UK plc sales growth comes at the expense of squeezed profit margins

11th August 2014

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Upbeat sales growth across UK firms maybe enjoying a rise in sales revenues but the growth is not translating into higher profits.

Total annual revenues for British listed firms who reported during the April to end of June period were £353.4bn according to the latest Profit Watch UK report from stockbroker The Share Centre.

While this was 0.2% higher than the same period last year, taking into account companies leaving and entering the top 350, UK firms managed to increase their annual sales 2.2% compared to the previous year.

But at £77bn, gross profit appeared to be up 3.1% at the headline level but once the index changes are taken into account, it in fact rose only 0.2% on a like for like basis, well below the rate of sales growth.

The report found that the biggest drag on gross profits was Vodafone, which recorded £1.1bn less year-on-year. Mining and beverage companies together saw another £1bn wiped off gross profits, while the UK’s food retailers also felt the pinch.  Overall, only eight sectors were able to expand their gross profit margin, while 12 sectors saw it squeezed.

Midcaps outstrip biggest firms in FTSE 100

Midcaps, more heavily exposed to the UK economic resurgence, have seen their revenues and profits grow at a much faster rate than their counterparts in the top 100. The UK’s top 100 firms saw headline revenues rise 1% year-on-year to £281.6bn, and slightly faster when adjusting for index changes. By contrast, on a like for like basis, revenues of £71.8bn among the 250 means sales were 3.3% higher than the same cohort of firms a year ago. Gross profits from the top 100 fell 1.2% year on year. The midcaps saw them increase 5.1%. Even at net profit level, the difference in performance remained. The top 100 made £18.2bn – excluding Vodafone – up 22.2%. The midcaps made £3.9bn, up 32.8%.

Helal Miah, investment research analyst at The Share Centre said: “The sun might be shining on the UK economy, but listed company profits are being left in the shade. There have been a large number of profit warnings so far this year, and this has been borne out in our figures. While revenues are showing promising – if modest – growth, they are not keeping pace with costs.  It’s mainly a problem for the large caps though.

“Midcaps are storming ahead of the top 100 at every level, from revenues to profits. Midcaps are reaping the benefits of growth in the domestic economy, while their larger counterparts are more exposed to foreign markets, and to the exceptionally strong pound, the strongest currency in the world in the last year.”

 

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