Profit Watch UK - Latest Report

10 August 2015

AIM: SHRE

Share plc

("Share" or "the Group")

Publication of latest "Profit Watch UK" report

Share, which operates The Share Centre Limited, a leading independent UK stockbroker, is pleased to announce the publication of its latest quarterly issue of Profit Watch UK, which analyses the revenues and profitability of the top 350 UK listed companies. The report examined the financial results of companies with year ends up to the end of 31 March 2015 and which reported results in the quarter to 30 June 2015. A full copy of Profit Watch UK can be found on The Share Centre website at https://www.share.com/experienced-investors/profit-watch-uk.

In its summary Profit Watch UK notes:

· Revenues across FTSE 350 companies in the quarter reduced by 0.4% on like-for-like basis - a third successive quarter of falling revenues

· Supermarket sector revenues shrank for first time since 1994

· Gross profits and operating profits fell faster than revenues

· Pre-tax profits fell 36.7% like-for-like - reflecting the performance of food retailers and Vedanta Resources restructuring

· FTSE 100 firms saw pre-tax profits fall to five year low

The report states that the total annual revenues for FTSE 350 companies with year ends up to the end of March 2015 and that reported them during the second quarter, were £354.9bn - down by 0.4% on a like-for-like basis compared to a year ago. It identifies the supermarket sector as the latest drag on UK plc's profitability as FTSE 350 profits fell again.

Overall, 13 sectors saw sales decline, compared to only ten that saw them rise. Low inflation in the UK and other key markets, and the translated value of overseas revenues squeezed by the strong pound, took its toll. However, the food retail sector was a key factor in revenue decline. It was the largest to report, with revenues of £107.6bn accounting for almost one third of the total this quarter. As a result of the ongoing price war supermarkets saw sales fall 2.1% (-£2.3bn) - the first fall since records began in 1994.

Gross profits fell faster than sales among companies reporting in the second quarter as margins were squeezed, falling 1.7% on a like-for-like basis. Operating profits fell more steeply, down 7.7% like-for-like, dipping £2.1bn to £26.4bn, reflecting the difficulty companies have in managing their costs when revenues are under pressure.

At pre-tax level, profits fell by 36.7% to £11.9bn (like-for-like). This was principally driven by food retailers, which saw £10.7bn wiped off their profits as falling profits from operations were compounded by asset write-downs. On top of this, Vedanta Resources swung from a £704m profit last year to a £3.5bn loss, weighing on mid-cap profits. Without the impact of Sainsburys, Morrison, Tesco and Vedanta, pre-tax profits would have risen a modest, but at least positive 5.6%.

Strong sector divergence evident

Food retailers were central to the diminishing profit of UK plc, with supermarkets collectively seeing operating profits fall 62%. Their results overshadowed more positive progress in other parts of the 350. General retailers saw revenues climb 1.3% on a like for like basis, with Next a standout performer. Furthermore, the sector saw operating profits rise at three times the rate of sales. Other sectors exposed to the UK consumer also performed well, as travel and leisure, utilities, and fixed line telecoms all saw operating profits climb swiftly. They join housebuilders and other consumer sectors to see improving results in previous recent editions of the Profit Watch UK.

FTSE 100 bears the brunt of sector troubles

The UK's largest companies once again saw profits squeezed more heavily than their mid-cap peers. This continues a multi-year trend of better performance for mid-caps. Large-caps' operating profits fell 10.6% like-for-like, equivalent to a drop of £2.5bn, while mid-caps saw a fall of 5.8% like-for-like owing to poor results from Vedanta Resources. At the pre-tax profit level, while mid-caps saw a large fall at a headline level, excluding Vedanta Resources, profits actually rose by 16%.

Helal Miah, investment research analyst at The Share Centre, said: 

"UK plc is struggling to reach escape velocity. FTSE 100 companies have been assailed by wave after wave of global difficulties that have knocked profits. First the financial crisis hit the banks, then commodity prices began to fall, followed by the impact of a strong pound hitting profits, and then lower oil prices. The price war in the supermarket industry is just the latest in the long succession of difficulties to hit the UK's largest stocks. These big multinationals are much less able to benefit from the strong performance of the UK economy. This has taken a heavy toll, with top 100 profits no higher than they were five years ago. It's no wonder the FTSE 100 has been range-bound for the last two years. A return to sustained profit growth is needed to boost share prices.

"Mid-caps have been doing much better, and the FTSE 250 has outperformed the 100 as a result. The latest period was less positive, though this was mainly due to individual stocks overshadowing the broader trend, and was still markedly stronger than the large-caps. Since 2009, mid-cap pre-tax profits have risen fourfold, far outstripping the FTSE 100 and we expect them to continue to grow further.

"The sharp sector divergence in the latest results from UK plc highlights the importance of informed stock-picking and an active approach - as well as investing in a diversified portfolio. Simply tracking an index can leave investors disproportionately exposed to sector swings or the poor performance of the largest companies."

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Notes to Editors:

Methodology

The Share Centre analysed raw data from the financial reports of the UK's largest 350 listed companies (provided by Factset, excluding equity investment trusts), cross referencing with additional data from the London Stock Exchange. The researchers compiled the data for the whole market and analysed by sector and index. This report analyses financial data for companies with year ends up to 31 March 2015 and which reported up to 30 June 2015.

Data Source: The Share Centre via FactSet Research Systems Inc.

For FactSet Fundamentals data:Copyright 2015 FactSet Research Systems Inc. All rights reserved.

For FactSet Global Filings data:Copyright 2015 FactSet Europe Limited. All rights reserved.

For FactSet Pricing data:Copyright 2015 FactSet Research Systems Inc. All rights reserved.

About Share plc:

www.shareplc.com or www.share.com.

Share plc is the parent holding company of The Share Centre Limited and Sharefunds Limited and its shares are traded on AIM. The Share Centre started trading in 1991 and provides a range of account-based services to enable investors to share in the wealth of the stock market. Retail services include Share Accounts, ISAs, JISAs and SIPPs, all with the benefit of investment advice, and dealing in a wide range of investments. Services available to corporate clients include Enterprise Investment Scheme (EIS) administration, share plan administration and 'white-label' dealing platforms.

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