London Markets

British Airways, Tomkins climb in flat London on cost cutsBy Sarah Turner , MarketWatchLast Update: 4:48 AM ET Aug 3, 2007

LONDON (MarketWatch) - Two companies put in stellar share performances in London on Friday morning, as both British Airways and engineering firm Tomkins showed how cutting costs is boosting profits even after taking into account a weaker dollar.

British Airways (BAY) shares rose 4% as investors welcomed a 75% jump in fiscal first-quarter profit, with the airline that's been fined for price fixing, rated worst in losing bags and suffered the impact of toughened security restrictions saying it's aggressively cut costs.

"We took steps last year that are paying off this year," said Willie Walsh, the airline's chief executive, on a call with journalists, pointing to a recent deal on pensions and less severance costs than last year.

The company also benefited from lower commissions paid to travel agents and a favorable exchange rate that lowered fuel costs. See full story.

Meanwhile, Tomkins (TOMK) shares shot up 12.6% after second-quarter sales and operating profit both exceeded consensus analyst expectations by some way.

Sales at the FTSE 250 member dipped 6.1% to 764.6 million pounds, ahead of a consensus forecast of 742 million pounds, while operating profit slid 11.8% to 77.4 million pounds, ahead of a 68 million pound market consensus forecast.

Broker Cazenove, which upgraded the firm to in-line from underperform after the results, said that one of the key drivers of the better-than-expected results was cost cutting at the firm's air handling division, which supplies air conditioning, heating and ventilation systems in North America.

Tomkins said that cost cutting - alongside asset sales and tight cash management -- helped it to face a continued deterioration in the U.S. automotive original equipment and residential housing markets during the period.

"Our management team continues to deal effectively with these challenges by focusing on reducing the cost base and managing cash," Tomkins said.

Another challenge the company faces is a weaker U.S. dollar -which reduces revenue translated back into sterling. The weaker dollar weighed on first half results and is expected to continue to do so for the rest of the year, Tomkins noted.

British Airways also sounded a note of caution about continued dollar

weakness, cutting its fiscal-year sales forecast by 1% to around 4% to account for a weaker U.S. dollar and ongoing restrictions at its main London terminal due to the tougher security measures.

More broadly, the U.K. FTSE 100 index (UKX) turned back from a positive start to trade down 0.2%, or 15.20 points, at 6,285.10 as investors across Europe wait for some key jobs data from the U.S. later Friday. See Europe Markets.

Economists expect payroll growth of 133,000 in the July unemployment report, almost identical to the 132,000 jobs created in June. See full story.

Telecoms Vodafone Group (VOD) and BT Group (BT) (BT.A) were some of the weakest performers , trading down more than 1% each in the top index.

Several other British companies reported earnings on Friday.

Shares in Royal Bank of Scotland Group (RBS) edged up 0.3% after the bank reported a 19% rise in profit Friday, topping market expectations after strong growth from its corporate and investment banking division and its wealth management arm. See full story.

And mining group Anglo American (AAL) (AAUK.D) shares rose 2.85% as its first-half net profit rose 14.8% to $3.38 billion following a strong performance from its platinum, base metals, ferrous metals and industrial minerals divisions.

Anglo American also said it's selling its tarmac division and announced a $4 billion stock buyback.