain's vote to leave the European Union.

Lloyds said on Thursday that Brexit could have an adverse impact on its future performance, as it slashed 3,000 jobs and shut 200 branches and braced itself for a cut in interest rates.

It was followed by concerns from Barclays on Friday, which said if Brexit negotiations end with the UK's financial sector losing "passporting" rights, it would require the bank to make "alternative licensing arrangements in EU jurisdictions" where it operates.

RBS chief executive Ross McEwan issued a memo to staff in the days after the referendum result, saying the vote to leave the EU would create ''short, medium and long-term'' economic uncertainties.

Mr McEwan also moved to reassure employees that RBS is well placed to deal with the fallout.

Banking stocks have taken a hammering in the wake of the Brexit vote, with the RBS share price still around 25% down compared to its closing value on June 23.

Retailer Next is expected to report another plunge in sales next week as difficult trading and increased costs following the collapse in sterling begin to take their toll on the firm.

City analysts expect like-for-like sales at the chain's high street shops to plummet up to 8.3% in the second quarter.

Paul Rossington, analyst at HSBC, said: "Since the end of the first quarter, UK total and online clothing sales data has gotten worse. UK footfall has also been impacted by the biggest decline in June since 2013 with retail parks going into rare negative territory."

HSBC has slashed its full year profit forecast for Next by 2% as the retailer is expected to incur increased costs following the collapse in the value of the pound. Mr Rossington also said that Next could look to mitigate rising costs by "further price increases, better sourcing and cost savings".

Even before the Brexit vote, which has seen the pound fall over 10% against the US dollar, Next warned that lacklustre figures in the first quarter could indicate a wider slowdown in consumer spending.

Since then, consumer confidence has taken a pounding, with figures from the Confederation of British Industry (CBI) showing that summer high street sales fell at their fastest pace in more than four years in July.

And a GfK index showed a "dramatic" 11-point drop in consumer confidence in July, the sharpest monthly fall in more than 26 years.

Graham Spooner, investment research analyst at The Share Centre, said: "This major high street clothing retailer will be watched closely by the market given its gloomy outlook comments about 2016 provided in May.

"Recent data for clothing sales in the UK was also poor so expectations for Next's figures will not be high. The performance of the directory business will be of interest and any comments on plans to expand the store network given the uncertainty in the wake of Brexit are likely to be a focus for the market."

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