Cynnwys
- Key points
- About this release
- Your views matter
- Net rate of return of private non-financial corporations
- Economic context
- Manufacturing and service companies, Q3 2014
- United Kingdom non-continental shelf (UK non-CS) companies, Q3 2014
- United Kingdom continental shelf (UKCS) companies, Q3 2014
- International comparisons
- Background notes
- Methodoleg
1. Key points
Private non-financial corporations’ profitability, as measured by their net rate of return, was estimated at 12.0% in Q3 2014; up from the revised estimate of 11.6% in Q2 2014
Manufacturing companies’ net rate of return was estimated at 10.9% in Q3 2014, 0.1 percentage points higher than Q2 2014 and the highest since Q1 2002
Service companies’ net rate of return was estimated at 16.8% in Q3 2014, the highest rate since the series began in Q1 1997
UK Continental Shelf (UKCS) companies’ net rate of return was 13.9% in Q3 2014. This was the lowest estimated rate since the series began in Q1 1997. This was the second consecutive lowest estimate and 3.3 percentage points lower than the previous quarter
UK non-CS companies’ net rate of return was 12.0% in Q3 2014. This was the highest rate since Q4 1998, when it was also 12.0%
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
The net rate of return on capital employed for UK private non-financial corporations related to their UK operations for July to September 2014. The net rate of return is a common way of measuring the profitability or economic success of a company or sector. It 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.
The estimates in this statistical bulletin are consistent with the Quarterly National Accounts Q3 2014, published on Tuesday 23 December 2014, as described in the ‘revisions’ section.
Nôl i'r tabl cynnwys3. 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.
Nôl i'r tabl cynnwys4. Net rate of return of private non-financial corporations
The net rate of return of all private non-financial corporations in Q3 2014 was estimated at 12.0%. This compares with the revised estimate of 11.6% for Q2 2014.
As Figure 1 shows, the net rate of return for private non-financial corporations peaked in Q3 1997 at 14.1% and was at its lowest level in Q2 2009 at 8.8%.
Figure 1: Net Rate of Return of PNFCs, Q1 1997 to Q3 2014
UK
Source: Office for National Statistics
Download this chart Figure 1: Net Rate of Return of PNFCs, Q1 1997 to Q3 2014
Image .csv .xls
Table 1: 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 |
| Source: Office for National Statistics | ||||
Download this table Table 1: Net rates of return of UK Private Non-financial Companies
.xls (22.0 kB)
Table 2: Quarterly Net Rate of Return
| % | ||||
| Total | Manufacturing | Services | UK Continental Shelf (UKCS) | |
| 1997 Q1 | 13.0 | 13.2 | 13.5 | 27.5 |
| 1997 Q2 | 13.2 | 13.9 | 14.1 | 22.5 |
| 1997 Q3 | 14.1 | 14.9 | 15.1 | 23.8 |
| 1997 Q4 | 13.4 | 14.2 | 14.3 | 23.6 |
| 1998 Q1 | 12.6 | 12.2 | 13.0 | 22.7 |
| 1998 Q2 | 12.8 | 14.3 | 14.1 | 21.8 |
| 1998 Q3 | 11.6 | 10.3 | 14.3 | 17.6 |
| 1998 Q4 | 12.4 | 11.2 | 14.6 | 18.3 |
| 1999 Q1 | 11.7 | 11.9 | 12.0 | 18.5 |
| 1999 Q2 | 11.3 | 13.0 | 12.3 | 19.4 |
| 1999 Q3 | 11.6 | 10.0 | 13.5 | 25.9 |
| 1999 Q4 | 11.6 | 10.2 | 12.9 | 26.3 |
| 2000 Q1 | 12.1 | 12.6 | 11.3 | 32.2 |
| 2000 Q2 | 11.7 | 12.0 | 11.8 | 34.5 |
| 2000 Q3 | 11.3 | 9.7 | 13.0 | 37.0 |
| 2000 Q4 | 10.6 | 7.2 | 10.5 | 39.6 |
| 2001 Q1 | 9.2 | 8.1 | 7.7 | 36.9 |
| 2001 Q2 | 10.3 | 8.6 | 10.5 | 39.8 |
| 2001 Q3 | 10.0 | 7.4 | 11.3 | 31.9 |
| 2001 Q4 | 10.2 | 6.6 | 11.3 | 30.0 |
| 2002 Q1 | 11.1 | 12.0 | 9.6 | 31.4 |
| 2002 Q2 | 11.3 | 9.5 | 10.9 | 33.2 |
| 2002 Q3 | 11.0 | 8.0 | 13.0 | 31.8 |
| 2002 Q4 | 10.9 | 6.3 | 13.1 | 37.6 |
| 2003 Q1 | 10.8 | 6.7 | 11.6 | 35.5 |
| 2003 Q2 | 11.1 | 8.2 | 12.9 | 27.2 |
| 2003 Q3 | 12.1 | 8.2 | 15.3 | 31.3 |
| 2003 Q4 | 12.1 | 9.6 | 13.3 | 31.9 |
| 2004 Q1 | 11.8 | 10.5 | 12.5 | 28.4 |
| 2004 Q2 | 12.2 | 10.6 | 13.5 | 28.9 |
| 2004 Q3 | 12.1 | 9.9 | 13.9 | 30.2 |
| 2004 Q4 | 11.3 | 9.1 | 12.4 | 29.3 |
| 2005 Q1 | 10.8 | 9.1 | 11.1 | 30.9 |
| 2005 Q2 | 11.7 | 10.1 | 11.8 | 35.1 |
| 2005 Q3 | 12.1 | 9.4 | 14.0 | 37.1 |
| 2005 Q4 | 12.1 | 8.3 | 14.4 | 37.4 |
| 2006 Q1 | 12.2 | 10.3 | 12.7 | 44.8 |
| 2006 Q2 | 11.7 | 8.8 | 12.2 | 42.3 |
| 2006 Q3 | 11.7 | 8.4 | 12.9 | 36.8 |
| 2006 Q4 | 11.6 | 7.4 | 12.8 | 30.4 |
| 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 | 7.9 | 15.1 | 20.1 |
| 2014 Q2 | 11.6 | 10.8 | 14.9 | 17.2 |
| 2014 Q3 | 12.0 | 10.9 | 16.8 | 13.9 |
| Source: Office for National Statistics | ||||
Download this table Table 2: Quarterly Net Rate of Return
.xls (26.6 kB)5. Economic context
The Quarterly National Accounts confirmed that the UK economy grew by 0.7% in Q3 2014. Although this was weaker than the previous quarter, this coincided with an increase in the total net rate of return for UK companies from 11.6% to 12.0%. This suggested that gross operating surplus including the alignment adjustment – a measure of profits – grew at a faster rate than the increase in capital employed.
Breaking down the aggregate measure into its components reveals some notable features. In Q3 2014, the net rate of return for services was the highest since records began in 1997, which coincides with a strong recovery since the downturn. Services were 7.2% above pre-downturn levels in Q3 2014, compared with 2.9% for GDP as a whole. For manufacturing companies the rate of return was the highest since Q1 2002; the downward trend since 1997 appears to have subsided in the last few years. In stark contrast, the net rate of return for UK Continental Shelf (UKCS) companies has been in decline since 2011, and in Q3 2014 it dropped to its lowest recorded rate at 13.9%. UKCS companies are mainly involved in extraction of oil and gas from the North Sea.
One factor in explaining the decrease in UKCS companies net rate of return was movements in oil prices. UKCS companies, already experiencing rising costs of extracting oil as reserves become depleted, saw a reduction in profits following the price of oil falling below $100 per barrel by the end of Q3 2014. For other companies who are likely to use oil as an input, the fall in price may have increased profitability by reducing costs. ‘Transport & storage’ and wholesale - which constitute roughly a quarter of all services – are particularly affected. Further information on oil prices and the amount that different industries rely on oil for intermediate consumption, is available in the ONS January 2015 Economic Review.
The overall economic environment in Q3 2014 was mixed. Business investment contracted by 1.4% relative to Q2, although this followed strong growth in the previous quarter, and by 5.2% compared with the same quarter a year ago. Ernst and Young reported that 69 profit warnings were issued by UK quoted companies, the highest Q3 number of profit warning since 2008, with many companies citing over-capacity and intense competition.
Nôl i'r tabl cynnwys6. Manufacturing and service companies, Q3 2014
Manufacturing companies
The estimated net rate of return for manufacturing companies in Q3 2014 was 10.9%. This was 0.1 percentage points higher than Q2 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 Q3 2014 was 16.8%. This was the highest estimated rate observed since the series began.
Figure 2 shows the net rate of return for service companies since Q1 1997. The underlying trend in recent years reflects the improving economic recovery.
Figure 2: Net Rate of Return of Manufacturing and Services Companies, Q1 1997 to Q3 2014
UK
Source: Office for National Statistics
Download this chart Figure 2: Net Rate of Return of Manufacturing and Services Companies, Q1 1997 to Q3 2014
Image .csv .xls7. United Kingdom non-continental shelf (UK non-CS) companies, Q3 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 Q3 2014 was 12.0%. This was the highest rate since Q4 1998, when it was also 12.0%.
As the net rate of return of UK non-CS companies makes up the majority of private non-financial corporations, Figure 3, shows a comparible picture to that of all private non-financial corporations (Figure 1).
Figure 3: Net Rate of Return of UK non-CS Companies, Q1 1997 to Q3 2014
UK
Source: Office for National Statistics
Download this chart Figure 3: Net Rate of Return of UK non-CS Companies, Q1 1997 to Q3 2014
Image .csv .xls8. United Kingdom continental shelf (UKCS) companies, Q3 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 Q3 2014 was 13.9%, the lowest recorded estimated rate since the series began in 1997. This was the second consecutive lowest estimate and was 3.3 percentage points lower than the previous quarter. As described in the Economic Context this could be due to the rising costs of extracting oil as reserves become depleted, and a reduction in profits due to the price of oil falling to less than $100 per barrel by the end of Q3 2014.
Figure 4: Net Rate of Return of UKCS Companies, Q1 1997 to Q3 2014
UK
Source: Office for National Statistics
Download this chart Figure 4: Net Rate of Return of UKCS Companies, Q1 1997 to Q3 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 1997 to 2013
International Comparisons
Source: Office for National Statistics, Eurostat
Download this chart Figure 5: International Profit Share 1997 to 2013
Image .csv .xlsThe UK aggregated profit share in 2013 was 41%, down from 42% in 2012. Across the years, as shown in Figure 5, the UK aggregated profit share was comparable with that of France. With the exception of 1997 it was consistently lower than the other selected European countries.
Nôl i'r tabl cynnwys