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August 18, 2013 1:01 pm
Britain’s largest public companies are struggling with sluggish top-line growth and weakening margins, according to an analysis of recent annual results among FTSE 350 companies.
Like-for-like sales rose by only 1 per cent among companies whose financial year runs to the end of March, according to a report by The Share Centre, a brokerage.
“Sales growth of 1 per cent, well behind inflation, is meagre at best,” said Helal Miah, a research investment analyst at The Share Centre.
The analysis comes after a batch of positive data pointing towards an improving economic backdrop in the UK. Last week, retail sales for July were stronger than expected, after a sunny July triggered a spending splurge on – among other things – food and alcohol.
Supermarkets, however, saw their annual sales creep up 1.5 per cent in total, while margins weakened across the sector, according to the report. The weak growth came despite relatively high inflation for consumer goods, which normally aids grocers’ revenues.
Mr Miah said: “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.”
Total gross margin fell 1.1 percentage points to approximately 21.4 per cent as companies struggled to turn the modest extra sales into bottom line growth. Analysts at the Share Centre put this down to “weak pricing power”.
The results season was marred by some high-profile corporate earnings misses. Big writedowns from corporate giants Tesco and Vodafone meant that the total annual post-tax profits posted by the FTSE 350 companies in this period fell by a third to £16.6bn.
Revenues among FTSE 100 companies that reported during the period fell 0.7 per cent to £286.5bn. This compared with a 28.6 per cent jump in total revenues from companies in the FTSE 250, thanks to the addition of DCC, the Irish services group, to the mid-market index. With DCC stripped out, revenues rose 9.1 per cent year-on-year in the mid-market index
Of the 22 sectors that the report covered, 12 grew their sales, while 10 saw their top lines slip. The picture was worse at a post-tax profit level, where the majority of sectors saw their post-tax profits fall.
This slow performance has not been matched in the share price performance of both the FTSE 100 and FTSE 250 indices. The FTSE 100 has risen more than 10 per cent since the start of the year, while the FTSE 250 has gained almost 20 per cent.
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