Profit Watch UK Report - Investing Guide - The Share Centre

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Profit Watch UK February 2018: Global growth pushes UK plc profits to record high 

Key learnings

  • UK plc revenues rise by 12.6% to £126.6bn, a new record for the latest group of companies to report results
  • Sales grow across the board, as ten sectors see revenues rise; just one sees a fall
  • Internationally-focussed companies boast strongest growth, boosted by global economy and exchange-rate gains
  • Pre-tax profits leap 44.8% to new record of £11.2bn; nine-tenths of companies see an increase
  • Top 100 tap into global growth to outperform strong results from mid-caps
  • Strength of global economy will buoy 2018 results, although boost from weak pound will dissipate through the year

Revenues rise by 12.6%

UK-listed companies reporting annual results between October and December saw sales and profits hit record highs, according to the latest Profit Watch UK from The Share Centre. A stronger world economy and a weaker pound drove up revenues by 12.6% to £116.6bn. This is the highest sales for this group of companies on record.

Multinationals report strong performance

Growth was broadly based, with ten sectors growing revenues, compared to just one in which sales fell. Multinationals reported the strongest performance. Contract caterer Compass, the largest company to report, saw revenues climb by 15.1%, benefitting from exchange-rate gains, and improving demand in overseas markets. These two factors were also behind positive results from globally exposed companies such as Ferguson (formerly Wolseley), TUI, and Associated British Foods. Domestically focused companies such as JD Wetherspoon, Mitchells & Butlers and WH Smith achieved decent, albeit slower, sales growth. The property sector, however, was a particular bright spot, following government support for the housing market, while strong stock markets lifted the results of general financials

Profit watch graph

 

Rocketing pre tax profits

Collective pre-tax profits rocketed 44.8% on a like-for-like basis to a record £11.2bn. In line with revenues, 10 sectors raised pre-tax profits, and only one saw them decline, and even then, only marginally. Overall, nine-tenths of the companies reporting raised their pre-tax profits. 

Easyjet, was the clear outlier, despite higher passenger numbers and higher revenues, with pre-tax profits falling sharply year-on-year. Higher fuel costs and the pound’s weakness were major factors. Greencore, the convenience food manufacturer, also saw profits fall, owing to exceptional costs on its acquisition of Peacocks, a transaction which boosted the group’s revenues considerably.

For the most part, the earnings reported were high quality, reflecting real operational improvement across UK plc. On top of these, there were also lower quality gains from factors such as exceptional profits on the disposal of businesses in the case of AB Foods, or the revaluation of derivatives contracts in the case of Imperial Brands. Exchange-rate gains boosted the profits of many companies reporting. Even without these factors, however, this group of companies would have booked record profits.

Pre-tax profits among the top 100 leaped by more than half, far faster than the next 250. Nonetheless, a jump of nearly a third for mid-caps still represented a strong reporting period.

Profit watch graph 2

Helal Miah, Investment Research Analyst

Whichever way you look at it, UK plc has performed well

"Even without the added sheen of exchange-rate gains, we would have seen record-breaking results. Sales are climbing across the board, earnings are looking healthier still, and there is more to come. Fading exchange-rate gains in 2018 won’t hold back the UK’s largest companies. With the wider global economy in great shape, multinationals will profit from strong trading conditions in their overseas businesses, and manufacturers and exporters will enjoy rising demand for their goods. "

Helal Miah, Investment Research Analyst

about profit watch

about profit watch

Investment Research Analyst, Helal Miah, analyses the profitability of the UK's top 350 companies every quarter. The report won 'Best Financial Campaign' at the 2016 PRCA Awards.