Pricing pressures linked to West Midlands profit warnings – EY

WEST Midlands quoted companies recorded seven profit warnings in the first six months of 2014, as pricing, currency and competitive pressures dent expectations.

According to accountancy and advisory firm EY’s latest Profit Warnings report, the West Midlands issued four profit warnings in Q2 of this year, one more than the previous quarter and three more than the same period of 2013. 

The half yearly figure is on a par with last year.

The four warnings in the West Midlands came from the following sectors: electronic & electrical equipment (1), software & computer services (1), support services (1) and personal goods (1).

Tom Lukic, EY’s restructuring partner in the West Midlands, said: “Although confidence is returning to the UK economy and all evidence suggests a sustainable recovery is taking shape, the challenge for West Midlands businesses is translating these conditions into profitable growth.

“The pound’s rapid rise is one of the biggest pressures on earnings. However, the problem highlighted in profit warnings isn’t one of sales but of currency translation.

“Recent history shows that UK exports are relatively insensitive to currency effects. However, the pound’s leap to multi-year highs has caught out a number of companies who translate foreign earnings back into pounds.”

Lukic said price and competition pressures have also intensified.

“While the recovery has boosted demand, it hasn’t eradicated the austerity mind-set of businesses or consumers in the region,” he said.

“Moreover, the low level of insolvencies means companies are competing in a packed and competitive market place, which is lowering the normal level of returns.”