Profit Watch UK Report - Investing Guide - The Share Centre

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Profit Watch UK — August 2017: UK plc posts best profits since 2012

UK-listed companies reporting annual results between April and June posted their best pre-tax profits since 2012 as both sales and margins improved.

UK plc revenues rise by 5.7%

The latest group to report annual figures includes a large contingent of consumer-orientated firms, industrials, and telecoms. These firms saw revenues increase by 5.7% on a like-for-like basis , climbing to £346.1bn. They enjoyed the fastest increase in sales in any reporting period since 2014, making this the third consecutive positive reporting season. Happily, the weaker pound only accounted for just under one percentage point of the increase, demonstrating that growth was coming from real demand, rather than just from exchange rate factors.

 revenue

Retailers lead the way 

Retail was by far the largest sector to report results, accounting for two fifths of total revenues. Food retail sector sales rose by just under 2% year-on-year, as inflation buoyed the value of sales and the established groups proved more successful at combating discounters. In fact, it is the first time since 2011 that food retailers have delivered sales over £100bn. General retailers saw more of a mixed picture. Marks & Spencer trod water, while Next saw sales fall for the first time in five years. In contrast, sales at JD Sports rose by a third while Ted Baker and Kingfisher traded well. Meanwhile, industrial goods and support companies which include DCC plc, made the largest contribution to revenue growth, adding £3.6bn in sales.

Operating profit growth among the UK’s 350 largest companies was better still, growing more rapidly than sales. Operating profits jumped by a tenth (9.9%) to £26.8bn, a third successive reporting period of growth. Vedanta single-handedly accounted for half the annual increase, while currency effects turned a respectable 5.3% increase for profits for Vodafone in euros into a 13% increase in sterling. 

Pre-tax profits provide positive picture

Pre-tax profits provided an even more positive picture for investors as the impact of asset write-downs lessened significantly. Total profits leapt 41.3% to £22.7bn. While Vedanta accounted for two-thirds of the increase, swinging from a £3.3bn loss to a £1.0bn profit, improvement was widespread, with strong performances from general financials, utilities and industrials. The retail sector saw profit growth, although there were clear winners and losers. Next, Marks & Spencer and Sainsbury saw profits decline, while Kingfisher, JD Sports, Morrison and Tesco made positive contributions. 

 revenue pre tax

The ratio of sectors with rising profits compared to the number with falling profits was the highest on record. Just one in twenty companies posted a loss, down from one in nine in 2015 and 2016. 

Mid-caps outperform again

Mid-cap companies outperformed their large cap peers for the fourth reporting season in row. Sales in the 250 rose 8.3%, compared to 5.2% in the 100. This outperformance was seen in profits too; pre-tax profits rose a respectable 11.9% in the top 100, while mid-caps soared seven fold to £5.6bn. The turnaround at Vedanta was a driving force behind the growth in mid-cap profit, but performance was good across the board, as they benefited from the relative strength of the economy and consumer during the twelve months to the end of March 2017. 

Helal Miah, investment research analyst at The Share Centre said: "By any yardstick, this was a positive performance by UK plc. Consumer-orientated companies have been riding a wave of strong spending last year, while the relative strength of the UK economy last year, an improving global outlook, combined with the weaker pound have buoyed results. "

Helal Miah, Investment Research Analyst

Recent results are encouraging

"Looking ahead, the picture is much murkier. Since the beginning of the year, the domestic economy has slowed markedly, sparking a succession of profit warnings. The consumer has been living on borrowed time, and borrowed money. As the devaluation-induced spike in prices has bitten deep into household incomes, so consumer confidence and spending power has ebbed away. The UK economy is slowing, so even those companies that performed extremely well recently may not continue to do so. By contrast, those with significant overseas operations are likely to do better, following the upswing in global demand. "

Helal Miah, Investment Research Analyst

Key learnings

  • UK plc revenues rise by 5.7%, fastest rise in sales since 2014
  • Food retailers deliver £100bn in sales for first time in six years, but growth is broad based; 13 out of 14 sectors see revenues rise
  • Operating profits climb for third successive quarter, climbing by 9.9% to £26.8bn
  • Pre-tax profits soar by 41.3% as operating environment improves, and asset write-downs no longer drag
  • Vedanta’s return to profit the biggest driver in climbing profits, but improvement is widespread across companies reporting
  • Retail posts mixed fortunes. Next, Marks & Spencer and Sainsbury see profits decline, while Kingfisher, JD Sports, Morrison and Tesco make positive contributions
  • Mid-caps outperform top 100 again, but trend likely to reverse as UK economy slows

about profit watch

about profit watch

Investment Research Analyst, Helal Miah, analyses the profitability of the UK's top 350 companies every quarter. The report won 'Best Financial Campaign' at the 2016 PRCA Awards.