Profit warnings on the increase as West Midlands firms feel the squeeze

The third quarter saw a steep rise in the number of profit warnings issued by firms in the West Midlands.

The figure rose from zero in the second quarter to five in the three months to September, with the most serious being that issued by Wolverhampton-based Carillion.

According to EY’s latest Profit Warnings report, the increase in profit warnings recorded from July to September reflects the unpredictable economic climate.

West Midlands quoted companies have issued nine profit warnings so far in 2017, the same number of warnings recorded in the first three quarters of 2016.

Across the UK, profit warnings have seen the biggest quarterly rise in almost six years. UK quoted companies issued 75 profit warnings in Q3 2017, significantly above the average levels of warnings (62) for a third quarter and up from the 45 issued in Q2.

EY said the high number exposed a growing divergence between those sectors of the UK economy more exposed to domestic pressures and those benefiting from growth in overseas markets.

Pricing and cost pressures feature in 25% of all profit warnings so far in 2017, compared with 16% in 2016.

Dan Hurd, Associate Partner in EY’s restructuring team in the Midlands, said: “Summer brought mixed fortunes for West Midlands plcs, with the contrast between accelerating overseas markets and the slowing UK economy increasing.

“Many businesses besieged by pricing pressures before Brexit, are also now feeling the brunt of rising domestic uncertainty and rising costs.

“The rise of profit warnings we’re seeing in the West Midlands reflects the struggle of some companies caught on the wrong side of economic and digital trends to break free. Companies with a winning formula will continue to thrive, but that formula keeps changing and it’s going to get tougher to keep up.”

In the UK as a whole, profit warnings from the FTSE Travel & Leisure sector fell back from their peak of eight in Q1 2017 to four in Q2, edging back up to five in Q3. However, one-fifth of all FTSE Travel & Leisure companies have warned in the past year and the data shows a substantial increase in warnings from the Restaurants & Bars sector, while a number of airline failures have also put the sector back in the spotlight.

In both cases, the biggest issues are the impact of oversupply and rising costs for businesses that are already struggling with thin margins. Almost 60% of all FTSE Travel & Leisure companies warning have cited rising costs and pricing pressures in 2017.

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