By Jonathan Davies
UK plc posted its weakest revenues and profits performance since 2008 last year, according to stockbrokers The Share Centre.
Total revenues for FTSE 350 in the year ending December 2014 were £1.44 trillion, down £116 billion or 7.7% on the previous year.
Falling oil prices, low commodity prices and weak global economic growth all hit revenues in the UK stock market’s three largest sectors — oil, mining and banking. The oil sector lost £63bn, the banking sector was down £24bn and mining companies were down £23bn. The strength of sterling in 2014 also took its toll, especially for companies that report in dollars. One third of the total decline in revenues was due to the higher value of sterling.
The decline was mirrored in company profits. Gross profits totaled £208.4bn, representing a fall of 11.7% on a like for like basis. Twenty-one sectors saw operating profits fall, compared to nine reporting a rise — the weakest ratio since at least 2007. Overall, operating profits fell by a fifth (down 18.4% like for like), declining to £91.3bn — a drop of over £20bn.
Helal Miah, investment research analyst at The Share Centre, said: “The goliaths in the FTSE 100 came under intense pressure from a potent cocktail of negative currency effects, falling oil prices and spluttering global growth in 2014. This has taken its toll on results across the UK stock market, with company profits at their lowest level in six years.
“The worst should now be behind us. Oil prices will continue to challenge the sector, and the eurozone remains a concern. However, the pound has now fallen sharply against the dollar, which will boost the results of the UK’s largest companies and the financial sector should continue to strengthen. With the domestic economy recovering healthily, alongside real household incomes now rising, we believe profits should increase strongly, especially for mid-caps in more domestically orientated sectors.
“With the UK index so concentrated in the oil, mining and large banks, the index is actually far less diversified than in many other countries. If challenging global trends hit simultaneously, as we saw last year, investors focused on the UK index can be left exposed and facing more risk than expected. It’s crucial to be diversified throughout different sectors and size companies, not least because it will allow greater exposure to faster growing, domestically sensitive companies.”