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UK plc profits soar 158% to new high

The profits of FTSE 350 firms reached a new record of £153.8 billion in the first quarter, buoyed by global growth and the lower value of the pound last year.

UK plc profits soar 158% to new high

Profits at companies in the FTSE 350 index reached a record high of £153.8 billion, in the first quarter,  achieving a 158% year-on-year increase.

According to the Share Centre’s latest Profit Watch UK report, which analysed annual results published in January, February and March by companies in the top 350 of the London Stock Exchange, collective UK plc pre-tax profits broke a previous record reached in 2011. The results were buoyed by global growth and a weaker currency in 2017.

Growth was strong across the board - with 70% of companies increasing profits and nine out of 10 companies growing sales. This marked the sixth consecutive quarter of rising revenues and profits.

Multi-national companies performed particularly well, with revenues up by an average of just over 30% year-on-year in sterling terms. In part, this was driven by the collapse in the pound in 2017 after the Brexit vote in the previous year - a trend that reversed in the first quarter of this year as the pound bounced back against the dollar and other currencies.

In comparison, medium-sized mid cap stocks outside the top FTSE 100 grew revenues by just 13.3%. Their enterprises tend to be more focused on the domestic economy and therefore more vulnerable to declines in consumer and business spending caused by the uncertainty of the split with Europe.

The banking sector was the only one that saw revenues dip. However, this did not put the brakes on profit growth, which tripled across the sector. The Share Centre highlighted Royal Bank of Scotland (RBS) as a key contributor, as the taxpayer-backed bank returned to profit for the first time in 10 years.

The annual results were also underscored by an expansion in margins, particularly across mining and oil companies. After a period of low commodity prices, these businesses have reined in capex and put cost-efficiencies in place, boosting profits.

Helal Miah, investment analyst at The Share Centre, said stronger global growth provided a supportive backdrop for the UK.

‘Strong economic expansion around the world, coupled with positive exchange rate effects, and more efficient cost-bases proved a powerful shot in the arm for multinationals. Home-grown companies may not have matched their international peers, but they too have done well,’ he said.

Looking ahead, Miah highlights a stronger pound as a potential headwind for multi-national companies - particularly those that report dollar-denominated revenues and profits.

‘The UK is beset by sluggish growth, and falling confidence while its relationship with Europe is redefined, so strong growth elsewhere in the world is a saving grace for UK plc, providing enhanced opportunities to expand business abroad,’ he added.

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IFS says taxes need to hit historic highs to save NHS

by Dylan Lobo on May 24, 2018 at 07:56

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