19th August 2013
Profits from the UK’s biggest firms have collapsed by a more than a third as a result of big write-downs from FTSE 100 giants including Tesco and Vodafone writes Philip Scott.
After tax is taken into account, UK plc profits plummeted by 33.8 per cent, thanks to big mark-downs according to the latest Share Centre Profit Watch UK report, which analyses the revenue and profit performance of the index of 350 leading companies
Companies posted just £16.6bn in profits, £8.5bn lower than the £25.1bn for the corresponding period a year ago. Most of the damage was done by two of Britain’s best known companies – Vodafone and Tesco. Vodafone not only performed poorly on revenues, but also made huge write-downs of £7.7bn mainly to reflect the poor performance of its businesses in crisis-hit Spain and Italy.
This one effect wiped out almost third of profits from all companies reporting. For its part Tesco suffered a big margin squeeze as it struggled to maintain market share but it too made large write-downs, knocking £1.5bn off its profits.
Without these two big exceptional effects UK net profits would have risen 2.9 per cent to £25.8bn. Even this improvement is largely thanks to the reversal of big losses at 3i.
The report, which covers the 62 companies reporting their annual results between April and June, also includes analysis of the whole market found that sales from the UK’s top companies rose 4.1 per cent for the year to the end of March 2013. The 62 collectively posted revenues of £360.4bn, compared to £346.4bn in the previous year. On a like for like basis, however, once index changes were taken into account, revenues only inched ahead a much more disappointing 1 per cent, the weakest increase in any reporting period since mid-2010.
This was the reporting season for the big retailers. Collectively they made up almost two fifths of all revenues from companies reporting their annual results in the quarter. Food retailers grew sales fractionally, up 1.7 per cent to £110bn, but general retailers had a tough time, down 0.4 per cent. Across the market, 12 sectors increased their revenues in the year to the end of March 2013 while 10 saw them decline.
Some 23 of the 100 index of the largest companies reported in the period and collectively saw revenues fall 0.7 per cent to £286.5bn, mainly due to weakness in the Telecoms and Utilities industries. Net profits fell 37.3 per cent to £14.7bn, hit hard by Vodafone’s and Tesco’s write-downs. Without this effect, net profit would have risen 1.9 per cent. In all, 39 of the 250 also posted results.
On the face of it, the 250 mid-cap index did well, with revenues up 28.6 per cent year on year to £73.9bn, though without index changes and a strong performance from Essar Energy revenues would have dropped 3.4 per cent. Net profits from the 250 rose 16 per cent to £1.9bn. The biggest benefit at the pre-tax and net profit line came from the reversal of big losses at 3i, without which net profits would have fallen 29 per cent year on year.
Helal Miah, research investment analyst at The Share Centre, commented on the figures: “If sales are vanity and profits sanity, then UK Plc is neither vain nor sane at present. The Profit Watch UK shows just how tough conditions have been for UK Plc over the last year. The latest cohort of companies reporting has found it just as difficult as those in the previous few quarters.
“It is true that some big one-offs have made profits seem worse than the broad spread of results would show, but even at the top line, sales growth of 1 per cent, well behind inflation, is meagre at best, and margins have been under pressure across the board.
“There are very encouraging signs of life in the UK economy so even though world growth forecasts are rather gloomy, we should see sales and margins begin to recover as the tough economic conditions of 2012 wash out of the annual numbers, and a weaker pound gives those earning in foreign currencies a boost.”