Global profits soar to record £3.93 trillion in 2021/22 with oil companies accounting for 25% of profits
Global profits soared by two-thirds (+64.8%) in 2021/22 to a record £3.93 trillion, easily shrugging off the effects of the pandemic, according to the latest Global Profit & Income Barometer from Henderson Far East Income, an investment trust seeking dividend income and capital gains from investing in Asia-Pacific ex-Japan.
Surging oil prices meant that one-quarter of the increase in global profits was driven by the world’s oil companies alone. They turned losses of £83bn into profits of £282bn in 2021/22 – and will see even greater profits in 2022/23.
The UK and Europe saw the fastest recovery reflecting both the severe impact of the pandemic across the region and a sector mix weighted towards cyclical companies that had suffered particularly badly in the worst periods of 2020 and which therefore had more scope to rebound – including in the oil sector. UK company profits jumped from £19.4bn in 2020/21 to £124.9bn in 2021/22.
Profit Spotlight on Asia-Pacific ex-Japan
In Asia-Pacific ex-Japan, companies in China, Malaysia, Taiwan and Australia all delivered record earnings. In China, oil, banking and shipping companies drove growth. In Taiwan, semi-conductors were key, while in Malaysia, latex glove manufacturers capitalized on global pandemic demand for PPE. Australia’s mining boom was the crucial segment driving growth there.
Overall, the region saw pre-tax profits grow by 27.6% to a record £1.05 trillion in 2021/22. This was slower than the rest of the world, mainly because the impact of Covid-19 on the region’s profits in 2020/21 had been negligible, down just 6.2% v 26.5% elsewhere. 2021/22 was one of just four years in the last eleven that has seen slower profit growth in the region than the rest of the world. The longer-term also shows how strong growth has been – profits have risen 149% since 2010/11, compared to 101% for the rest of the world.
Dividends from Asia-Pacific ex-Japan beat the again world in 2021/22
Asia-Pacific ex-Japan’s dividends of £309.2bn beat HFEL’s forecast by £8bn, rising by 17.0% year-on-year, comfortably ahead of the rest of the world (+9.6%). This followed extraordinary resilience during the first year of the pandemic too. From a sector perspective, one-quarter of the region’s dividend growth in 2021/22 came from IT hardware and semiconductors, one-quarter from mining companies, one fifth from banks, with the rest spread across different sectors. The leisure sector was the only one to see significant declines, reflecting pandemic restrictions on mixing.
Since 2010/11 Asia-Pacific ex-Japan has seen dividends rise 231% (more than tripling) compared to 191% for the rest of the world.
More growth for 2022/23, despite global economic slowdown
HFEL expects 5-7% profit growth from Asia-Pacific ex-Japan in 2022/23 since earnings are very sensitive to oil and commodity prices and these have so far stayed strong, while rising interest rates are positive for banks. HFEL expects dividends from the region to rise 7.7% in 2022/23, to a total of £333bn, a new record.
Mike Kerley, Portfolio Manager at Henderson Far East Income said: “Asia-Pacific ex-Japan has an incredible story to tell. Growth in profits and dividends in Asia-Pacific ex-Japan has beaten the world in two years out of three over the last decade or so, as well as providing valuable opportunities to diversify. Dividend growth ahead of profits reflects the increasingly cash-generative nature of some of the region’s biggest companies, as well as a growing culture of dividend paying.
“The year ahead is beset with extraordinary uncertainty. Global events are influencing share prices far more than developments at company level, but companies continue to develop and grow. China’s attempts to eliminate Covid-19 are clearly unrealistic and are impacting the regional ecosystem that feeds China’s industrial machine.
“Rapid progress to catch up on vaccination is the key to unlocking China, after which we expect to see a dash for growth. We think there are signs this is now happening. Our preference in these conditions is for companies that sit ‘upstream’ at the top of supply chains and which have better pricing power, or which have recognisable and defensible brands.”