Performance: R&D, sales and operating profits

R&D and sales

The ratio of investment in R&D to sales among the UK1000 averaged 1.6% in 2008. As in past Scoreboards, there was considerable variation across sectors: the comparatively high R&D to sales ratio of over 15% in the pharmaceuticals and biotechnology sector is reduced by the large volume of sales generated by the oil and gas, banking and telecommunications sectors relative to their investment in R&D.

Overall, sales grew faster among the UK1000 than R&D investment during 2008. This is a continuation of a trend observed in last year’s Scoreboard. However, the ratio of sales growth to R&D growth varied from sector to sector:

• investment in R&D grew faster than sales in pharmaceuticals and biotechnology, software and computer services and the food producing sector. Sales declined in technology hardware and equipment, and fell dramatically in the banking sector. However, both sectors saw an increase in R&D investment, banking by as much as 32% over 2007. R&D investment grew as fast as sales in the aerospace and defence sector; and
• sales grew faster than investment in R&D in automobiles and parts, oil and gas producers, fixed line telecommunications and electronic and electrical equipment.

This pattern is reflected in Figure 8, which shows investment in R&D as a proportion of sales over the past five years.

Figure 8: R&D expenditure as a proportion of slaes by sector in UK1000 (%)

R&D and profits

Figure 9 shows firms’ investment in R&D as a proportion of their operating profits in 2008 by sector for both the UK1000 and the G1000. As in previous Scoreboards, two of the UK’s main R&D sectors, automobiles and parts and technology hardware and equipment, invested substantially more than their operating profits. The automobiles and parts sector invested 228% of its profits in R&D and the technology hardware and equipment sector invested 200% of its profits. However, this is still a smaller proportion than in 2007, while investment in these two sectors was up significantly at a global level, eclipsing the UK figure in the technology hardware and equipment sector in particular (265%).

In a change to last year’s Scoreboard, the UK’s fixed line telecommunications sector invested significantly more in R&D than its operating profits (147%). This is not the result of increased investments in R&D but significantly decreased profits among the leading companies. The only other major sector investing to a similar degree is software and computer services, which invested an amount equivalent to its operating profit. In the mobile telecommunications and oil and gas producing sectors, the ratio of R&D to operating profits was only 6% and 2% respectively. Two sectors, media and banks, reported net losses in 2008, the former only in the UK and the latter both in the UK and globally. This is reflected in Figure 9 in the negative figures for investment in R&D.

The performance of the UK1000 firms shows both contrasts and similarities with that of firms in the G1000. Globally, only two of the major sectors, technology hardware and equipment and automobiles and parts, invested more than their operating profits (265% and 133% respectively). Apart from this, only one sector, media, substantively grew its investment in R&D as a proportion of profits (to 50%). Other sectors, such as pharmaceuticals and biotechnology, aerospace and defence, industrial engineering, chemicals and electronic and electrical equipment, retained an investment in R&D as a proportion of profits roughly similar to that in previous years.

Figure 9: R&D expenditure as a proportion of operating profits across UK1000 and G1000 (2008)