Big guns still struggling to grow profits say analysts

BRITAIN’s biggest businesses are struggling to grow revenues and profits, underlining the challenges still facing the UK economy, a new report has revealed.

A quarterly study of top companies shows that like-for-like sales inched ahead and failed to keep pace with the rate of inflation.

Profits after tax collapsed 33 per cent, due to big write-downs during the period.

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The Share Centre, which crunched the numbers for 62 companies announcing annual results between April and June, said retailers dominated the reporting period.

Food retailers grew sales fractionally, but general retailers, includes big high street names, had a tough time with households hit by squeezed incomes.

Helal Miah, research investment analyst at The Share Centre, said: “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’s 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 one per cent, well behind inflation, is meagre at best, and margins have been under pressure across the board.”

Headline sales rose 4.1 per cent to £360.4bn, but adjusted like for likes could only muster one per cent, the weakest increase since 2010. The companies posted just £16.6bn in profits, down from £25.1bn the same time last year.

Most of the damage was done by Vodafone and Tesco, according to The Share Centre.

Vodafone performed poorly on revenues and had to write down £7.7bn to reflect the impact of the Eurozone crisis on its sales in Spain and Italy. This wiped out almost a third of profits from all companies reporting.

Tesco suffered a big margin squeeze as it fought to maintain market share and also made large write-downs, knocking £1.5bn off its profits.

Without these two exceptional effects net profits would have risen 2.9 per cent to £25.9bn – thanks to the reversal of fortunes at listed private equity investor 3i.

Given the ability of one or two big companies to affect the total, The Share Centre said it is important to look at the broad sector performance.

This shows that there was widespread weakness in profits from across the market.

Fifteen sectors saw profits after tax fall, compared to just eight which saw them increase.

But Mr Miah was optimistic about signs of life in the UK economy and said that although world growth forecasts are “rather gloomy”, sales and margins should begin to recover as the tough economic conditions of 2012 “wash out” of the annual numbers.