Oil price and currency effects pound UK earnings

Annual profits at the UK's biggest listed companies have shown the most widespread weakness for eight years, according to research from a brokerage.

Analysis by The Share Centre of results from FTSE 350 companies reporting in the first quarter found that operating profit was down at companies in 21 sectors and rose at groups in just nine sectors.

The findings underline the broad impact of the collapse in the oil price and the strength of the pound.

For example, Weir Group, the largest constituent of the industrial engineering sector, was hit by the fall in oil prices while currency effects dented profits at British American Tobacco and food producer Unilever.

Operating profit at these FTSE350 groups fell by almost one-fifth to £91.3bn against the same period last year.

The analysis also pointed to other corporate difficulties. It said that when sales fell - as they did by more than 7 per cent in the annual results reported this quarter - companies often found it hard to adjust their operating costs.

This was particularly an issue for groups with high fixed costs but could also affect those that had a big workforce and could not easily make large-scale redundancies.

With a year-on-year profits drop of 30 per cent, oil and gas was among the sectors worst affected but there were also significant declines among pharma and biotech companies, and construction and materials groups.

The Share Centre said a slowdown in growth in the global economy hit several sectors and highlighted the impact on aerospace and defence companies, where operating profits fell 9.1 per cent and every group in the sector saw a drop in profits.

It added that, in terms of more specific issues, Centrica reported a £1.1bn loss after a mild winter and lower energy prices, while in the construction sector Balfour Beatty saw a significantly wider loss as a result of "spiralling contract costs".

Sectors reporting improvements in operating profit included financials, media, and travel and leisure.

Helal Miah, investment research analyst at The Share Centre, said the prospect of further writedowns left the oil sector still vulnerable but that financials should strengthen and currency should give a boost to UK companies in the coming year.

© The Financial Times Limited 2015. All rights reserved.
FT and Financial Times are trademarks of the Financial Times Ltd.
Not to be redistributed, copied or modified in any way.
Euro2day.gr is solely responsible for providing this translation and the Financial Times Limited does not accept any liability for the accuracy or quality of the translation