Revenue v profit. Revenues may be returning but are profits?

It is a strange market as many companies are feeling relieved that the economy has held up better than forecast in Q1 and yet at the same time, many are very aware that whilst revenues are increasing, so are costs and profits may be harder to generate than envisaged. Is there a danger that many are focused on revenue growth over profit?

Or is the economy responding strongly?

It is a debate which understandably is featuring in board rooms across the country. Inflation is still a major threat and one that no one can ignore. Food inflation and energy costs are making it hard for many operations. However, the counter argument is that the consumer has continued to still spend. There do seem to be several schools of thought emerging from those who argue that the consumer will lead the recovery; that they have survived the pandemic and all the negative forecasts and that there are signs of recovery which are better than expected. On the opposite side, there are those who do argue that there is still some way to go with the twin threat of food inflation and high energy costs which do challenge the majority.

There are also those who point to the fact that Britain is the only Group of Seven (G7) whose economy is still smaller than before the pandemic. In January, the International Monetary Fund said it would be the only G7 country to shrink in terms of gross domestic product this year.

Other research shows consumer and business confidence growing at its best level for three years. However, will this be threatened by forecast rises in the interest rate and if the fall in inflation does not materialise at the rate expected?

There are many questions hovering in the air but isn’t this always the way during a recovery. It is vulnerable, sensitive and takes a slow step forward.

There are many who believe that many companies are not as profitable as expected and this will take its tool, that we see companies fold and be taken over but again this is normal in recovery.

Over 50% of hotels expect 2023 to mark the year of recovery. International travel is returning and is expected to be back to strength in 2024. The food service sector is expecting to be back to strength in 2023. It is all coming back but the question still lingers as to how do profit levels sit when all is analysed?

There are also many pointing out that there is an on-going debate between those working to old models and those who have adapted their models to a more progressive, tech-led approach. The latter argue that tech can lead to better service models, reduction in waste and costs and better margins. Many are certainly viewing tech increasingly to find ways on how it can help improve margins. EP is working with several tech solutions, in different fields, who will talk of how it can only help business be stronger and provide better models for the future.

It is likely that we are see an evolution in service and business which will see tech play an ever more central role in business and it will be interesting to observe which companies come out strongly in their profit reports during 2023 and 2024.