Grocery price war takes toll on UK plc
SLUMPING supermarket sales pulled UK company profits down 2.2pc in the second quarter of the year.
the latest Profit Watch report by stock broker the share Centre found that while more than half of UK firms grew their sales between April and June, poor performance in food retail and mining dragged overall company revenues down to £341.7bn from £347.5bn in the same period a year ago.
Overall operating profit for the 350 largest UK companies fell for the eighth time in nine quarters, down 3pc to £27.1bn.
supermarket sales fell below £100bn for the first time in six years and sales in the sector – which account for nearly a third of UK company revenues – dropped 3.1pc to £99bn in the second quarter, their lowest point since 2010.
Experts say a raging price war between the giants and the discounters has hit revenues as upstart retailers Aldi and Lidl take market share from the big four.
the launch of online grocery service AmazonFresh in June could make competition in the sector even tougher.
But supermarkets weren’t the only drag on performance for the FtsE 350. Mid-cap miner Vedanta saw its profits halve year-on-year amid a commodity price collapse.
Helal Miah, investment research analyst at the share Centre, said: ‘supermarkets have had a particularly difficult time, facing intense price pressure and competition from discounters. Now the implications of an economic slowdown after the Brexit vote will mean lower demand in sectors such as housebuilders and retail, and the travel industry is already feeling the effects. Financial services may suffer, too.’
But half of the firms in the index saw their revenues rise over the three-month period. industrial firms and other retailers such as Next reported a strong performance.
Healthcare businesses saw the greatest increase in revenue in the quarter, climbing to £2.6bn from £835m a year ago. Pre-tax profit in the sector climbed to £295m from £65m in the first quarter of 2015. Meanwhile, technology firms more than doubled their revenue from £209m to £518m in that time.
Consumer services firms saw pretax profits of £3.8bn in the quarter, a reversal of the £3.5bn loss they posted a year before.
the share Centre said that the pound having plunged against the dollar in the weeks since the EU referendum results will also give a vital boost to those companies with large overseas operations such as Kingfisher and Diageo.
Miah said: ‘this is mainly why the FtsE 100 has performed so well since the referendum.
‘the devaluation of the pound will boost the sterling value of any overseas business, whether via exports, or from translating the value of overseas operations back into pounds.’