Table of contents
- Main points
- About this release
- Your views matter
- Net rate of return of private non-financial corporations
- Economic context
- Manufacturing and service companies, Quarter 4 (Oct to Dec) 2014
- United Kingdom non-continental shelf (UK non-CS) companies, Quarter 4 (Oct to Dec) 2014
- United Kingdom continental shelf (UKCS) companies, Quarter 4 (Oct to Dec) 2014
- International comparisons
- Background notes
- Methodology
1. Main points
- Private non-financial corporations’ profitability, as measured by their net rate of return, was estimated at 11.9% in Quarter 4 (Oct to Dec) 2014, down from the revised estimate of 12.3% in Quarter 3 (July to Sept) 2014
- Manufacturing companies’ net rate of return was estimated at 12.0% in Quarter 4 (Oct to Dec) 2014, 1.7 percentage points higher than the revised estimate of 10.3% in Quarter 3 (July to Sept) 2014, but 1.4 percentage points lower than the estimate for Quarter 2 (Apr to June) 2014 (13.4%)
- Service companies’ net rate of return was estimated at 16.9% in Quarter 4 (Oct to Dec) 2014, down from the highest recorded quarterly estimate of 18.4% in Quarter 3 (July to Sept) 2014
- UK Continental Shelf (UKCS) companies’ net rate of return was 10.4% in Quarter 4 (Oct to Dec) 2014. This was the lowest estimated rate since the series began in Quarter 1 (Jan to Mar) 1997
- UK non-CS companies’ net rate of return was 12.0% in Quarter 4 (Oct to Dec) 2014. This was down from the revised estimate of 12.3% in Quarter 3 (July to Sept) 2014. The highest estimated net rate of return for this series was recorded in Quarter 3 (July to Sept) 1997 (13.5%)
- In 2014, the net rate of return of private non-financial corporations was estimated at 11.9%, the highest recorded annual estimate since 1998 (12.4%)
- To see the above data in more context, data for earlier periods are shown at Tables 1 and 2, they are also presented in the graphs at Figures 1 to 4
2. About this release
Understanding profitability:
Profitability, using the net rate of return calculation method, is a common way of measuring the economic success of a company or sector. The rate of return is calculated by expressing the economic gain, or profit, as a percentage of the capital used to produce it. See paragraph 2 of the Background notes for a more comprehensive definition.
All estimates in this statistical bulletin are consistent with the Quarterly National Accounts Q4 2014 published on Tuesday 31 March 2015.
Back to table of contents3. Your views matter
We are constantly aiming to improve this release and its associated commentary. We would welcome any feedback you might have, and would be particularly interested in knowing how you make use of these data to inform your work. Please contact us via email: profitability@ons.gov.uk or telephone Stephanie Duff on +44 (0)1633 456098.
Back to table of contents4. Net rate of return of private non-financial corporations
The net rate of return of all private non-financial corporations in Quarter 4 (Oct to Dec) 2014 was estimated at 11.9%. This compares with the revised estimate of 12.3% for Quarter 3 (July to Sept) 2014.
As figure 1 shows, the net rate of return for private non-financial corporations reached its highest point following the economic downturn, in Quarter 3 (July to Sept) 2014 at 12.3% and was at its lowest level in Quarter 2 (Apr to June) 2009 at 8.8%.
Figure 1: Net Rate of Return of private non-financial corporations, Quarter 4 (Oct to Dec) 2006 to Quarter 4 (Oct to Dec) 2014
UK
Source: Office for National Statistics
Download this chart Figure 1: Net Rate of Return of private non-financial corporations, Quarter 4 (Oct to Dec) 2006 to Quarter 4 (Oct to Dec) 2014
Image .csv .xls
Table 1: Annual Net Rate of Return
United Kingdom | ||||||
Net rates of return of UK Private Non-financial Companies (%) | ||||||
Total | Manufacturing | Services | UK Continental Shelf (UKCS) | |||
1997 | 13.4 | 14.1 | 14.3 | 24.4 | ||
1998 | 12.4 | 12.0 | 14.0 | 20.1 | ||
1999 | 11.5 | 11.2 | 12.7 | 22.5 | ||
2000 | 11.4 | 10.4 | 11.7 | 35.8 | ||
2001 | 9.9 | 7.7 | 10.2 | 34.7 | ||
2002 | 11.1 | 9.0 | 11.7 | 33.5 | ||
2003 | 11.5 | 8.2 | 13.3 | 31.5 | ||
2004 | 11.8 | 10.0 | 13.1 | 29.2 | ||
2005 | 11.7 | 9.2 | 12.8 | 35.1 | ||
2006 | 11.8 | 8.7 | 12.6 | 38.6 | ||
2007 | 11.4 | 8.0 | 12.5 | 35.3 | ||
2008 | 11.4 | 8.1 | 12.6 | 40.3 | ||
2009 | 9.7 | 5.2 | 12.1 | 31.5 | ||
2010 | 10.8 | 5.6 | 13.1 | 39.3 | ||
2011 | 11.4 | 8.6 | 13.3 | 42.1 | ||
2012 | 11.2 | 7.0 | 14.4 | 32.4 | ||
2013 | 11.2 | 8.2 | 14.8 | 26.0 | ||
2014 | 11.9 | 10.9 | 16.7 | 15.2 | ||
Source: Office for National Statistics |
Download this table Table 1: Annual Net Rate of Return
.xls (27.6 kB)
Table 2: Quarterly Net Rate of Return
United Kingdom | ||||
Net rates of return of UK Private Non-financial Companies (%) | ||||
Total | Manufacturing | Services | UK Continental Shelf (UKCS) | |
2007 Q1 | 11.1 | 9.7 | 11.6 | 28.0 |
2007 Q2 | 11.5 | 7.7 | 12.7 | 28.5 |
2007 Q3 | 11.5 | 7.9 | 13.2 | 34.5 |
2007 Q4 | 11.7 | 6.9 | 12.6 | 50.5 |
2008 Q1 | 12.1 | 9.4 | 13.2 | 46.7 |
2008 Q2 | 11.8 | 10.3 | 10.9 | 52.6 |
2008 Q3 | 11.7 | 6.4 | 13.0 | 44.1 |
2008 Q4 | 10.3 | 6.4 | 13.3 | 17.7 |
2009 Q1 | 10.2 | 5.7 | 12.7 | 30.7 |
2009 Q2 | 8.8 | 4.6 | 11.5 | 21.4 |
2009 Q3 | 9.8 | 5.2 | 12.4 | 29.7 |
2009 Q4 | 10.0 | 5.2 | 11.8 | 44.4 |
2010 Q1 | 10.4 | 5.7 | 12.7 | 34.5 |
2010 Q2 | 10.1 | 5.6 | 12.2 | 36.4 |
2010 Q3 | 11.1 | 5.6 | 14.1 | 41.2 |
2010 Q4 | 11.4 | 5.6 | 13.4 | 45.1 |
2011 Q1 | 11.6 | 9.2 | 12.9 | 45.4 |
2011 Q2 | 11.2 | 9.5 | 12.7 | 41.3 |
2011 Q3 | 11.5 | 8.0 | 14.2 | 39.1 |
2011 Q4 | 11.4 | 7.6 | 13.4 | 42.6 |
2012 Q1 | 11.5 | 7.3 | 13.9 | 38.0 |
2012 Q2 | 10.5 | 5.9 | 13.8 | 32.6 |
2012 Q3 | 10.9 | 6.1 | 15.5 | 29.9 |
2012 Q4 | 11.8 | 8.7 | 14.3 | 29.3 |
2013 Q1 | 11.3 | 6.1 | 15.0 | 27.5 |
2013 Q2 | 10.6 | 7.0 | 14.1 | 26.1 |
2013 Q3 | 11.5 | 9.3 | 15.9 | 26.5 |
2013 Q4 | 11.6 | 10.4 | 14.2 | 24.0 |
2014 Q1 | 11.5 | 7.8 | 16.0 | 20.6 |
2014 Q2 | 12.0 | 13.4 | 15.5 | 17.4 |
2014 Q3 | 12.3 | 10.3 | 18.4 | 12.4 |
2014 Q4 | 11.9 | 12.0 | 16.9 | 10.4 |
Source: Office for National Statistics |
Download this table Table 2: Quarterly Net Rate of Return
.xls (29.2 kB)5. Economic context
According to the Quarterly National Accounts, the UK economy grew by 0.6% in the final quarter of 2014, and by 2.8% over the 2014 calendar year as a whole. This was the highest annual growth rate recorded since 2006, and was accompanied by the highest annual net rate of return for UK companies since 1998, of 11.9%. This was an improvement of 0.7 percentage points on the previous year, resulting from gross operating surplus including the alignment adjustment – a measure of profits – growing at a faster rate than the amount of capital employed between 2013 and 2014.
Breaking down the aggregate measure in to its components reveals some notable features. Despite falling slightly in the final quarter of 2014, from 18.4% to 16.9%, the net rate of return in the services industry has generally risen steadily since the height of the economic downturn in 2009. In addition, the 2014 estimate of 16.7% was higher than in any year since comparable data were first produced in 1997. This coincides with strong growth in the services industry, which is the only headline industry to have surpassed pre-downturn peak levels of output to date. In addition, the Confederation of British Industry (CBI) Service Sector Survey reported strong growth in services profitability in the first three quarters of 2014, but a decline in the final quarter. Whilst the manufacturing net rate of return was not as strong as for services in 2014 (10.9%), it has also increased since 2012 (7.0%).
In contrast, UK Continental Shelf companies, which are mainly involved with the extraction of oil and gas from the North Sea, have seen a dramatic fall in the net rate of return between 2013 and 2014, from 26% to 15%. Although the profitability of these companies may have been affected by the recent decline in oil prices, they have seen their net rate of return decline since 2011, and therefore other factors may be relevant.
Despite the economy experiencing consistent economic growth over the past 8 quarters, other indicators related to profitability have shown mixed messages. Although business investment contracted by 0.9% in the final quarter of 2014, it grew by 7.5% between 2013 and 2014, the largest increase since the downturn. However, Ernst and Young have reported a surge in profit warnings, with 299 companies issuing profit warnings over the course of 2014, the highest since 2008. Many companies cited intense competition and over-capacity, but the strong value of sterling was cited as a potential factor.
Back to table of contents6. Manufacturing and service companies, Quarter 4 (Oct to Dec) 2014
Manufacturing companies
The estimated net rate of return for manufacturing companies in Quarter 4 (Oct to Dec) 2014 was 12.0%. This was 1.7 percentage points higher than Quarter 3 (July to Sept) 2014.
As Figure 2 highlights, the estimates of net rate of return for the manufacturing sector can be volatile. Variation from one quarter to the next usually reflects the fortunes of a number of the larger companies and is not necessarily an indicator of improving or worsening economic performance across the sector as a whole.
Service companies
The estimated net rate of return for service companies in Quarter 4 (Oct to Dec) 2014 was 16.9%. This was the second highest estimated rate since the series began, the highest was the revised estimate of 18.4% for Quarter 3 (July to Sept) 2014. Figure 2 shows the net rate of return for service companies since Quarter 4 (Oct to Dec) 2006. The underlying trend in recent years reflects the improving economic recovery.
Figure 2: Net Rate of Return of Manufacturing and Services Companies, Quarter 4 (Oct to Dec) 2006 to Quarter 4 (Oct to Dec) 2014
UK
Source: Office for National Statistics
Download this chart Figure 2: Net Rate of Return of Manufacturing and Services Companies, Quarter 4 (Oct to Dec) 2006 to Quarter 4 (Oct to Dec) 2014
Image .csv .xls7. United Kingdom non-continental shelf (UK non-CS) companies, Quarter 4 (Oct to Dec) 2014
UK non-CS companies comprise manufacturing, service and other UK non-CS companies (such as construction and power supply).
The estimated net rate of return for UK non-CS companies in Quarter 4 (Oct to Dec) 2014 was 12.0%. This was down 0.3 percentage points from the revised estimate of 12.3% in Quarter 3 (July to Sept) 2014.
As the net rate of return of UK non-CS companies makes up the majority of private non-financial corporations, figure 3 shows a comparable picture to that of all private non-financial corporations (Figure 1).
Figure 3: Net Rate of Return of UK non-CS Companies, Quarter 4 (Oct to Dec) 2006 to Quarter 4 (Oct to Dec) 2014
UK
Source: Office for National Statistics
Download this chart Figure 3: Net Rate of Return of UK non-CS Companies, Quarter 4 (Oct to Dec) 2006 to Quarter 4 (Oct to Dec) 2014
Image .csv .xls8. United Kingdom continental shelf (UKCS) companies, Quarter 4 (Oct to Dec) 2014
UKCS companies are defined as those involved in the exploration for, and extraction of, oil and natural gas in the UK. Due to the nature of the capital assets employed, net rates of return for continental shelf companies are not directly comparable with those for other industries.
The estimated net rate of return for UKCS companies in Quarter 4 (Oct to Dec) 2014 was 10.4%, the lowest recorded estimated rate since the series began in 1997. This was the third consecutive lowest estimate and was 2.0 percentage points lower than the previous quarter. As described in the Economic Commentary this may be due to the recent decline in oil prices.
Figure 4: Net Rate of Return of UKCS Companies, Quarter 4 (Oct to Dec) 2006 to Quarter 4 (Oct to Dec) 2014
UK
Source: Office for National Statistics
Download this chart Figure 4: Net Rate of Return of UKCS Companies, Quarter 4 (Oct to Dec) 2006 to Quarter 4 (Oct to Dec) 2014
Image .csv .xls9. International comparisons
Profitability is a relative measure of profit and what created it. This bulletin shows the rate of return on capital employed. Unfortunately, other countries use a range of different measures, making international comparisons difficult.
Eurostat show comparisons, across the European Union, of the aggregated national profit share defined as Gross Operating Surplus (GOS) plus Mixed Income divided by Gross Value Added (GVA) on a European System of Accounts 2010 (ESA10) basis. GVA is the difference between the cost of inputs (whether capital or labour) and the cost of the output. The difference in the cost is due to the value added by the use of labour and capital. GOS is the income earned from capital.
International data on an ESA10 basis are only available at the aggregate National level (Figure 5).
Figure 5: International Profit Share 1998 to 2014
International Comparisons
Source: Office for National Statistics, Eurostat
Notes:
- Please note values for Spain are based on Provisional Eurostat data. Data for France for 2014 is currently unavailable.
Download this chart Figure 5: International Profit Share 1998 to 2014
Image .csv .xlsThe UK aggregated profit share in 2014 was 42.2%, up from 41.6% in 2013. Across the years, as shown in Figure 5, the UK aggregated profit share was comparable with that of France.
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