Britain's top companies had a torrid 2012 as nearly a third of their profits were wiped out while revenue growth was sluggish at best, a new report has revealed, and profits would need to bounce back by 40% to justify the recent market surge.
The weakness reflected a 'perfect storm' for the country's three most dominant industries - financials, oil and gas, and miners, say the number crunchers who compiled the Profit Watch UK report, according to the Daily Mail.
So does the current stock market rally suggest investors are being over-optimistic about a recovery this year? Perhaps, as market valuations imply that a 40% bounceback in profits is expected in 2013.
Sales at the UK's biggest companies rose just 2.1% in 2012, the slowest pace of growth in at least five years, according to the Profit Watch report from online broker The Share Centre.
The UK 350 made sales of £2.07trn in 2012, just £42.6bn more than in 2011, which means they failed even to keep pace with an inflation rate of 2.8%.
Profits after tax tumbled 29.7% to £114.5bn, a decline of £48.4bn compared to 2011, the lowest profits from UK firms since the recession in 2009.
Companies' profit margins - earnings as a percentage of their sales - took a severe hit, down from 8% to 5.5%.
Although the woe was broadly spread across business sectors, the UK's three biggest industries - financials, oil and gas, and basic materials (mostly miners) - were worst affected.
Falling commodity and energy prices made revenue growth very hard to achieve, while the banking industry saw weak lending affect its top line, explains The Share Centre. Meanwhile, costs rose sharply, and there were sizeable asset writedowns by miners and banks.
"The weakness in 2012 reflects a perfect storm for UK listed firms as the three largest profit producing industries all suffered at the same time, a rather unusual coincidence of events," said The Share Centre investment research analyst Helal Miah.
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