profitwatchuk analysis of the UK’s top 350 companies from The Share Centre

August 2013 Executive summary 3 Revenue growth slows further 4 Margin pressures intensify 6 Net profits after tax fall sharply 7 Other profit measures 10 100 versus 250 12 The big players 14 Reporting seasons 15 Appendix 16

Profit Watch UK August 2013 2 introduction

methodology A little over a sixth of the UK’s largest 350 The Share Centre analysed raw data from the financial executive summary reports of the UK’s largest 350 listed firms (provided companies closed their accounts between January • UK Plc sales growth fails to improve after a disappointing 2012 and March, and reported their results during by Factset, excluding equity investment trusts), cross referencing with additional data from the London Stock the second quarter, making it the second most • Revenues rise 4.1% to £360.4bn for companies reporting annual results in the second quarter Exchange. The researchers compiled the data for the important reporting period of the year. These 62 whole market and analysed by sector and index. For • But like for like revenues crept up just 1.0% adjusting for a change in index constituents companies form the basis of our latest Profit Watch the first report, the current top 350 UK companies UK. The data we discuss is a full year’s financial were analysed back to 2007, whether or not they were • Rolling revenue growth which includes all 350 companies reporting in the last 12 months, limped performance from those firms and we call it Q113 constantly in the 350 during this period. Where possible, ahead 1.8% headline (1.3% like for like) data (referring to the date their accounts closed), results for companies listed since 2007 (e.g. ) though we also consider the rolling twelve month have been included back to 2007. This edition and future • Lacklustre sales growth reflects economic weakness in the UK and abroad reports will use the top 350 companies as the list evolves total of the whole 350 so we can take a wider view. over time. • Retailers were the biggest sector to report in the period – supermarkets saw sales up 1.5% but on The report shows all the trends in the UK’s This report analyses financial data for companies with weaker margins, while non-food retailers saw sales fall. Telecoms, the other big sector to report, leading companies’ sales and profits. It shows year ends up to 31 March 2013 and who reported up to posted weak sales growth and a margin squeeze, owing mainly to Vodafone’s difficulties how economic pressures are still taking their toll, 30 June 2013. sales growth is lacklustre and margins are under • 12 sectors grew their sales year on year, against 10 which saw them shrink pressure. • Gross profits fall 0.8% (-1.7% like for like) meaning none of the additional sales were turned into We hope you enjoy reading the Profit Watch UK profits report. • Gross margin shrinks 1.1 percentage points, indicating firms have weak pricing power

• On a rolling annual basis, gross profits from all the 350 constituents fell 0.2% to £379.5bn

• Profit after tax (net profit) fell 33.8% to just £16.6bn, due to big writedowns at Vodafone and Tesco

• Only eight sectors increased their profits, while 15 saw them fall

• Rolling annual net profits fell 33.7% to £106bn

• Mid-cap 250 see better revenue and profit growth than large-cap 100, mainly thanks to big improvements at one or two companies, rather than broad progress

Teamspirit PR Helal Miah, Investment Research Analyst Mark Baker Helal joined The Share Centre in 2012 as an Investment Research Head of Research Analyst. He graduated with a degree in economics in 1998 and 020 7360 7877 / 07980 635243 has since been working within the investment industry. He has [email protected] helped manage private client, institutional, retail and hedge funds with a focus on asset allocation and global macro strategies. He The Share Centre has worked for some reputable companies including Smith & Stephanie Reynolds Williamson, Schroders, The Industrial Bank of Japan and Mitsubishi PR Manager Corporation. He has also spent some time as an independent 01296 439 256 proprietary trader, trading the US equity futures market. He holds [email protected] the Securities Institute Diploma having passed papers in Fund Management, Private Client Investment Management & Advice [email protected] and Regulation. He also holds the Investment Management Certificate and has passed the CFA Level 1.

Profit Watch UK August 2013 Profit Watch UK August 2013 4 revenue growth slows further, dragged down by telecoms

Companies with financial year ends in to see in the figures. GDP rose just 0.3% Rolling annual indexed revenues by industry the first quarter and who reported by the in real terms. But the world economy is end of June saw their annual revenues also sluggish, and Britain’s main trading rise 4.1%, apparently the fastest rate of partners in Europe are in recession or 250 sales growth since the second quarter of growing more slowly than the UK, so 2012. These 62 companies collectively there has been little help from firms’ Basic materials made sales of £360.4bn, compared to overseas activities to boost the figures. 200 Utilities £346.4bn in the previous year. However, On a rolling twelve month basis, Oil and Gas the largest part of the increase is due to a which includes the annual results of all Consumer goods 150 change in index constituents in the 350, companies in the 350 reporting between Consumer services with support services firm DCC replacing July 2012 and June 2013 (accounting year Technology real estate developer Daejan. With ends between 1st April 2012 and 31st 100 Industrials revenues 100 times the size of the firm March 2013), revenues rose 8% to £2.08 Health care it supplanted, DCC’s £10.9bn accounted Weak consumer trillion, marking a further slowdown on Telecommunications for most of the £14bn increase from the calendar year 2012 figures (+2.1% to 50 spending has Financials Q1 12. Without this effect, revenues would £2.07 trillion). Again, the index change constrained the ability have crept ahead just 1.0% over the year, which admitted DCC, flattered the top line 0 the weakest period since mid 2010, well of retailers to grow growth rates. Without it, revenues would Q2 07-Q1 08 Q2 08-Q1 09 Q2 09-01 10 Q2 10-Q1 11 Q2 11-Q1 12 Q2 12-Q1 13 their sales behind inflation. have crept ahead just 1.3%. The weakness of the British economy At broad industry level, excluding over the year to the end of March is clear Industrials which were flattered by DCC, the best performer in revenue growth Within Consumer Services, Food & too. Indeed, telecoms made the largest Revenue Rolling 12 month Revenue terms was Oil & Gas. The oil majors Drug Retailers are the largest sector negative contribution in the year to the

2,000 were not part of the picture however, as comprising of the big listed supermarket end of March. The small Technology 400 their year ends fall in December, so the chains. They reported revenues of industry saw the biggest percentage industry’s main reporting season has £110.2bn in the year to the end of March, decline in revenues (-26.4%), but made 1,500 300 passed. Essar Energy was responsible up 1.7% compared to a year earlier. By little overall impact. for the strong growth as the only contrast General Retailers, the sector 1,000 12 sectors increased their revenues in

£bn which includes Marks & Spencer, 200 company reporting. Indeed, without the first quarter figures while 10 saw £bn Kingfisher, Next and Home Retail Group, Essar’s roughly £7bn sales increase, them decline. This is in line with our last 500 like for like revenues (adjusting for DCC) saw their sales drop collectively by 0.4% 100 report which also showed that half of to £31.3bn. Relatively few Consumer from the 62 firms who close their annual sectors failed to increase their sales in 0 accounts in the first quarter would have Goods companies close their annual Q2 07 Q2 08 Q2 09 Q2 10 Q2 11 Q2 12 the full year 2012. There has been no 0 fallen in Q1 13 compared to the same accounts in the first quarter and report -Q1 08 -Q1 09 -Q1 10 -Q1 11 -Q1 12 -Q1 13 Q1 07 Q1 08 Q1 09 Q1 10 Q1 11 Q1 12 Q1 13 improvement. period a year ago. the results between April and June. The biggest is beverage giant SAB Miller, Consumer Services firms made up by far which contributed to industry revenue Revenue v Profit the largest share of revenues for the 62 growth of 6.4%, boosting the Beverages companies reporting results collectively sector sales by 9.5%. Luxury goods Q1 07 Q1 08 Q1 09 Q1 10 Q1 11 Q1 12 Q1 13 contributing £150.4bn, over two fifths of producer Burberry also did well. Revenue £m £245,008 £269,691 £305,010 £299,340 £325,702 £346,359 £360,428 the total, reflecting the fact that April to Net Profit £m £17,695 £20,719 -£1,092 £25,417 £28,104 £25,086 £16,605 June is the reporting season for many Among the large industries, Utilities were of the UK’s best known retailers. Yet the the weakest, with revenues down 5.6%, dragged down by electricity supplier SSE, Rolling 12m Revenue v Net Profit industry’s revenues were up just 1.5% in the year to the end of March, despite though gas and water companies grew strong inflation, which should have their sales. Telecoms revenues dropped Q2 07-Q1 08 Q2 08-Q1 09 Q2 09-Q1 10 Q2 10-Q1 11 Q2 11-Q1 12 Q2 12-Q1 13 supported the top line. Instead, weak 4.9%, with mobile giant Vodafone Revenue £m £1,462,767 £1,684,275 £1,695,800 £1,905,246 £2,044,065 £2,080,092 consumer spending has constrained the reporting a poor performance, though Net Profit £m £136,289 £47,010 £102,954 £133,065 £159,862 £106,038 ability of retailers to grow their sales. most fixed line operators had a bad year

Profit Watch UK August 2013 Profit Watch UK August 2013 6 margin pressure intensifies net profits after tax fall sharply, but big one-offs are to blame

is slightly different from the revenue Gross profit one. Overall, Consumer Services gross Net number of sectors with rising/falling profits profits shrank 1.4%. While food retailers 90 managed to grow their top line, they 80 did so at the expense of margins, trying 20 70 to support volumes with lower prices, 15 60 or failing to pass on the full extent of 10 50 increases charged by their suppliers. 5 £bn 40 They already operate on very thin 0 30 Q1 08 Q1 09 Q1 10 Q1 11 Q1 12 Q1 13 margins (just 6.1% in the year to the end 20 -5 of March 2013), so small price effects 10 -10 Only eight sectors 0 have a big impact on profits. Gross -15 Q1 07 Q1 08 Q1 09 Q1 10 Q1 12 Q1 12 Q1 13 profits declined by one seventh (14.2%) increased their profits, at Food & Drug Retailers to £6.7bn, while 15 saw them fall led in particular by Tesco which had to cut prices to support flagging sales. While sales rose marginally, gross Sainsbury’s by contrast did well and Net profit, which is whatever is left after Net Profits profits declined by 0.8% in the year to Morrisons was roughly flat. General tax and all of a company’s costs, dropped Retailers, though dwarfed by the the end of March, meaning that none a dramatic 33.8% in year to the end of 30 of the additional sales were turned into supermarkets’ sales, operate on much March 2013. Companies reporting annual profits. Gross profits measure sales higher margins. They produced gross results between April and June posted 25 profits of £11.0bn, roughly in line with minus the cost of goods sold and are an just £16.6bn in profits, £8.5bn lower than 20 indicator of a firm’s raw pricing power. last year, a margin of 10.5%. Mobile the £25.1bn for the corresponding period Telecoms gross profits were weak, driven 15 Can it raise prices to its customers faster a year ago. £bn by margin compression at Vodafone. than any increases in the cost of the 10 Most of the damage was done by two supplies it buys, grows or digs out of the Consumer Goods saw gross profits of Britain’s best known companies - 5 ground? Gross profit measures exclude rise faster than sales, up 8.1%, thanks Vodafone and Tesco. Vodafone made financial companies for which it is not a in particular to a continued strong 0 huge write-downs mainly to reflect the poor Q1 07 Q1 08 Q1 09 Q1 10 Q1 11 Q1 12 Q1 13 meaningful measure. performance by SAB Miller, with its well- performance of its businesses in crisis-hit -5 Firms made gross profits of £76.6bn, earned reputation for managing and Spain and Italy. These exceptional costs compared to £77.3bn for the year to the growing its margins through rigorous knocked its profits down by £7.7bn. Tesco end of March 2012. The UK 350 gross operational efficiency. Utilities, though suffered a big margin squeeze, as we with lower revenues saw much stronger profit margin therefore shrank 1.1% points, discussed above, but it too made large Revenue v Profits from just over 22.4% of sales to just under gross profits (up 8.7%), in particular at write-downs, mainly on over-priced leases, 21.4%, indicating that firms have weak SSE. Gas and Water companies, which knocking £1.5bn off its profits. companies with year end in three months to end of March did better on sales, saw gross profits pricing power. This is further evidence of 400 80 shrink. the effect of weak economic conditions. 350 25 The index change which swapped DCC Once again, most of the increase in 300 20 250 for Daejan again made an impact, Industrials’ gross profits is due to the 15 £bn 200 though it was much smaller owing to 10 inclusion of DCC. 150 DCC’s low margins. Adjusting for this 5 On a rolling annual basis, which includes 100 effect, like for like gross profits dropped 0 the annual results of all companies in 50 1.7%. On a like for like basis, the margin 0 -5 the 350 reporting between July 2012 squeeze was less intense, because DCC Q1 07 Q1 08 Q1 09 Q1 10 Q1 11 Q1 12 Q1 13 and June 2013 (accounting year ends is a low margin business replacing higher between 1st April 2012 and 31st March Revenue (LHS) Net Profit (RHS) margin Daejan in the index. 2013), gross profits fell 0.2% to £379.5bn The industry picture at gross profit level compared to the calendar year 2012. continued overleaf

ProfitWatch August 2013 Profit Watch UK August 2013 8

The tax treatment for such write-downs Nevertheless, only eight sectors increased varies. In most cases they are not tax- their profits, while 15 saw them fall, so it deductible and we have not attempted to was not a broadly spread improvement. adjust for any taxation effects in getting Moreover much of the effect is due to the to the underlying net profit. Without reversal of big losses at 3i (from a loss of these two big exceptional effects UK net £783m to a profit of £183m). At the net profits would have risen 2.9% to £25.8bn profit level the distortion caused by the (though if we attempted to adjust for index inclusion of DCC is very small as it Companies reporting annual results tax effects on writedown’s the like for has a very low net profit margin. between April and June posted just like growth would be a little slower). The best performing industry by profit £16.6bn in profits, £8.5bn lower than This is still a weaker performance at was Financials, with the Financial Services the £25.1bn for the corresponding the bottom line than firms managed in sector behind the increase. This was due sales, meaning that the net profit margin to strong performance in particular at 3i. period a year ago remains under pressure. It is easy to Investec also did well, whilst profits at other conclude companies may finally be companies in the sector fell. The additional turning a corner after four consecutive £573m the sector added to its bottom line periods of double digit net profit declines. was responsible for most of the growth in profits overall. Rolling annual indexed net profit by industry

On a rolling annual basis (which includes 250 the profits all 350 companies have Basic materials reported any time in the twelve months 150 Utilities to the end of June 2013 for accounting Oil and Gas 100 periods between 1st April 2012 and 31st Consumer goods March 2013), profits fell 33.7% to £106bn 50 Consumer services compared to the calendar year 2012, the Technology 0 lowest annual total in three years. They Q2 07 - Q2 08 - Q2 09 - Q2 10 - Q2 11 - Q2 12 - Industrials were last this low when companies were Q1 08 Q1 09 Q1 10 Q1 11 Q1 12 Q1 13 -50 Health care just beginning to recover from the UK’s Telecommunications The best performing industry recession in the year to the end of March -100 Financials by profit was Financials, with 2010. The picture is a little better when -150 the Financial Services sector we adjust for Tesco and Vodafone’s big one-offs. Profits in this case fell 27.9% on a behind the increase. rolling basis.

Rolling 12 month net profit Rolling 12 month revenues vs net profit 2,500 180 180 160 160 2,000 140 140 120 120 1,500 100 100 80 80 £bn 1,000 £bn 60 60 500 40 40 20 20 0 0 0 Q2 07 - Q2 08 - Q2 09 - Q2 10 - Q2 11 - Q2 12 - Q2 07 - Q2 08 - Q2 09 - Q2 10 - Q2 11 - Q2 12 - Q1 08 Q1 09 Q1 10 Q1 11 Q1 12 Q1 13 Q1 08 Q1 09 Q1 10 Q1 11 Q1 12 Q1 13 Revenue (LHS) Net Profit (RHS)

Profit Watch UK August 2013 Profit Watch UK August 2013 10 other profit measures

EBITDA Similar trends emerged at the EBITDA level as at the gross profit level. EBITDA Pre tax profit EBITDA is earnings before interest on dropped 0.7% to £53.2bn. EBITDA 35 borrowings is deducted, and before falling in line with gross profits means depreciation and amortisation are 30 that companies were able to keep applied to assets. It is a useful measure 25 good control of their operating costs, an because it allows investors to compare improvement on the weaker picture we 20 how profitable companies are regardless identified in the full year 2012 figures. 15 of the different ways in which they £bn However, they were not able to squeeze are financed, and without regard for 10 out enough costs to compensate for the the differing accounting policies. This decline in gross profit margins. Food 5 measure is sometimes used as a proxy & Drug Retailers and Mobile Telecoms 0 for operating cash flow, though investors companies were responsible for the Q1 07 Q1 08 Q1 09 Q1 10 Q1 11 Q1 12 Q1 13 should beware taking this comparison too biggest drops in EBITDA in value terms. far, because it does not take into account changes in working capital. EBITDA also The EBITDA margin fell to 15.0% from excludes financial companies. 15.7% a year earlier, though adjusting for the inclusion of low margin DCC, the squeeze was a little smaller. Pre-tax Profit Without write-down effects, pre-tax profits would have fallen 2.1%. EBITDA EBIT Accounting rules mean that exceptional At the pre-tax line we include financial EBIT measures earnings before interest on costs and write-downs are taken below 60 companies and indeed they made the borrowings is deducted. It is sometimes the operating profit line, so they show largest single growth contribution to pre- 50 called operating profit, and also excludes up for the first time in pre-tax profits. Pre-tax profits fell sharply, down 36% tax profit, for the reasons outlined under 40 financial companies. to £17.1bn, owing mainly to the effect of the net profit section above. EBIT fell 4.5% to £31.4bn as depreciation of 30 the Vodafone and Tesco write-downs. 14 sectors saw their pre-tax profits fall £bn assets took place at a faster rate, meaning Mobile Telecommunications made a against nine that saw them rise. It is of 20 that the UK Plc operating margin dropped £3.2bn pre-tax loss in the year to the end course possible for profits to rise while 10 to 8.8% from 9.6% for the equivalent of March, compared to a £4.6bn profit in margins fall. 16 sectors saw their pre-tax reporting period a year ago. 0 the prior year. profit margin get squeezed, against only Q1 07 Q1 08 Q1 09 Q1 10 Q1 11 Q1 12 Q1 13 five that saw it rise.

Pre-tax profits fell sharply, down 36% to £17.1bn, owing mainly EBIT fell 4.5% meaning that the UK Plc to the effect of the operating margin dropped to 8.8% from 9.6% Vodafone and Tesco for the equivalent period a year ago write-downs

Profit Watch UK August 2013 Profit Watch UK August 2013 12 100 versus 250

The 100 index of the largest companies 28.6% year on year to £73.9bn. The saw revenues fall 0.7% to £286.5bn, substitution of DCC for Daejan accounts Profit by index mainly due to weakness in the Telecoms for most of the rise adding almost £11bn to 350 and Utilities industries. Net profits fell total revenues. On a like for like basis the 300 37.3% to £14.7bn, hit hard by Vodafone’s increase is 9.1%. Essar Energy is single- and Tesco’s writedown’s. Pre-tax was handedly responsible for the rest of the 250

£14.9bn, down 40.3%. Without this effect, growth in the index’s revenues. Without its 200 net profit would have risen 1.9%. contribution, like for like revenues would FTSE 100 150 have declined 3.4%. £bn On a rolling twelve month basis, taking FTSE 250 into account the annual results of all top Net profits rose 16% on a headline basis to 100 100 companies reported during the year £1.9bn, and 10.6% on a like for like basis. 50 to the end of June 2013 (accounting year The biggest benefit at the pre-tax and net 0 ends between 1st April 2012 and 31st profit line came from the reversal of big Q1 08 Q1 09 Q1 10 Q1 11 Q1 12 Q1 13 March 2013), revenues rose 1.3% while losses at 3i. Without 3i’s contribution, net net profits declined 36% compared to the profits would have fallen 29% year on calendar year 2012 year, in line with the decline we reported in the full year 2012 stats in our last report. The 250 index accounted for 21% of revenues in the period compared to On a rolling twelve month basis which Rolling revenue (all companies indexed) 79% from the 100 index. 39 mid-caps includes the whole 250 (ex equity 150 reported annual results in the three investment trusts) revenues rose 5% to 140 months to the end of June, compared to £254.5bn, but were up just 0.5% on a like 23 large-cap stocks. for like basis compared to the calendar 130 year 2012 On the face of it, the 250 mid-cap index 120 FTSE 100 did remarkably well, with revenues up . FTSE 250 110

100

Revenue by index 90 Q2 07 - Q2 08 - Q2 09 - Q2 10 - Q2 11 - Q2 12 - 350 Q1 08 Q1 09 Q1 10 Q1 11 Q1 12 Q1 13

300

250 The 100 index of the 200 FTSE 100 largest companies 150 £bn Rolling net profit (all companies - indexed) FTSE 250 saw revenues fall 100 140 120 0.7% to £286.5bn 50 100 0 Q1 08 Q1 09 Q1 10 Q1 11 Q1 12 Q1 13 80 60 FTSE 100 40 FTSE 250 20 0 -20 -40 Q2 07 - Q2 08 - Q2 09 - Q2 10 - Q2 11 - Q2 12 - Q1 08 Q1 09 Q1 10 Q1 11 Q1 12 Q1 13

Profit Watch UK August 2013 Profit Watch UK August 2013 14 the big players

Companies tend to cluster their reporting and General Retail. They collectively Top 10 stocks net profit £m together with their peers, making it easier accounted for £186.0bn in revenues, for analysts and investors to compare 52% of the total reported in the period. Q1 07 Q1 08 Q1 09 Q1 10 Q1 11 Q1 12 Q1 13 their performance. If they are operating These were not the most profitable Land Securities Group PLC Vodafone Group PLC Vodafone Group PLC Vodafone Group PLC Vodafone Group PLC Vodafone Group PLC in similar markets and reporting on the sectors however. Partly because of the BT Group PLC Tesco PLC Tesco PLC Tesco PLC Tesco PLC Tesco PLC SABMiller PLC same period, they will have experienced writedowns, they accounted for only 30% British Land Co. PLC BT Group PLC SABMiller PLC National Grid PLC National Grid PLC SABMiller PLC BT Group PLC similar operating conditions, making of net profits. Without the writedowns, Tesco PLC National Grid PLC National Grid PLC SSE PLC SABMiller PLC National Grid PLC Tesco PLC differences more likely to reflect their they would have accounted for 55% of different strategies and management National Grid PLC SABMiller PLC Marks & Spencer SABMiller PLC SSE PLC BT Group PLC Wm. Morrison profits. Group PLC Supermarkets PLC decisions. The four Gas, Water and Multi-utility 3i Group PLC SSE PLC Wm. Morrison British Land Co. PLC BT Group PLC Wm. Morrison J Sainsbury PLC Supermarkets PLC Super markets PLC The biggest sectors to report in the companies, whose reporting season it second quarter based on accounts SABMiller PLC Man Group Plc Next PLC Land Securities Group Land Securities Group Kingfisher PLC Kingfisher PLC also was, made up 17% of all profits in the PLC PLC closed during the first quarter are quarter. Mobile Telecoms, Food & Drug Retail, SSE PLC 3i Group PLC Investec PLC BT Group PLC British Land Co. PLC J Sainsbury PLC Land Securities Group PLC

Marks & Spencer Marks & Spencer J Sainsbury PLC Wm. Morrison J Sainsbury PLC Land Securities Group Next PLC PLC PLC Supermarkets PLC PLC

Top 10 stocks revenues £m Man Group Plc International Consolidated Man Group Plc J Sainsbury PLC Wm. Morrison London Stock Marks & Spencer Airlines Group SA Group PLC Supermarkets PLC Exhange Group PLC PLC

Combined profit Q1 07 Q1 08 Q1 09 Q1 10 Q1 11 Q1 12 Q1 13 £16,018 £17,167 £9,411 £19,231 £20,749 £19,562 £22,950

Tesco PLC Tesco PLC Tesco PLC Tesco PLC Tesco PLC Tesco PLC Tesco PLC % of total profit 91% 83% -862% 76% 74% 78% 138% Vodafone Group PLC Vodafone Group PLC Vodafone Group PLC Vodafone Group PLC Vodafone Group PLC Vodafone Group PLC Vodafone Group PLC

BT Group PLC BT Group PLC SSE PLC SSE PLC SSE PLC SSE PLC SSE PLC

J Sainsbury PLC J Sainsbury PLC BT Group PLC BT Group PLC J Sainsbury PLC J Sainsbury PLC J Sainsbury PLC

Wm. Morrison SSE PLC J Sainsbury PLC J Sainsbury PLC BT Group PLC BT Group PLC BT Group PLC BT Group PLC Supermarkets PLC reporting seasons SSE PLC Wm. Morrison National Grid PLC Wm. Morrison Wm. Morrisons Wm. Morrison Wm. Morrison Supermarkets PLC Supermarkets PLC SupermarketPLC Supermarket PLC Supermarkets PLC

National Grid PLC National Grid PLC Wm. Morrison National Grid PLC National Grid PLC National Grid PLC Essar Energy PLC Supermarkets PLC % of industries’ revenue reported each quarter Kingfisher PLC Kingfisher PLC Kingfisher PLC Kingfisher PLC Kingfisher PLC Johnson Matthey PLC National Grid PLC 100 Marks & Spencer Marks & Spencer Marks & Spencer Marks & Spencer Johnson Matthey PLC Essar Energy PLC SABMiller PLC 90 Group PLC Group PLC Group PLC Group PLC 80 International Consolidated International Consolidated International Consolidated SABMiller PLC SABMiller PLC Kingfisher PLC DCC PLC 70 Supermarkets PLC Supermarkets PLC Supermarkets PLC 60 Q4 (y/e 1/10 - 31/12) Combined revenues 50

£169,899 £187,722 £219,192 £222,149 £237,325 £249,639 £252,020 % 40 Q3 (y/e 1/07 - 30/09) 30 % of total revenues 20 Q2 (y/e 1/04 - 30/06) 69% 70% 72% 74% 73% 72% 70% 10 0 Q1 (y/e 1/01 - 31/03) Utilities financials industrials Technology Oil and gas Health care Basic materials Consumer goods Consumer services Telecommunications

Profit Watch UK August 2013 Profit Watch UK August 2013 16 appendix

Revenues by industry £m

Q1 07 Q1 08 Q1 09 Q! 10 Q1 11 Q1 12 Q1 13

Basic Materials £9,589 £11,585 20.8% £11,754 1.5% £12,814 9.0% £17,335 35.3% £20,800 20.0% £20,598 -1.0% Consumer Goods £14,621 £15,376 5.2% £16,145 5.0% £16,425 1.7% £16,736 1.9% £18,328 9.5% £19,501 6.4% Consumer Services £116,774 £124,968 7.0% £137,079 9.7% £134,416 -1.9% £141,221 5.1% £148,291 5.0% £150,447 1.5% Financials £8,795 £10,335 17.5% £9,682 -6.3% £9,488 -2.0% £8,165 -13.9% £8,097 -0.8% £7,820 -3.4% Health Care £198 £300 51.3% £359 19.6% £385 7.3% £399 3.6% £509 27.7% £595 16.9% Industrials £10,655 £12,157 14.1% £13,277 9.2% £13,348 0.5% £15,536 16.4% £16,392 5.5% £27,550 68.1% Oil and Gas £107 £185 73.1% £6,481 £11,011 69.9% £17,951 63.0% Technology £2,705 £2,236 -17.4% £2,448 9.5% £2,391 -2.3% £2,660 11.2% £2,735 2.8% £2,012 -26.4% Telecommunications £56,450 £61,462 8.9% £68,189 10.9% £69,322 1.7% £70,109 1.1% £70,072 -0.1% £66,621 -4.9% Utilities £25,114 £31,088 23.8% £46,078 48.2% £40,750 -11.6% £47,061 15.5% £50,125 6.5% £47,332 -5.6%

TOTAL £245,008 £269,691 10.1% £305,010 13.1% £299,340 -1.9% £325,702 8.8% £346,359 6.3% £360,428 4.1%

Net profit by industry £m

Q1 07 Q1 08 Q1 09 Q1 10 Q1 11 Q1 12 Q1 13

Basic Materials £657 £624 -5.0% £303 -51.5% £542 79.0% £680 25.5% £353 -48.0% £380 7.6% Consumer Goods £1,272 £1,358 6.7% £1,321 -2.7% £1,416 7.3% £2,088 47.4% £3,283 57.2% £2,753 -16.1% Consumer Services £4,838 £5,788 19.6% £3,330 -42.5% £5,478 64.5% £6,161 12.5% £6,594 7.0% £4,838 -26.6% Financials £9,270 £236 -97.5% -£11,280 -4876.5% £3,672 -132.6% £3,583 -2.4% £1,525 -57.4% £1,977 29.7% Health Care £9 £24 172.9% -£1 -102.2% £33 -6330.3% £38 13.5% £39 3.6% £48 21.7% Industrials £549 £773 40.9% £808 4.5% £900 11.4% £1,013 12.5% £1,496 47.6% £835 -44.1% Oil and Gas -£15 -£35 137.6% £131 -£346 -365.3% -£107 -69.0% Technology £89 £201 125.5% £181 -10.0% £182 0.7% £215 18.1% £144 -33.2% £47 -67.7% Telecommunications -£1,954 £8,541 -537.0% £3,001 -64.9% £9,779 225.9% £9,733 -0.5% £9,110 -6.4% £2,576 -71.7% Utilities £2,980 £3,210 7.7% £1,246 -61.2% £3,414 174.0% £4,462 30.7% £2,889 -35.2% £3,258 12.7%

TOTAL £17,695 £20,719 17.1% -£1,092 -105.3% £25,417 -2426.9% £28,104 10.6% £25,086 -10.7% £16,605 -33.8%

Profit Watch UK August 2013 Profit Watch UK August 2013 18 appendix

Revenues by sector £m

Q1 07 Q1 08 Q1 09 Q1 10 Q1 11 Q1 12 Q1 13

Chemicals £6,152 £7,499 21.9% £7,858 4.8% £7,839 -0.2% £9,985 27.4% £12,021 20.4% £10,727 -10.8% Forestry & Paper Industrial Metals & Mining Mining £3,437 £4,087 18.9% £3,896 -4.7% £4,975 27.7% £7,350 47.8% £8,780 19.4% £9,872 12.4% Automobiles & Parts Beverages £7,997 £8,645 8.1% £8,983 3.9% £9,106 1.4% £9,964 9.4% £10,714 7.5% £11,735 9.5% Food Producers £5,648 £5,593 -1.0% £5,807 3.8% £5,876 1.2% £5,083 -13.5% £5,541 9.0% £5,513 -0.5% Household Goods & Home Construction Personal Goods £976 £1,138 16.6% £1,354 19.0% £1,443 6.6% £1,689 17.0% £2,073 22.7% £2,253 8.7% Tobacco Food & Drug Retailers £75,263 £81,182 7.9% £90,945 12.0% £95,671 5.2% £102,108 6.7% £108,429 6.2% £110,237 1.7% General Retailers £27,900 £29,108 4.3% £29,729 2.1% £30,990 4.2% £31,084 0.3% £31,406 1.0% £31,279 -0.4% Media Travel & Leisure £13,612 £14,677 7.8% £16,405 11.8% £7,754 -52.7% £8,029 3.5% £8,457 5.3% £8,931 5.6% Banks Financial Services £6,249 £7,867 25.9% £8,005 1.8% £7,934 -0.9% £6,801 -14.3% £6,734 -1.0% £6,488 -3.7% Life Insurance Nonlife Insurance Real Estate Investment & Services £90 £87 -3.6% £96 10.4% £100 4.1% £103 2.8% £107 4.3% Real Estate Investment Trusts £2,456 £2,381 -3.0% £1,581 -33.6% £1,455 -8.0% £1,261 -13.3% £1,256 -0.5% £1,332 6.1% Health Care Equipment & Services £153 £225 47.5% £274 21.8% £286 4.5% £287 0.3% £312 8.6% £361 15.8% Pharmaceuticals & Biotechnology £46 £75 64.1% £85 13.1% £99 16.2% £111 13.1% £197 77.0% £234 18.5% Aerospace & Defence £1,150 £1,366 18.8% £1,617 18.4% £1,625 0.5% £1,703 4.7% £1,470 -13.7% £1,328 -9.6% Construction & Materials Electronic & Electrical Equipment £516 £572 10.7% £662 15.9% £671 1.2% £781 16.4% £917 17.5% £970 5.8% General Industrials £646 £695 7.7% £769 10.6% £720 -6.4% £819 13.8% £1,130 37.9% £1,051 -7.0% Industrial Engineering Industrial Transportation Support Services £8,343 £9,524 14.2% £10,228 7.4% £10,332 1.0% £12,233 18.4% £12,875 5.2% £24,201 88.0% Oil & Gas Producers £107 £185 73.1% £6,481 £11,011 69.9% £17,951 63.0% Oil Equipment, Services & Distribution Software & Computer Services £2,657 £2,236 -15.9% £2,448 9.5% £2,391 -2.3% £2,660 11.2% £2,735 2.8% £2,012 -26.4% Technology Hardware & Equipment £48 Fixed Line Telecommunications £25,346 £25,984 2.5% £27,172 4.6% £24,850 -8.5% £24,225 -2.5% £23,655 -2.4% £22,176 -6.3% Mobile Telecommunications £31,104 £35,478 14.1% £41,017 15.6% £44,472 8.4% £45,884 3.2% £46,417 1.2% £44,445 -4.2% Electricity £11,867 £15,256 28.6% £25,424 66.6% £21,550 -15.2% £28,334 31.5% £31,724 12.0% £28,305 -10.8% Gas, Water & Multiutilities £13,247 £15,831 19.5% £20,654 30.5% £19,200 -7.0% £18,727 -2.5% £18,401 -1.7% £19,028 3.4%

TOTAL REVENUE £245,008 £269,691 10.1% £305,010 13.1% £299,340 -1.9% £325,702 8.8% £346,359 6.3% £360,428 4.1%

Profit Watch UK August 2013 Profit Watch UK August 2013 20 appendix

Profits by sector £m

Q1 07 Q1 08 Q1 09 Q1 10 Q1 11 Q1 12 Q1 13

Chemicals £163 £186 14.0% £173 -7.0% £164 -5.0% £184 12.2% £316 71.5% £277 -12.5% Forestry & Paper Industrial Metals & Mining Mining £494 £438 -11.3% £130 -70.3% £378 190.8% £496 31.2% £37 -92.4% £104 176.5% Automobiles & Parts Beverages £885 £1,025 15.8% £1,131 10.4% £1,216 7.5% £1,571 29.2% £2,674 70.2% £2,182 -18.4% Food Producers £263 £183 -30.4% £183 0.1% £105 -42.4% £285 170.1% £327 14.9% £295 -9.8% Household Goods & Home Construction Personal Goods £125 £150 20.7% £7 -95.6% £95 1340.6% £232 144.1% £281 21.3% £276 -1.9% Tobacco Food & Drug Retailers £2,458 £3,037 23.6% £2,949 -2.9% £3,558 20.6% £3,986 12.0% £4,311 8.1% £2,734 -36.6% General Retailers £1,635 £1,864 14.0% £520 -72.1% £1,628 212.9% £1,855 14.0% £1,810 -2.5% £1,766 -2.4% Media Travel & Leisure £745 £887 18.9% -£140 -115.8% £293 -309.5% £320 9.0% £473 48.0% £339 -28.4% Banks Financial Services £2,358 £2,559 8.5% -£1,605 -162.7% £1,100 -168.6% £1,069 -2.8% £312 -70.8% £885 183.8% Life Insurance Nonlife Insurance Real Estate Investment & Services £142 £54 -61.8% -£179 -430.5% £46 -125.5% £68 48.6% £36 -47.0% £0 -100.0% Real Estate Investment Trusts £6,771 -£2,377 -135.1% -£9,496 299.5% £2,526 -126.6% £2,445 -3.2% £1,177 -51.9% £1,092 -7.2% Health Care Equipment & Services £6 £15 137.3% £13 -16.3% £22 75.3% £29 29.9% £25 -14.1% £31 27.2% Pharmaceuticals & Biotechnology £2 £9 266.7% -£13 -248.9% £11 -186.3% £9 -18.6% £15 58.7% £16 12.3% Aerospace & Defence £69 £47 -31.3% £94 97.5% -£63 -167.6% £5 -107.9% £258 5058.0% -£133 -151.6% Construction & Materials Electronic & Electrical Equipment £43 £51 20.0% £46 -10.1% £74 60.7% £105 41.9% £112 6.6% £117 5.1% General Industrials £13 £4 -66.4% -£8 -275.0% £13 -271.4% £26 93.9% £45 74.6% £26 -43.0% Industrial Engineering Industrial Transportation Support Services £424 £671 58.0% £676 0.8% £877 29.6% £878 0.1% £1,082 23.2% £826 -23.6% Oil & Gas Producers -£15 -£35 137.6% £0 -100.0% £0 £131 -£346 -365.3% -£107 -69.0% Oil Equipment, Services & Distribution Software & Computer Services £92 £201 119.2% £181 -10.0% £182 0.7% £215 18.1% £144 -33.2% £47 -67.7% Technology Hardware & Equipment -£3 Fixed Line Telecommunications £2,978 £1,881 -36.8% -£77 -104.1% £1,134 -1566.9% £1,707 50.5% £2,153 26.1% £2,147 -0.3% Mobile Telecommunications -£4,932 £6,660 -235.0% £3,078 -53.8% £8,645 180.9% £8,026 -7.2% £6,957 -13.3% £429 -93.8% Electricity £831 £873 5.1% £112 -87.1% £1,235 1000.0% £1,505 21.8% £198 -86.9% £426 115.3% Gas, Water & Multiutilities £2,150 £2,337 8.7% £1,133 -51.5% £2,178 92.2% £2,958 35.8% £2,692 -9.0% £2,832 5.2%

TOTAL Net Profit £17,695 £20,719 17.1% -£1,092 -105.3% £25,417 -2426.9% £28,104 10.6% £25,086 -10.7% £16,605 -33.8%

Profit Watch UK August 2013 Profit Watch UK August 2013 22 appendix

Rolling annual revenue by industry £m

Q2 07 - Q1 08 Q2 08-Q1 09 Q2 09-Q1 10 Q2 10-Q1 11 Q2 11-Q1 12 Q2 12-Q1 13 Source: The Share Centre via FactSet Research Systems Inc.

Basic Materials £161,540 £215,659 34% £191, -11% £252,828 32% £300,344 19% £309,20 53% For FactSet Fundamentals data: Consumer Goods £95,454 £111,651 17% £121,78 99% £128,631 6% £135,844 6% £141,74 14% Copyright 2013 FactSet Research Systems Inc. All rights reserved. Source: FactSet Fundamentals Consumer Services £215,909 £243,618 13% £246,55 61% £265,704 8% £285,685 8% £290,25 62% Source: FactSet Financials £359,163 £295,560 -18% £419,008 42% £415,665 -1% £370,526 -11% £371,30 40% Health Care £41,399 £46,538 12% £55,373 19% £56,532 2% £55,722 -1% £52,021 -7% For FactSet Global Filings data: Copyright 2013 FactSet Europe Limited. All rights reserved. Industrials £131,665 £153,331 16% £158,79 64% £163,554 3% £170,276 4% £181,910 7% Source: FactSet Global Filings Oil and Gas £337,711 £469,158 39% £357,325 -24% £467,132 31% £566,891 21% £580,40 42% Source: FactSet Technology £8,350 £9,514 14% £10,11 76% £11,843 17% £11,694 -1% £11,437 -2% Telecommunication £62,899 £70,070 11% £71,43 32% £72,225 1% £72,299 0% £68,758 -5% For FactSet Pricing data: Copyright 2013 FactSet Research Systems Inc. All rights reserved. Utilities £48,677 £69,176 42% £64,189 -7% £71,132 11% £74,784 5% £73,054 -2% Source: FactSet Source: FactSet Total £1,462,767 £1,684,275 15% £1,695,800 1% £1,905,246 12% £2,044,065 7% £2,080,09 22%

Rolling annual net profit by industry £m

Q2 07 - Q1 08 Q2 08-Q1 09 Q2 09-Q1 10 Q2 10-Q1 11 Q2 11-Q1 12 Q2 12-Q1 13

Basic Materials £20,005 £19,593 -2% £11,665 -40% £31,387 169% £34,701 11% £8,831 -75% Consumer Goods £10,940 £8,701 -20% £10,201 17% £14,693 44% £16,856 15% £16,662 -1% Consumer Services £12,411 £4,925 -60% £9,858 100% £13,139 33% £13,843 5% £10,652 -23% Financials £34,198 £35,551 -204% £17,839 -150% £28,363 59% £20,558 -28% £14,223 -31% Important information about our investment research and content of this magazine: Health Care £8,285 £8,283 0% £11,093 34% £7,785 -30% £12,550 61% £9,669 -23% Industrials £7,385 £5,823 -21% £6,042 4% £6,640 10% £9,309 40% £9,733 5% The investments and/or services referred to in this document may not be suitable for every investor and if in doubt you should contact Oil and Gas £28,949 £29,885 3% £21,335 -29% £13,668 -36% £38,114 179% £27,896 -27% a financial adviser. You should be aware that the prices and values of stock market investments and the income from them may go down as well as up and you may not get back the amount you originally invested. Performance figures shown are calculated on Technology £640 £666 4% £773 16% £903 17% £815 -10% £942 16% bid price to bid price basis (mid to mid for OEICS) with net income (dividends) reinvested. Performance figures are shown in sterling Telecommunications £8,616 £3,252 -62% £9,985 207% £9,963 0% £9,321 -6% £2,736 -71% unless otherwise stated. Past performance is not a reliable indicator of future performance. Full details of how we reach our views on Utilities £4,859 £1,434 -70% £4,162 190% £6,524 57% £3,796 -42% £4,694 24% investments and risk rate investments can be found on our website at www.share.com/risk.

The Share Centre or a connected company may be providing or may have provided within the previous 12 months significant Total £136,289 £47,010 -66% £102,954 119% £133,065 29% £159,862 20% £106,038 -34% advice or investment services in relation to the investments within this document, or related investments. The bases and levels of taxation may change. The information contained in this document is believed to be correct, but cannot be guaranteed. Any opinions expressed herein are given in good faith and may be subject to change without notice. This document does not constitute a personal recommendation. No liability is accepted whatsoever for any loss howsoever arising from any information in this document subject to the rules of the Financial Conduct Authority or the Financial Services & Markets Act 2000. The Share Centre or a connected company, their clients, officers and employees may have a position or engage in transactions in any of the investments mentioned. ‘FTSE®’ is a registered trademark of the plc and the Financial Times Limited and is used by FTSE under licence. The Share Centre Limited is a member firm of the London Stock Exchange and is authorised and regulated by the Financial Conduct Authority under reference number 146768.

Profit Watch UK August 2013 Profit Watch UK August 2013