More nonsense from the City AM: "SAINSBURY'S yesterday reported a 17.5 per cent rise in pre-tax profits... The company saw profits of £610m for the year to 20 March... Total revenues across the group were up five per cent to £21.4bn, the figures revealed."
Ho hum. Wouldn't we expect net profit margins to decrease during a recession?
1. Let's harvest three figures from page 16 of the previous year's accounts to 21 March 2009 ('2009'), which are total turnover £20,383m; VAT paid £1,472m; and pre-tax profits (i.e. net of VAT but before corporation tax) £519m. Then all we have to do is factor in the the increase in total turnover (i.e. sales inclusive of VAT) and do some extrapolating.
2. The average VAT rate in 2009 was 16.735%, so their net VAT-able sales were £8,796m net and £10,268 gross; so their non-VAT-able sales were £10,115m; and their total net sales after VAT were £18,911. Their other costs must have been £18,392m to arrive at a net profit of £519m.
3. The average rate of VAT in 2010 was 15.56%. In 2010, their gross sales (inclusive of VAT) were up by 5.09%, and assuming that gross VAT-able and non-VAT-able sales both increased by this percentage; then sales of VAT-able items would have been £10,791m gross and £9,338m net; and sales of non-VAT-able items would have been £10,630m. This gives us a net sales after VAT of £19,968m. Let's assume that their other costs increased in line with gross sales so would have been £19,328m.
4. Knock off predicted other costs of £19,328 from predicted net sales after VAT of £19,968 gives us a predicted net profit of £640m, as against £610m reported profit, so all things being equal, profits are 4.7% less than predicted, and not 17.5% higher.
5. So far, so bad. Either way, the simple model I used predicted their results to within a tolerable margin of error - the 4.7% fall can be explained by the tightening of profit margins in a recession.
6. Now, just for fun, trying using this model to predict next year's results, assuming no increase in total gross sales with an average VAT rate of 20%. My magic fag packet tells me that profits will fall by over half to £294m next year.
Once I dipt into the future
3 hours ago
6 comments:
The Vat terror is coming. I can't see any other way to make a dent in the debt. Possibly the VAT exemptions will go as well.
Worse..A 2.5% -4.5% rise will bring inflation. Some predict that this won't matter as the government is happy to allow inflation to reduce the debt. This time they won't bother propping up the £. Let it fall to $1.01. If the £ isn't protected then interest rates can stay at 2-3%.
In times like these, it must be nice to have a 1/40ths final salary, index-linked pension scheme with no investment risk, eh?
Anon, hiking VAT is a different kind of inflation - for a given total budget (wages are not going up), volumes will fall as prices rise and/or spending on other items will fall; this will not help 'hard-pressed homeowners' inflate away their debts.
FT, who, the Sainsbury's people or MPs?
Sorry. The MPs and Ministers, of course, who'll be the ones raising the VAT so they don't have to get brave enough to cut things, which'll depress investment returns, which'll hit those of us whose retirement funding isn't so insulated from the real world but leave the troughers unscathed.
Apologies for vagueness, but the abbreviated point made perfect sense at the point when I typed it :-) . Age and anger are clearly taking their toll.
I sense that the company I work for's bubble is making a popping sound as I type this...
I won't mention who it is.
FT, ta for clarification.
RR, fret ye not. Your employer has more freeholds and fewer leaseholds (and hence higher accounting profit margins).
Assuming that they don't understand the difference between actual and notional costs (and most people don't), they will use their 'rental income' to subsidise their 'trading losses' for the time being.
The retailers who went *pop* were those with predominantly rented premises like MFI or Woolies.
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