Europe’s top companies in retreat: profits drop by nearly 10%

  • Share
  • Europe’s top companies see sales and profits drop sharply in first six months of the year; Swiss businesses enjoy most stable sales
  • 23 Swiss companies in the Top 300, with 14 of them seeing their sales rising
  • Glencore and Nestlé among Europe’s top 10 companies in terms of sales
  • Roche and Nestlé ranked 1st and 3rd in Europe in terms of profits
  • US economy much more profitable than European companies
  • US well in the lead in services and IT

Zurich, 5 October 2016 – In both Europe and the United States, the 300 biggest companies saw their sales and profits go down in the first half of this year: Europe’s top companies recorded an overall 4.6% drop in sales, while their combined profits fell by as much as 9.6%. At minus 3.5%, the drop in profits in the US was much less marked. The Top 300 US companies also saw their sales fall by 0.4%, which is also less than their European counterparts.

Falling sales and profits on both sides of the Atlantic were primarily attributable to low oil and commodity prices. The sales of European oil and gas companies, for example, fell by 23%, while their profits were even virtually cut in half (48%). But other sectors also shrank in Europe in the first half of the year – utilities, for example, whose sales fell by just over 7%, food retailers (down 2%), providers of telecommunications services (down 1.4%) and food manufacturers (down 0.8%). However, European companies in the health sector performed very well (up 16.2%), as did those in media (up 12.2%) and IT (up 7.2%).

Overall, the top companies in Europe generated sales of EUR 3.25 trillion with operating profit of EUR 272 billion, while US companies recorded sales equivalent to EUR 4.15 trillion and EUR 483 billion in profit.

While US companies are also suffering from the flagging global economy, they have been able to manage the decline in sales and profits and continue to be much more profitable than their European competitors: in the first half of the year, US companies had an average profit margin of 11.6%, while that of their European counterparts was no more than 8.4%. In the first half of the year, ten out of sixteen sectors managed to achieve margins of 10% or more in the US – compared to only seven in Europe.

On both sides of the Atlantic, Apple still sets the standard for everyone: with operating profit hitting the equivalent of USD 38.2 billion, the iPhone maker’s profits exceeded those of the five most profitable European companies put together.

Swiss companies’ sales still high

The number of Swiss companies in Europe’s top 300 rose from 22 last year to 23. With their sales rising by 9.5%, they performed markedly better than their European competitors, but had to contend with profits that were 3.5% down on the same period last year. While 14 companies’ profits increased, the average profit margin fell slightly from 11.4% to the admittedly still creditable figure of 10.7%. Looking at all 23 Swiss companies together, the average profit margin declined from 10.6% to 9.1%, which nevertheless did not stop Switzerland coming second place in the European profit margin ranking – behind Russia.

Two Swiss companies – Glencore (in fifth place) and Nestlé (in ninth) are among Europe’s top ten revenue earners. On the profit front, the pharmaceutical group Roche is Europe’s number one with its operating profit of EUR 7.4 billion, beating Deutsche Telekom, while Nestlé was the third most profitable European company with its profit of EUR 6.1 billion.

Turbulent times: cost-cutting and acquisitions

With 39% of the ranked and listed major Swiss companies recording sales declines in the first half of the year, EY Switzerland CEO Marcel Stalder says he expects the situation to remain problematic for a few months more. “We are living through the Fourth Industrial Revolution, through the transition from an analog, physical world into a digital one, one that is, moreover, characterized by growing volatility, uncertainty, complexity and ambiguity. This is a trend amplified by separate and specific events such as Brexit, the Syria crisis and the presidential elections in the US, and which, as a result, has a debilitating effect on the economies of Switzerland and of Europe as a whole,” he explains. “That’s why it’s all the more important that Switzerland should make itself an even better place in which to do business, in terms of its policies, its laws, and its economic conditions. What executive boards need to do is not only face change head-on, but also proactively restructure their companies and make it their goal to be the frontrunner in their own sector in order to strengthen the Swiss economy and make it fit for the future.”

In Marcel Stalder’s view, companies will not only have to do more work on their own efficiency and flexibility and cut costs, but will also need to keep on investing massive amounts in securing their future competitiveness: “Many major Swiss companies are currently working on a radical realignment of their businesses, which can go as far as splitting off whole divisions or embarking on acquisitions. A combination of new competitors and rapid change brought about by new technologies and regulatory requirements are forcing them to put their business models to the test and reshape themselves.”

IT sector dominated by the US

Marcel Stalder sees European businesses’ low margins – which have sunk even lower more recently – as being attributable to, among other things, structural problems: “Europe is still suffering from a serious imbalance in favor of what’s known as the Old Economy.”

Of the Top 300 companies, 47% were from traditional industry sectors such as machine and equipment manufacturing, the electrical and automobile industries and oil and raw materials extraction. In the US, the same sectors’ share was no more than 29%, while the services and IT sectors there, with their joint share amounting to 25%, carried much more weight than the same sectors in Europe (12%).

It is in the IT sector above all that Europe is lagging behind: no more than 14 IT firms were able to earn a place in the European top 300; the figure for the US is 33. The contrast is even more marked in terms of sales: in the first half of 2016, European IT companies generated a total of EUR 92 billion, while total sales of their US counterparts came to the equivalent of EUR 575 billion. “In the IT sector, it’s the US that makes the weather. Companies such as Apple, Google and Microsoft are highly profitable and are putting their weight behind the drive to digitalize the economy and every area of life. But European companies are playing a disproportionately minor role in making this technological change happen,” says Stalder.

About the “Top 300 Companies Europe – US” study

To produce this study, the audit and advisory firm EY analyzed the balance sheet figures of the top 300 publicly traded companies in terms of revenue in Europe and the US (excluding banks and insurance companies). Each set of figures refers to the first half of the current financial year.


Download

About the global EY organization

The global EY organization is a leader in assurance, tax, transaction, legal and advisory services. We leverage our experience, knowledge and services to help build trust and confidence in the financial markets and in economies all over the world. We are ideally equipped for this task – with well-trained employees, strong teams, excellent services and outstanding client relations. Our global mission is to drive progress and make a difference by building a better working world – for our people, for our clients and for our communities.

The global EY organization refers to all member firms of Ernst & Young Global Limited (EYG). Each EYG member firm is a separate legal entity and has no liability for another such entity’s acts or omissions. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information, please visit www.ey.com.

EY’s organization is represented in Switzerland by Ernst & Young Ltd, Basel, with ten offices across Switzerland, and in Liechtenstein by Ernst & Young AG, Vaduz. In this publication, “EY” and “we” refer to Ernst & Young Ltd, Basel, a member firm of Ernst & Young Global Limited.