Sterling weakness supercharges UK plc results

  • UK plc revenues rise for first time since 2013, up 4.2% to £1.11 trillion
  •  Sterling’s weakness drives improvement, with multinationals and exporters benefitting
  • Operating margins expand, pushing operating profits up 23.4%, the fastest rate since 2010
  • Three quarters of companies increase operating profits, but resurgent miners make largest contribution
  • Pre-tax profits rebound 21.5%, boosted by weaker sterling, improvements from oil and mining companies, and lower asset write-downs
  • Firmer oil prices and resilient commodity markets bode well for year ahead, alongside growing world economy
  •  But with growth in the UK likely to slow, the top 100 may now finally outpace the mid-caps after a long period of lagging behind

UK-listed companies saw profits rise at the fastest rate since 2010 as the sharply weaker pound bolstered the performance of large multinationals and exporters, according to the latest Profit Watch UK from The Share Centre.

Companies that reported annual results between January and March, the most important reporting season of the year, finally turned a corner. Their collective revenues climbed 4.2% on like-for-like basis[1] to £1.11trn, the first rise since 2013. Growth was heavily dependent on the weaker pound, however. Two thirds of this cohort’s results were reported in dollars or euros, creating a £77bn[2]boost to the top line. Without this devaluation effect, revenues would have fallen.

Miners and banks are the second and third largest sectors in the UK after oils, and these saw sales grow. In the mining sector, most companies reported higher revenues, up 5.9% to £174bn, though this was thanks to an exchange rate boost of £18bn. Banks also saw incomes rise, climbing 9.6% to £168bn, with Lloyds supported by fair value adjustments on investments held, and HSBC and Standard Chartered boosted by the devalued pound.

Despite the oil price stabilising, it was lower on average in 2016 than 2015. As a result, oil companies, the largest UK revenues generators, saw their sales fall for a fourth year in a row. Outside the three largest sectors, consumer goods & housebuilding companies saw good revenue growth, as did pharmaceutical and healthcare. Overall, 13 sectors increased revenues compared to six that saw them decline. While some of this is due to the effects of the weaker pound, it also reflects improving trading conditions for many companies.

Operating profits provided even better news, rising 23.4% on a like-for-like basis to £67.8bn. This was the fastest increase since 2010 post-recession rebound. Almost three quarters of the companies reporting their results increased their annual operating profit. The largest contribution to growth came from the mining sector, which saw profits climb by 67%. While around a quarter of this growth was down to exchange rate effects, the remainder was due to more efficient operations and improving market conditions. Healthcare & pharmaceuticals, and the consumer goods & housebuilders sectors also made a significant contribution to UK plc operating profit growth.

Pre-tax profits rise sharply, but are still far below historic highs

Pre-tax profits provided a similarly positive picture, growing by 21.5% to £60.1bn on the back of currency gains, more efficient operations, and lower write-downs. Growth was encouraging to see, but collective UK plc pre-tax profits are still less than half their pre-crisis peak. The mining sector saw a reversal of fortunes, posting a £8.7bn profit, while oil companies were able to reduce their losses from £8.4bn in 2015 to £2.4bn, following an extensive cost cutting drive, and despite the lower average oil prices. The banking sector stood out, however, producing lower profits year-on-year.

Mid-caps outperform again, but property drags on pre-tax profits

Companies in the top 100 saw sales rise more slowly than those in the mid-250, despite the exchange rate gains they enjoyed. Mid cap revenues rose 6.1%, compared to 3.9% among their large cap peers, as domestically focused firms profited from the relative strength of the UK economy. This also translated into higher operating profit growth, accounting for exchange rate factors. However, at the pre-tax level, top 100 outperformed. Top 100 companies saw pre-tax profits rise 26.2%, Surprisingly, the mid-caps saw a 4% fall, though this was largely thanks to the property sector, where commercial property asset revaluations led to much lower gains than a year ago, and in some cases, losses.

 Helal Miah, investment research analyst at The Share Centre said: “The picture of UK plc’s health was heavily airbrushed by the positive effects of a weaker pound.  For multinationals, the pound’s devaluation merely applies cosmetic improvements to their annual results. For others, there are real economic benefits if a company can serve foreign export markets from a cheaper UK base – that means higher volumes, or higher margins, or both.

“When we peel back the veneer of exchange rate gains, recent results are nevertheless encouraging. Although top 100 firms are still struggling to grow sales, the sight of healthier operating margins is very welcome, and reflects an improved ability to manage costs. It also means they are well-positioned for the improving trading conditions that will accompany the uptick in global growth. Better average oil prices, and more resilient commodities, and the return of more normal monetary conditions will all be beneficial for the UK’s largest firms.

“Domestically focused mid-caps continue to outperform, but they are more vulnerable to a coming slowdown in the UK economy as inflation bites into spending power.”


The Share Centre analyses raw data from the financial reports of the UK’s largest 350 listed companies (provided by Factset, excluding equity investment trusts). All results reported in currencies other than sterling were converted at the average exchange rate for the relevant period. This report analyses financial data for companies with year ends up to 31st December 2016, and which reported up to 31st March 2017.