With plummeting sales and profits highlighted, the latest quarterly Plimsoll Tracker increasingly reflects the full impact of the disruption COVID-19 has inflicted on the UK economy’s biggest employers and economic bellwethers.
The Plimsoll Tracker measures the quarterly performance trends of the UK’s 200 leading non-financial companies to assess their resistance to shocks and how much they are adding back to the nation through tax, employment, and remuneration.
Each quarter Plimsoll examine three performance measures, based on the latest financial data of the UK’s top 200 companies – people, performance, and pressure. The first will examine the number of jobs lost or added and fluctuations in pay and productivity. The second looks at financial stability and outlook. The final area examines debt position and the overall health of the top 200 companies.
This latest quarterly bulletin from the Plimsoll Tracker highlights the latest intelligence on these British commercial heavyweights. Here are the key findings:
In the latest Plimsoll Tracker, we are seeing the extent to which jobs are being shed among the UK’s largest firms. 236,000 fewer people are employed which is a further 4% reduction in overall staff numbers on top of the 3% fall in the previous quarter. This has coincided with a 4% decline in salaries paid while average salaries paid has remained stable at £38k per person employed.
Recent news headlines have been filled with a hiring crisis as companies struggle to fill roles as the economy bounces back but without the influx of suitable labour post-Brexit. Despite escalating wage demands to entice people into key markets such as food production and haulage, UK productivity measures continue to worsen. It fell 12% in Q2 but is down 14% in the latest quarter. UK business cannot afford additional wages without significant price increases passed on to consumers.
The issues of wage demands is likely to be a continued challenge as inflation expectations become more entrenched. With economists predicting a headline CPI rate of 4% within the next year pressure will increase for large companies to trim headcount to control cost and productivity. Will the increased cost of people force acceleration of automation in some sectors into 2022?
Almost two thirds of the top 200 companies have seen their sales fall in the latest quarter. 125 in total have posted a decline in revenue in their latest accounts. That equates to £293 billion in lost revenue over the latest full financial year.
The downward pressures have been more acute in profit margins. Falls in profit margins have continued and are now down 74%. Even those dominant in markets that flourished during the initial pandemic struggled to operate profitability.
Further to last quarter, the hit on the public coffers have been significant and explain the government’s desperate need to raise short-term revenue. The tax revenue generated by the UK’s leading 200 companies has fallen by 51% leaving an enormous hole in the country’s balance sheet. The decline has cost the UK exchequer a worrying £19 billion.
According to Plimsoll’s latest analysis, major companies have reduced their short-term debt in favour of long-term. While the former is down 7% the latter has increase 3%. The Plimsoll Model states that while this move gives some temporary relief on the financial health of a business, it is no silver bullet, and the debts remain real.
With interest predicted to rise throughout the next economic cycle as inflation takes hold, companies need to reassess their debt position as more expensive long-term debt will continue to squeeze margins ever tighter.
For more than 30 years, Plimsoll has been rating the financial health of companies of all shapes and sizes around the world. 9 out of 10 companies currently in administration were rated as “Danger” by Plimsoll up to two years prior to their demise. Size doesn’t protect a company from their ultimate demise, but it can elongate the process.
Debt, whether long- or short-term, used correctly is a force for good. If invested to increase the productivity and performance of a business, they are an asset. However, according to the latest Plimsoll Tracker, there has been 28% decline in overall financial leading to a sharp rise in companies rated as Danger. This is a deterioration on the 24% measure from Q2.
The 200 companies used as part of the Plimsoll Tracker cover almost all non-financial sectors of the economy from retail to agriculture. The latest quarterly updates are the first to reflect the impact of the COVID-19 pandemic. On average sales are falling, profits have plummeted, debts have been moved from short- to long-term, and overall financial health has fallen again.
Though pandemic restrictions have been largely removed, the twin supply and hiring crises threatening to choke off the UK economy could slowed the recovery considerably. For many, the reality of Brexit is becoming a much bigger issue that could also derail the UK’s path back to prosperity.
Plimsoll produces 1600 individual studies on key markets in the UK economy. We specialise in assessing company performance, valuing companies, spotting undervalued acquisition targets, and looking for opportunities in new markets.
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