​Banks and miners hit as ‘perfect storm’ pushes UK profits down 30%

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The UK’s top 350 companies saw their profits plunge in 2012 as businesses were hit by a “perfect storm”, new figures from The Share Centre show.

According to the analyst’s inaugural Profit Watch UK report, profit after tax for the country’s 350 leading companies amounted to £114.5bn in 2012 – which is 29.7 per cent down, or £48.4bn less, from the level recorded in 2011.

The fall was more prominent among the 100 largest companies, which saw profits after tax drop 30.8 per cent compared with 16.5 per cent for the mid-cap firms.

In addition, revenues amounted to £2.07trn in 2012 – an increase of just 2.1 per cent on the previous year and failing to keep pace with the 2.8 per cent inflation rate. This is the slowest sales growth in at least five years, the report says.

The UK index’s three biggest industries – financials, oil & gas, and basic materials – were worst affected. Weak lending affected the banking sector’s top line while falling commodity and energy prices made it difficult for the other two sectors to achieve revenue growth.

Of the £48.4bn fall in UK profits for 2012, some £25.6bn came from the basic materials industry, while £11.2bn was from oil & gas producers and £7.7bn from financials.

The Share Centre investment research analyst Helal Miah says: “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.

“Investors will be hoping 2013 will see some reversal. Given the headwinds in the largest industries, revenues are likely to remain under pressure, but profitability should improve. At its current level, and based on typical valuations for the last four years, the market is implying profits will bounce back to £160bn this year.

“That will be hard to achieve and suggests investors are prepared to pay a higher price for profit, particularly as equities are the best place to find income at present. This is underpinned by the strength of defensive sectors compared to cyclicals.”