Listed firms in rude health
Weak sterling helps UK plc report record profits
RBS was among the companies contributing to the rise in profits
British stock market listed businesses saw profits hit a record high last year, fuelled by the low value of sterling and global growth.
After years in the doldrums collective pre-tax profits hit £153.8 billion, 0.2%, ahead of the previous high in 2011. Seven-tenths of companies grew their profits.
UK plc also put in a strong revenue performance. Sales soared to £1.33 trillion, a three-year high that took them within touching distance of their all-time record set in 2012.
Growth was strong as almost nine-tenths of companies posted higher sales, though those with large international operations fared significantly better. Only one sector, banking, saw lower revenues, though this did not mean lower profits.
Half the top 350 companies posted annual results, including the largest multinationals, making this the most important reporting season by far. Many of these report results in dollars, among them household names like BP, AstraZeneca, and HSBC.
Multinationals are small in number but their sheer size means their revenues contributed seven-tenths to the total £1.33 trillion.
They made up most of the growth in revenues too. Although the pound has recently strengthened against the dollar, its 2017 weakness provided a significant boost for UK plc. Multinational revenues rose 30.1% year-on-year in sterling terms, equivalent to 21.9% on a constant-currency basis.
By contrast, those reporting in sterling, most of whom have a much greater dependence on the domestic market, saw just a 3.6% increase in sales. Mid-caps, which have a greater domestic emphasis saw revenue growth of 13.3% compared to 22.3% for the top 100.
Companies enjoyed expanding margins, with a particularly strong contribution from the mining and oil sectors, whose profits had been pummelled in 2015 and 2016 by low commodity prices.
Significant efficiencies on costs combined with higher oil and metals prices meant soaring profits for these companies. Even though the largest contribution to the upswing came from these two sectors, and from other multinationals, the improvement was broadly spread across the market.
Four-fifths of sectors saw higher profits, including domestically sensitive ones. Despite lower revenues, banking profits tripled, with a particularly strong improvement at RBS, which returned to profit for the first time in 10 years.
BAT, the tobacco giant, booked a large exceptional profit on its holding in Reynolds American, of which it has now taken full control. Even without this factor, UK plc profits more than doubled year-on-year. Mid-cap profits rose 39%, compared to 176% for the top 100.
Helal Miah, investment analyst at The Share Centre, said: “The global economy is on a tear right now, with synchronised expansion in most of world’s key regions.
“In this most important of reporting seasons, UK plc has delivered the strongest set of results in years, extending a period of growth not seen since the recovery in the immediate aftermath of the recession and financial crisis.
“Strong economic expansion around the world, coupled with positive exchange rate effects, and more efficient cost-bases proved a powerful shot in the arm for multinationals. Home-grown companies may not have matched their international peers, but they too have done well.
“A switch from a draining succession of exceptional costs and asset write-downs to profits flatter the overall picture, but is nonetheless to be welcomed.
“In the year ahead, the global economy will provide an even more supportive backdrop, though it may be hard to top the latest record profit.
“The pound is stronger now against the dollar, which will create a headwind for revenues and profits translated back into sterling.
“The UK is beset by sluggish growth, and falling confidence while its relationship with Europe is redefined, so strong growth elsewhere in the world is a saving grace for UK plc, providing enhanced opportunities to expand business abroad.”