UK company earnings in recession before Covid-19 crisis - survey
UK company earnings were in a prolonged earnings recession even before the Covid-19 crisis erupted, a survey showed.
Listed companies' profits declined for a third consecutive quarter in the three months to the end of March, the Link UK profit monitor showed. Just 42% of companies reported rising profit in the first quarter, the lowest share since the recession of 2009, as sales and margins were hit by Brexit uncertainty and the slowing world economy.
The survey indicates UK companies are in a weak position to deal with the extreme shock of the Covid-19 crisis, which could wipe out £170bn of profits according to Link.
Profit fell by almost 30% year on year in the first quarter as revenues dropped for the second quarter in a row. The number of companies achieving profit growth has been falling for more than two years, affecting large and small companies across sectors, the survey showed.
In the past year UK companies booked £167bn of profits – 5.7% less than in 2007 before the last recession. Including inflation, profits were down by a third over the same period despite revenue rising by a fifth in real terms, Link said.
"As the UK’s lockdown intensifies … the UK’s listed companies face this unprecedented challenge in an unusually weak state," Link said. "Even before the Covid-19 crisis their revenues and profits were in a prolonged earnings recession. Fewer companies have reported rising profits than any time since 2009. Their profit margins are far below historic highs."
Link's analysis of the last recession, oil and commodity prices and Covid-19's impact on retail, travel and leisure suggests UK company profits will fall by 75% by autumn 2020, wiping out £170bn over 18 months – equivalent to a year's profit for listed companies.
Link said share prices may have overreacted to that potential profit plunge but that conditions were too uncertain for investors to make clear judgments.
Susan Ring, chief executive of Global Corporate Markets, which compiled the survey for Link, said: "If the damage from the crisis is short-term, and if profits start to rebound later this year, then the elimination of almost £800bn of value from UK stocks during the crash is a clear overreaction to the loss of perhaps £170bn of profits. The gap is the value of uncertainty."