According to the group’s Profitwatch UK report, the Share Centre said, given the rapid recovery in the UK economy experienced during the last twelve months, the sales and profit performance of the country’s 350 largest companies came in weaker than expected.
“On a like-for-like basis, UK companies managed to increase their annual sales 2.2% year-on-year, the group said, which was weaker-than expected, it said.
“One reason for this is the strength of the pound which has impacted exports and overseas sales translated back to sterling equivalent,” the Share Centre said.
Of the 26 sectors reporting food and drug retailers accounted for almost one third of the total revenue reported in the quarter (£109.9bn), but collectively only managed a 1.0% increase in their sales, the report explains, while mobile telecoms, the second largest sector was pulled down by a poor performance by Vodafone, which grew revenues by only 0.8% when compared to the previous year.
Overall, 17 sectors increased their revenues compared to only six that saw them decline, the group said, pointing out this is the second strongest ratio of risers to fallers since 2012, but the Share Centre had expected fewer sectors to fall.
While the top 100 suffered at the hands of a stronger sterling, the 250 stocks performed better, because they are less exposed to currency issues.
On a like for like basis, sales were 3.3% higher than the same cohort of firms last year, the report said.
But, it points out: “Growth seems to be showing through better here. On a rolling 12 month basis, revenues from all companies in the list of 350 leaders were £2.1 trillion, meaning that total revenues from all the UK’s top companies have not grown at all since the end of 2012.”
While sales improved, albeit marginally, the share centre points out that this has come at the expense of margins.
“Even taking out the big decline in Vodafone’s operating profit, the remaining companies saw their operating costs rise faster than their sales. It is, however, very encouraging to see pre-tax and net profit rise briskly thanks to lower writedowns,” it explained.
This, it adds, means “the process by which firms acknowledge that investments made in the past are now unlikely to provide the return they expected, and so have a lower value, is almost complete”.
According to the Share centre, the expectation is that the UK will to continue to outperform its counterparts and therefore the mid cap to remain on a faster growth trajectory than the large cap sector.
It maintains that equities remain the asset class of choice, because it says, balance sheets and sales continue to improve across sectors and asset write downs are less prominent across the large cap and mid caps and it expects these trends to continue.
