Midlands companies record low levels of profit warnings

Dan Hurd

The Midlands saw continued low levels of profit warnings in the third quarter of 2018, with only six listed businesses issuing warnings between July and September, taking total profit warnings issued so far this year to 17.

According to EY’s latest Profit Warnings report, it was another tough quarter for UK quoted companies, with 68 profit warnings issued in Q3 2018 and a 21% average fall in share prices – a drop comparable to figures seen ten years ago at the height of the financial crisis.

In a further worrying sign for the UK economy, the percentage of quoted companies warning in the last 12 months has increased to 15.6% (206) compared to 14.4% (191) a year ago.

While consumer sectors still dominate UK profit warnings, with General Retailers issuing eight warnings and a third of the sector warning in the year-to-date, profit warnings are starting to spread back into industrial and financial segments of the economy.

The report finds that the FTSE sectors with the highest number of warnings in Q3 were: General Retailers (8), Travel & Leisure (7), Support Services (7), and Financial Services (6).

Dan Hurd, EY’s Head of Restructuring in the Midlands, comments: “Increasing capital market volatility and crisis-level investor reaction to profit warnings underlines a growing market concern about what comes next and how ready companies are to face the unknown.

“With so much of the UK and global economic and political outlook on the line, investors clearly want to be backing the fittest, most agile companies. Those with flexible operating and cost structures that can adapt quickly to changing market conditions, coupled with strong liquidity will be better placed to ride out the storm.

“Looking ahead we anticipate one of the most demanding ‘golden’ quarters leading up to Christmas trading in many years. If 2018 follows the pattern of recent years, consumers will hold back spending from now until Black Friday, which could result in heavy discounting to drive sales.”

EY’s Profit Warning Stress Index hit its joint-highest level for two years in Q3 2018. The index uses the percentage of UK quoted companies warning in the last 12 months to assign a ‘stress’ score from zero to 100.

In Q3 2018, this index hit 72, the joint-highest level since Q3 2016. The index has risen above 70 during two other periods: during the financial crisis and in 2015-16, when a succession of shocks – from the plunge in oil prices to the EU Referendum vote –  triggered waves of profit warnings.