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Sunday Telegraph: FTSE100 companies see profits double

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The profits of BHP Billiton, BP and Royal Dutch Shell have soared

By Robert Watts
Last Updated: 12:09am GMT 07/01/2007

Britain’s biggest companies are enjoying an unprecedented earnings boom that has seen profits double in just four years.

New research, compiled by Thomson Financial, the data providers, estimates that companies in the FTSE100 generated profits after tax of £73.2bn last year, an increase of more than 100 per cent from 2003 levels. That figure could rise to £77.2bn this year.

The astonishing figures are the latest indication of the rude health of UK plc and follow a year of record takeover activity. The huge rise in corporate profitability far outstrips Britain’s economic growth. Over the same period the economy grew at a cumulative rate of just 19.9 per cent.

The boom has been fuelled in part by the steep rise in commodity prices. A significant proportion of the FTSE100 comprises oil and mining stocks such as BP, Royal Dutch Shell, BHP Billiton and Xstrata. As prices of commodities such as gold, oil, copper and tin have soared, so have the profits of these companies. Thomson Financial, which compiled the research from forecasts from the City’s leading investment banks, estimates that the earnings of miners rose by more than 70 per cent in both 2005 and 2006.

The profitability of banks, which are also well represented in the index, has also grown sharply. HSBC’s profits rose from £5.4bn to £9.2bn between 2003 and 2005.

Douglas McWilliams, the chief executive of the Centre for Economics and Business Research, said: “Banks have made substantial savings through new technology and those savings have been retained as profits rather than passed on to consumers.”

The doubling of the FTSE100’s earnings is also due to the strong performance of overseas companies that have chosen to list in London. Many economies across the world are growing well above trend. HSBC calculates that 60 per cent of all sales made by FTSE100 companies take place abroad.

Robert Parks, a UK strategist at HSBC, said: “The FTSE is now increasingly dependent on the performance of companies based outside the UK. That leaves UK stock markets more exposed to the ups and down of other economies around the world.

“We believe shares have not kept pace with this recent surge in earnings and therefore that equities have further to rise this year.”

Despite the runaway performance of Britain’s largest companies, small and medium-sized companies have also performed well.

Last week the Office for National Statistics revealed that the profitability of the UK’s non-financial companies had reached a historical high of 15.2 per cent.

The number of people employed by small and medium-sized businesses is still rising, according to official figures. Thomson’s analysis shows that City analysts expect the earnings of utilities and software, pharmaceutical and food companies to rise most sharply this year.

The report also shows that retailers are expected to enjoy a more robust year in 2007. Post-tax earnings at Carphone Warehouse are expected to rise by 123.6 per cent; those at the supermarket Wm Morrison are expected to rise by nearly 50 per cent.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/01/07/cnftse07.xml

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