WHISPER IT quietly, but – if the latest round of financial results coming out of the current reporting season are anything to go by – the UK corporate market is not in nearly as bad a shape as the debt crises affecting Europe and the US would lead you to believe.
Scanning today’s business pages provides a snapshot of the surprisingly healthy, if not quite vigourously glowing, state of the UK corporate market. London-based Asia-focused Standard Chartered Bank reported a 17% increase in pre-tax profits for the first six months of the year (£2.2bn), mining giant Rio Tinto reported a big jump in earnings – up 30% to £4.6bn – due to strong demand in Asia and higher product prices, and City analysts predict that Aviva’s operating profits for the first half of this year will exceed the £1.27bn seen in the first half of 2010.
Obviously, there is a corresponding tale of woe for every good story and the resignation of Thomas Cook’s chief executive Manny Fontenla-Novoa is proof of that. However, it feels as if the positive is starting to outweigh the negative, at least as far as the UK corporate market goes: the performances of Aviva and Standard Chartered can easily be joined by the likes of Weir Group, GKM and Rexam.
Businesses have started to emerge blinking into the daylight after a period of retrenchment, despite the prospect of darker days ahead, and are sitting on healthy cash positions in many cases. But many are casting in the direction of 2012, and very few corporates are making noise about ramping up their cash expenditure.
It seems it is far preferable to line the pockets of shareholders with cash and it doesn’t seem like such a bad idea, given that holding cash on the balance sheet is even more inefficient that normal.
Rio Tinto said it would increase its share buyback programme by $2bn to $7bn, analysts expect Aviva to increase its interim dividend to 9.5p per share, and Rightmove has hiked its dividend by a whopping 40%.
However, Greece remains an open financial wound, the economic health of Italy is questionable, and the usual array of doom-mongers predicting the next financial crisis are out in force. My advice to FDs and shareholders is to enjoy the sun while it lasts, because rain is ever on the horizon in the UK.