Profit Watch UK Report - Investing Guide - The Share Centre

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Profit Watch UK — November 2017: UK plc profits jump, but there’s trouble ahead as uncertainty bites 

Key learnings

  • UK plc revenues rise by 17.3% to £, biggest rise since 2011
  • BHP Billiton accounts for half the increase, following rebound in commodity prices
  • Pre-tax profits quintuple following BHP’s return to profit, but improvement is widespread as two thirds of companies increase profits
  • Excluding BHP, pre-tax profits still climb 17.1% to £9.5bn, reflecting strong trading, well-controlled costs and lower restructuring charges
  • However, retailers suffer from combination of higher wholesale prices, rising operating costs, competition, and squeezed consumer spending
  • Top 100 outperform mid-250, as global demand improves and commodity prices recover
  • Challenges to UK economy to become more pronounced, with pressure on consumer spending and higher import costs dragging on mid-250

UK plc revenues rise by 17.3%

UK-listed companies reporting annual results between July and September saw sales and profits climb substantially, marking a third successive positive reporting period, according to the latest Profit Watch UK from The Share Centre.

Industrial revenues soar

UK plc revenues rose briskly for those top 350 companies reporting annual results by the end of September, up 17.3% to £113.1bn, the biggest jump in revenues in any reporting season since 2011. Half of the £16.7bn increase was down to BHP Billiton, which saw its revenues soar by two-fifths year-on-year, benefitting from a rebound in commodity prices and weaker sterling. 

Operating profit growth among the UK’s 350 largest companies leapt by 77.1%, thanks largely to BHP Billiton, which delivered a five-fold increase year-on-year. However, even without BHP’s contribution, operating margins across the rest of UK Plc were stable, as impressive profit growth of 11.7% matched sales growth. 

More than nine-tenths of companies grew their sales. Revenues among industrials climbed by a sixth, with strong sales supported by a weaker pound. Housebuilders saw a similar increase, with particularly strong growth from Berkeley and Redrow, while Sky boosted the media sector with solid sales growth, boosted by the weak pound.

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Pre-tax profits show strong improvement

 Collective pre-tax profits saw an even stronger improvement. Those reporting saw their profits quintuple year-on-year. BHP again was influential, as its pre-tax result swung from a £4.9bn loss last year to a profit of £7.6bn this year. However, excluding the mining giant, pre-tax profits still shot up 17.1% to £9.5bn. This in part reflected strong trading, but was boosted by lower exceptional costs, as a wave of restructuring across a range of industries in recent years is now returning to more normal levels. More than two-thirds of companies and three quarters of sectors reported rising pre-tax profits, a very encouraging ratio, and one of the strongest in recent reporting periods.

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Among the larger players, Diageo, Ashtead, and Barratt were star performers. Mid-cap housebuilders, financials, and industrials companies also traded well. By contrast, while the retail sector saw sales rise, partly on the back of new store openings, this came at the heavy expense of its profit margin. Pre-tax profits from Dunelm and Sports Direct plummeted by close to a quarter year-on-year. 

Profits and Sales soar 

Top 100 companies saw both sales and profits rise faster than mid-caps as global demand improved and currency effects played their part. On a like-for-like basis, and excluding the mining giant, top 100 revenues were 12.4% higher, while the mid-caps saw them rise 10.8%. At the pre-tax level, top 100 profits jumped by a sixth year-on-year, without including BHP, compared to a one eighth increase from the mid-caps. 

Helal Miah, Investment Research Analyst

Recent results reflect Brexit uncertainty

"A slew of profit warnings in the third quarter points to potential trouble ahead. Rising import costs will intensify pressure on real incomes, while Brexit-related uncertainty drags on the economy. Productivity remains in the doldrums. Domestically-sensitive stocks are now underperforming their global peers and this is likely to intensify as global demand grows faster than the domestic UK economy"

Helal Miah, Investment Research Analyst

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.