Roundup: Revenues, profits at top UK companies reach lowest point since financial crisis

Profits at the largest companies in Britain have hit their lowest point since the financial crisis, according to figures released on Monday by The Share Centre.

However, the fall covers the period just before the Brexit vote on June 23, and cannot be accounted to the large fall in sterling on foreign exchange markets since then or on the political uncertainty surrounding the future Brexit settlement.

Each quarter, The Share Center issues figures collating performance from among the 350 largest British companies, cross referencing with additional data from the London Stock Exchange.

Data for the second quarter of this year, which is almost wholly before the Brexit vote on June 23, show the combined revenues of firms which reported between July and September from among the top 350 companies fell by 0.8 percent to 96.4 billion pounds (about 120 billion U.S. dollars), down 7.4 billion pounds year on year.

The fall was largely driven by global resources firm BHP Billiton, which suffered badly as commodity prices were sharply down.

BHP's exposure to commodities and the resultant rough ride it has taken was reflected in the wider mining sector and led to the combined pre-tax profits of the top companies falling by 76.9 percent year on year to 3.2 billion pounds. BHP itself reported a 4.9-billion-pound loss.

Once BHP is taken out of the figures, revenues rose 9.1 percent among companies reporting, the fastest growth in two years.

Excluding BHP, pre-tax profits were still down 5.6 percent as both media firm Sky and drinks firm Diageo booked lower exceptional income.

There was an even split between companies growing their pre-tax profits and those experiencing a decline. The Share Center report noted that this may be a sign that asset write-downs are diminishing in frequency.

The more domestically-focused mid-cap 250 firms continued to outperform the top 100. Mid-cap sales rose 11.2 percent on an adjusted basis, compared to a 6.7-percent fall among the top 100 firms, and pre-tax profits among those firms grew by 2.5 percent.

Helal Miah, investment research analyst at The Share Center said: "Multinationals have suffered from a variety of sector-specific global headwinds, while companies with greater exposure to the UK have outperformed in sales and profits in recent years, buoyed by the UK's relatively strong economy. This trend should now reverse on the back of changing economic and current conditions."

The multinationals make up a huge portion of sales and profits among UK listed companies, and the fall in profits may have bottomed out and should begin to rise, said Miah.

"UK multinationals will now see their global profits translate at more favourable exchange rates to the pound, while exporters may benefit from sterling's devaluation, although gains will depend on their reliance on international supply chains," said Miah.

However, the fall in sterling post-Brexit result on June 23 means that imports are now more expensive, and retailers will need to consider whether to pass on increases in the cost of food and clothing, or see their margins squeezed.

Higher inflation would allow many firms to grow their top lines, but it will restrain British households, which are the current driver of economic growth in the UK, said Miah.

Those firms more exposed to British consumers can expect to suffer more over the coming quarters as the Brexit inflation effect takes hold.

The Share Center report analyses financial data for companies with year ends up to June 30, and which reported up to Sept. 30. (1 pound = 1.25 U.S. dollars) Endit