Top firms show slowest revenue growth for five years

Sales from the FTSE 350 companies amounted to £2.07 trillion in 2012, representing the slowest growth in five years. The rise of £46.1bn barely kept pace with the 2.8 per cent rate of inflation.

The research, for The Share Centre, also revealed that profits after tax fell 29.7 per cent to £114.5bn.

The fall was attributed to pricing pressure and rising costs and hit larger companies the hardest.

The research singled out mining, oil and financial companies as doing the most damage to the UK P&L.

Helal Miah, investment research analyst, said: “The weakness in 2012 reflects a perfect storm for UK listed firms as the three largest profit producing industries all suffered at the same time, a rather unusual coincidence of events.

“Firms selling commodities on world markets produced greater volumes, but had to accept lower prices for these raw materials, while a flatlining UK economy and the prolonged European recession made it very difficult for a whole range of companies to make any headway.

“Moreover, many firms were unable to offset lacklustre sales growth with cost cutting.

“Investors will be hoping 2013 will see some reversal. Given the headwinds in the largest industries, revenues are likely to remain under pressure, but profitability should improve.”

He added: “At its current level, and based on typical valuations for the last four years, the market is implying profits will bounce back to £160bn this year.

“That will be hard to achieve and suggests investors are prepared to pay a higher price for profit, particularly as equities are the best place to find income at present.

“This is underpinned by the strength of defensive sectors compared to cyclicals.”

Net margins fell to 5.5 per cent from 8 per cent in 2012, highlighting the failure of companies to pass on rising costs to their customers.

The squeeze was broadly spread, with 23 sectors increasing their revenues in 2012 and 14 seeing them fall, worse even than during the recession in 2009 when the ratio was 26:11.

Only half saw their profits rise – 19:18 – with cyclical sectors falling furthest. The previous low point was 2008 when only three sectors grew their profits.

The largest 100 firms, many of which are much more dependent on global conditions than the predominantly UK-focused mid-cap 250 stocks, grew their sales by a lacklustre 2.3 per cent to £1.83 trillion, compared to an even feebler 0.9 per cent from the FTSE 250, which reached a total £238.2bn.

Mr Miah said: “The UK market is heavily skewed to a small number of big companies and big sectors.

“Investors need to be careful when building their portfolio that they take account of this concentration as they select stocks.

“Copying the UK index may not be the best way to diversify your risk.”