Global companies have been struggling with a brutal $320 billion loss since 2017 and have nothing to do with bad management.
This is the cost of doing business in a world where economic shocks and political instability continue to crash with each other.
A study by Ey-Parthenon shows that it is a publicly listed company with around 3,500 people with annual revenues exceeding $1 billion while its annual revenues have lost a lot of volatility over the years. From massive inflation to war and market meltdowns, fallout has reached every corner of the world economy.
Mats Persson, UK lead at Ey-Parthenon and Geostrategy, said there was no longer a day of simple money and stable geopolitics.
“After years of cheap money and relative geopolitical stability, a wave of macroshift means that government policies and global events are now having a greater impact on value and profit than they have in decades, from trade tensions to global conflict,” he said.
Chinese companies were hit hardest, but others held
The report shows that about 25% of the companies surveyed have lost more than 5% profit margins over the past three years. Damage was measured using EBITDA. Earnings before interest, taxes, depreciation and amortization.
The drop didn’t come out of nowhere. In just three years, the global market was shaken by inflation, the Russian war in Ukraine, the collapse of the British gold leaf market, the Israeli Hama conflict, and Donald Trump’s return to the White House in 2024.
Meanwhile, 40% of the change in the market value of the FTSE 100 occurred on the exact day when major geopolitical or economic events were unfolding. And of the 833 Chinese companies that met the revenue threshold, 40% experienced serious profit losses.
The total hit reached $73 billion. Most of the losses came from the real estate, steel and construction sectors, all of which were subjected to both internal and global pressures.
The UK reduced the damage, but not because of immunity. Just 100 British companies were eligible for analysis, of which 14 suffered losses. EBITDA total drops have reached $2.5 billion over three years. Though not as dramatic as China, the hit still shows that even relatively small markets struggle to maintain profitability during periods of chaos.
Still, some companies have found ways to grow despite the turmoil. But the list is short. Research shows that only one in ten global companies that had the highest quartile EBITDA margin in 2014 could maintain these margins by 2024. Survival is not enough. A complete overhaul is required to maintain the advantage.
In the UK, several names stood out, such as the next fashion chain, chemical manufacturer Croda, mining company Rio Tinto, and engineering company Spirax.
In the US, Caterpillar, UPS, Pfizer, Merck, Johnson & Johnson have been able to increase revenues above average for their respective sectors.
Persson from Ey-Parthenon explains why these companies are great, saying, “Companies that were able to protect or achieve top margins have diversified their portfolios well, managed their cost bases, identified and understood various policy changes, and updated their governance to reflect a different world.”
