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Sales rise for top firms at expense of squeezed profit margins

Promising sales growth across the UK's top 350 quoted companies has come at the expense of squeezed profit margins, a­ccording to the latest Profit Watch UK report from The Share Centre.

Total annual revenues for companies with year ends up to the end of March 2014 and who reported them during the second quarter were £353.4 billion.

After adjusting for the stocks leaving and entering the top 350, UK companies managed to increase their annual sales by 2.2 per cent compared to the previous year.

Those tapping into rising consumer spending did well, with sales from general retailers up 12.1 per cent year on year, contrasting with flat performance from the struggling supermarkets.

However, sales growth came at the expense of profit margins, the survey found. At £77bn, gross profit appeared to be up 3.1 per cent at the headline level, but once the index changes were taken into account, it in fact rose only 0.2 per cent on a like-for-like basis, well below the rate of sales growth.

The biggest drag on gross profits was Vodafone, which recorded £1.1bn less year on year. Mining and beverage companies together saw another £1bn wiped off gross profits, while the UK's food retailers also felt the pinch. Overall, only eight sectors were able to expand their gross profit margin, while 12 sectors saw it squeezed.

Operating profit, a crucial measure of company performance, was £28.6bn in the quarter, down 6.6 per cent on a like-for-like basis, a fall of £2.0bn. However total pre-tax profit was £18.9bn, up 5.8 per cent on a like-for-like basis, thanks to reduced asset writedowns.

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