Cash Flow and Profit
The surveys are designed to provide a unique insight into cash flow and profitability trends and thereby filling a gap in the existing financial and economic data available to business decision makers and economic policy makers.
The UK Exporters’ PMI is calculated by weighting together the national data on output trends from the PMI surveys of manufacturing and services, with weights derived from government statistics (www.statistics.gov.uk) relating to the importance of UK trade with each country.
Markit Economics is a specialist compiler of business surveys and economic indices, including the Purchasing Managers' Index (PMI) series, which is now available for 26 countries and key regions including the Eurozone and BRIC. The PMIs have become the most closely watched business surveys in the world, favoured by central banks, financial markets and business decision makers for their ability to provide up-to-date, accurate and often unique monthly indicators of economic trends.
Key Points
- 5.2% drop in free cash flow; latest decline
steepest in six-and-a-half years of data
collection. - Record increases in domestic and foreign
payment delays. - Bad debtor numbers rose in
Q1. - Severe deterioration of profitability.
Euler Hermes Cash Flow & Profit Survey of UK Companies Q1 2009
The latest Euler Hermes survey of UK companies’ financial health revealed further considerable falls in free cash flow and profitability in the first quarter of 2009.
Cash flow declined at a series-record rate, while profitability contracted at a severe pace.
Falls in both cash flow and profits were blamed on the
poor macro-economic environment, which depressed sales volumes and increased competitive pressures, resulting in lengthy payment delays from clients.
Record fall in free cash flow
The cash flow position of UK corporates
deteriorated markedly during the first quarter of
2009, falling by 5.2%.
Weakness was
particularly centred on large companies, where free
cash flow declined at a rate close to 10%.
Q1’s fall in cash flow was attributed to the poor
trading conditions that existed in the UK at the start
of the year.
Profitability contracted severely
Q1’s was the
sixth successive quarter in which profits have declined, with the latest contraction again severe
(albeit weaker than Q4’s series record).
Profitability contracted across all sectors, while SMEs
performed considerably worse than large
companies.
The continued weakness of the UK economy in the
first quarter of 2009 remained the primary factor
depressing profits.
Key Points
- Profits down at survey record pace.
- Growth of free cash flow weakest for almost 3 years.
- Increase in payment delays the sharpest for eleven years.
Euler Hermes UK Cash Flow & Profit Report Q2 2008
Profitability declining steeply and cash flow increasing only modestly in nominal terms during Q2 2008.Profits contracted at their strongest rate in nearly ten years.
The Euler Hermes UK Cash Flow & Profit Report showed that tighter credit conditions, surging costs and deteriorating demand – particularly at home – served to undermine the performance of UK companies.
In line with the worsening economic climate, payment delays from clients continued to increase, rising at their fastest rate in nearly eleven years of data collection.
Profits Hit Hard By Rising Costs
Depressors of Profitability:
- Surging costs
- Increased raw material prices - biggest depressor of profits
- Higher labour costs a factor
- Price discounting was also seen as a key contributor to deteriorating profits
- Business sourced from the UK was poor
- Domestic demand was cited as the fourth largest depressor of profitability during Q2
- Sterling was noted as another factor hurting profits
- Overseas demand had an overall negative impact on profitability, but only modest and the weakest of all eight influences measured by the survey
Free Cash Flow Fell In Real Terms
Latest data showed that, on average, free cash flow rose by just 1.8% – and with a retail price index reading of 4.6% in June, free cash flow actually fell
in real terms.
Tight trading conditions and increasing payment delays were widely reported to have hit cash flow in the latest survey period. Data showed a further increase in the incidence of late payments, both from domestic and foreign companies.
Key Points
- Second consecutive contraction in export market activity; fastest since November 2001.
- Demand from Eurozone economies faltering; US
continues to stagnate. - BRIC region continues to record strong
expansion.
Euler Hermes UK Exporters’ PMI
UK exports decline at fastest rate in nearly seven years.
UK exports declined in July for the second successive month as rising inflationary pressures along with the ongoing credit crunch contributed to global economic conditions worsening further.
The Euler Hermes UK Exporters’ PMI remained in negative territory, registering 47.7, down from 49.5 in the previous month.
The decline in the UK Exporters’ PMI mainly reflected continued deteriorations in economic conditions in European trading partners such as Ireland and Spain.
Other major European trading partners, including France and Italy, also saw marked falls in activity. Nonetheless, the German economy grew again in July. However, growth was the weakest in just over three years
Economic conditions were subdued again in the US. Growth remained negligible for the second month in a row in the country which receives the largest share of total UK exports.
There was modest growth in manufacturing while the service sector contracted.
Euler Hermes Group
