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UK Profit Monitor report

As the UK’s lockdown intensifies, the new UK Profit Monitor from Link Group shows that the UK’s listed companies face this unprecedented challenge in an unusually weak state. Even before the Covid-19 crisis their revenues and profits were in a prolonged earnings recession. Fewer companies have reported rising profits than any time since 2009. Their profit margins are far below historic highs.

Results reported during Q1 (before any Covid-19 effect hit companies) show that the UK’s listed companies saw revenues fall for the second quarter in a row. There have only been four quarters in the last eight years where the decline in revenues was so broadly spread across different sectors. In Q1, revenues fell 2.4% with the greatest impact coming from the oil sector (suffering lower oil prices even before the price war began), banks, and utilities.

As a result, the UK’s earnings recession deepened and widened, with pre-tax profits plunging 29.8% year-on-year. Even allowing for big one-offs, earnings were down for the third consecutive quarter, with the decline affecting large and small companies alike. Moreover, the rate of decline has been accelerating. The UK’s earnings recession has been getting longer, deeper, and broader, even before Covid-19’s impact hit.

This is not just down to a few big companies. In the last quarter, just 42% of companies managed to grow their bottom line year-on-year, the lowest proportion since 2009. This proportion has been in decline, quarter in, quarter out, for two-and-a-half years. At the worst point in the 2009 recession, less than a third of companies reported higher profits. Link Group thinks it will go lower in the recession to come.

If we look at the full twelve-month picture, rather than just the latest quarter, UK companies have booked profits of £166.9bn. That’s 5.7% less than the £176.9bn they made fully twelve years ago in 2007 just before the last recession hit. If we take inflation into account, profits booked in the last year are around a third lower than in 2007. Revenues are three-fifths higher, or one fifth higher in real terms. Profits lagging so far behind revenue growth means margins have much less fat in them than they did ahead of the 2008-9 downturn. Over the last twelve months, UK plc has generated profits of just £8.30 on every £100 of sales, compared to £14 in 2007.

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