New research from ‘The Share Centre’ monitoring both sales and profits of the 350 largest listed UK companies adds vigour to some who have warned the current bull market is more about on-going QE than market fundamentals.
- UK Plc revenues up 2.1% in 2012 to £2.07 trillion, slowest rise in at least 5 years
- Profits after tax fell 29.7% to £114.5 billion, down £48.4 billion compared to 2011
- Pricing pressure and rising costs hit margins
- Squeeze broadly spread across sectors though larger companies saw bigger fall in profits
- Mining, oil and financial companies caused the most damage to the UK P&L
- UK index is heavily dominated by few sectors and companies – top ten firms make 50% of UK Plc sales and 57% of UK Plc profits
Sales from the UK’s top 350 companies rose at their slowest pace in at least five years in 2012, according to The Share Centre Profit Watch UK, a new quarterly report analysing the revenue and profit performance of the index of 350 leading companies. The UK 350 made sales of £2.07 trillion in 2012, but this was only 2.1% (£42.6bn) more than in 2011, failing to keep pace even with inflation of 2.8%.
Even though sales inched ahead, profits after tax plunged 29.7% to £114.5 billion, a decline of £48.4 billion compared to 2011, the lowest profits from UK firms since the recession in 2009. The net margin (profits as a percentage of sales) fell from 8% to 5.5%.
Profitability was squeezed at all levels of the UK Plc profit and loss account. Gross profit (sales minus the cost of goods sold) fell 6.9% to £380.1 billion, while pre-tax profit declined by a quarter (-24.6%), a fall of £53.3bn. This shows that companies failed to pass on rising costs of all kinds to their customers, both in terms of an increase in the purchase or production price of the items they sell, and in broader operating costs.
The squeeze was broadly spread. 23 sectors increased their revenues in 2012 while 14 saw them fall, worse even than during the recession in 2009 (when the ratio was 26:11). Only half saw their profits rise (19:18) with cyclical sectors falling furthest. The previous low point was 2008 when only 3 sectors grew their profits.
The largest 100 firms…
