Financial directions - Discounting causes drop in UK profits.

UK company profits are continuing to fall, according to the latest ?Quarterly Financial Trends survey from credit insurer EULER Trade ?Indemnity.

Profits were hit hardest by price discounting in a drive to win new ?business.

Q1 price discounting had the strongest adverse effect on profitability ?since 1993. Margins were damaged further by the strength of the pound, ?particularly against the euro.

The biggest positive effect on profits was made by the continuing falls in ?interest rates, although this did not compensate for discounting, ?increased labour costs and competition.

Total number of business failures and bad debts amongst companies with ?turnovers of #250,000 to #50m rose to 888 in Q1 2001, the highest level ?since Q1 1999. This represents an annual increase of 4%.

Payment delays from domestic customers increased to an average of 25 days. ?The majority of respondents attributed this to cash-flow problems.

The survey also indicated a marginal contraction in overall business ?activity for the first time since Q4 1998.

Small companies saw the biggest downturn, with large firms absorbing much ?of the blow. Construction was the only sector to show strong expansion, ?despite seeing the sharpest rise in payment delays from overseas ?customers.

Financial Trends Survey, EULER Trade Indemnity, (020) 7860 2613.