Profit warnings provide mixed message

Analysis of profit warnings from listed companies has provided mixed messages amid concern about the robustness of the UK economy.

Across the Midlands there were five profit warnings in the second quarter, which was the second highest since at least 2012 in what is usually a reasonably quiet period.

That increased the Midlands’ half-year total to 11, but that is slightly below the five-year average.

Profit warning data, particularly on a regional level, can be very spiky. For example, in the first quarter of last year Midlands’ companies issued 10 warnings then only one the following quarter.

Dan Hurd, head of the Midlands restructuring team at EY, which compiled the data, said: “An exceptional summer has boosted consumer spending, but growing downside risks at home and abroad look more enduring. At the same time the retail revolution continues, leaving more companies in its wake.”

With Brexit looming, and the details still to be agreed, it is possible that profit warnings could increase in the months ahead.

Hurd added: “Beyond the consumer sphere, profit warnings could rise from their low base, if uncertainty delays decision making. The proportion of profit warnings citing delayed or cancelled contracts reached a six-year high in 2018.

“Many companies cannot say with any certainty what trading and regulatory regimes they’ll be operating under this time next year.”

Across the whole of the UK, profit warnings rose substantially year-on-year to 58 in Q2 2018, a 29% increase on a year ago. The sectors with the highest number of warnings were general retailers, software and computer services, and travel and leisure.

Nearly one in four of FTSE general retailers issued a warning in the first half of 2018. The 20 warnings was double the 2017 figure, a seven year high.