Euler Hermes UK Cash Flow and Profit Report Q4 2008

Data from Q4’s Euler Hermes Cash Flow & Profit Report further highlighted the weakness of the UK corporate sector at the end of 2008, with companies signalling concurrent falls in free cash flow and profitability. Both indicators of corporate financial health fell at series record rates as the headwinds of declining revenues, weak domestic demand and lengthening payment times from clients all had adverse impacts on company performance.

Severe fall in profitability

The survey indicated a fifth successive quarterly decline in profitability during the final three-month period of 2008, with the latest contraction severe and unprecedented. All types of company registered contractions in profitability, with large sized companies particularly hard hit. By sector,rates of contraction were broadly similar.The principal reason cited by panellists for the record deterioration in profitability was adverse trading conditions in domestic markets, which have led to a severe retrenchment of spending and demand. Companies also bemoaned the negative impact that weak sterling was having on performance as it raised the price of imported goods, and offered little stimulus to overseas demand, which had a strong adverse impact on profitability. Strong competition, price discounting and raw material prices also had considerable negative influences.