March 9, 2021

UK profit warnings soar to two-year high

The number of FTSE companies issuing profit warnings flew to a two-year high in the fourth quarter of 2017 as consumers were squeezed by cost pressures and contract uncertainties were exposed.

UK-listed companies issued 81 profit warnings in the three months to December, the highest quarterly total since the fourth quarter of 2015, according to accountant EY.

Support services firms like Carillion, which collapsed earlier this month after a slew of profit warnings, issued 11 warnings in the fourth quarter and a total of 42 in the year as contract delays and uncertainties were coupled with rising prices, exposing weaknesses in company portfolios. The report found 22 per cent of companies in the sector issued a profit warning.

Other sectors hit by rising costs and uncertainties were software and computer services firms, which issued 11 warnings in the quarter, general retailers with six warnings and travel and leisure firms with five.

Which sectors issued the most profit warnings?

Business sector Profit warnings in Q4 Profit warnings in 2017
Support services 11 42
Software and computer services 11 27
General retailers 6 24
Travel and leisure 5 22

Out of all of the profit warnings in 2017, 30 per cent cited cost and competitive pressures, up from 16 per cent in 2016, and 25 per cent cited contract delays or cancellations.

Alan Hudson, EY's head of restructuring for the UK and Ireland, said investors were reacting with less patience, especially in sectors where profit warnings are a sign of deeper issues.

The day of a profit warning, the median share price drop rose from 12 per cent in the first half to 14.9 per cent in the second half. In the fourth quarter, shares dropped by a median figure of 15.2 per cent.

“An increase in restructurings and profit warnings reflects the pressure building across a significant portion of the UK economy. Companies that issue profit warnings are now under greater scrutiny and investors are reacting with less patience."

In the year ahead, Hudson said new challenges will emerge while others, like Brexit, will come to a head.

"There are still many opportunities to capture growth; but the cumulative impact of rising costs, slowing growth and increasing competition will continue to expose weaknesses in any company struggling to get a handle on this changing economy.”

Read more: Countrywide's chief executive has resigned after recent profit warning

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