West Midlands profits warnings rise 40% in 2014 says EY
PROFIT warnings in the West Midlands rose by nearly 40% during 2014, with the industrial engineering sector faring the worst, new figures have shown.
The latest EY Profit Warnings report shows 18 were issued by West Midlands plcs last year, compared to 13 in 2013.
Of these, the industrial engineering sector accounted for more than a quarter of the total – the second year running it has been the worst affected sector.
Quoted companies in the West Midlands issued five profit warnings in the final quarter of 2014, compared to six in the previous quarter. The five profit warnings in Q4 came from the following sectors: industrial engineering (3), support services (1) and personal goods (1).
UK profit warnings surged to a six-year high of 299 in 2014, with more FTSE 100 companies warning in 2014 than at the height of the credit crunch. But it was not just the FTSE 100 that issued the lion’s share, total profit warnings from FTSE 350 companies were just three shy of the record 90 issued in 2008.
Tom Lukic, EY’s restructuring partner in the Midlands, said: “The rise in West Midlands profit warnings – 18 in 2014 compared to 13 in 2013 – appears contrary to the improving macro outlook but mirrors the trend nationally.
“The six year high in UK profit warnings appears incongruous given that UK and global economic outlooks still signal growth, but increasing political, policy and pricing uncertainties conspired to hit confidence at the end of 2014.
“However, many of these pressures represent new realities, rather than a passing phase. An improving macro outlook is no longer a guarantee of a smoother ride for UK plc. To avoid being at the mercy of events – and to improve investor communications and confidence – West Midlands companies need to take the initiative, build operational and capital resilience in to their businesses and adapt their forecasting and planning capabilities to the post-crisis economy.”
He said the retail sector had had an eventful 2014; from the IPO boom to a game-changing Black Friday and a seismic year for grocery. FTSE Food & Drug Retailers companies issued eight profit warnings in 2014 – the highest recorded since the EY Profit Warnings report began in 1999. In contrast, just 14% of FTSE General Retailers companies warned in 2014 – a record low.
“The disparity is stark and has parallels to the mid-2000s, when structural changes pushed profit warnings from general retailers to record highs, whilst warnings from food retailers hit record lows. Arguably the grocery sector is now undergoing a similar revolution, with disruptive new entrants, online adoption and changing consumer behaviour exposing weaknesses and overcapacity and compelling the more exposed retailers to take radical action,” added Lukic.
Concluding, Lukic (left) said it had been a breathless start to 2015, full of surprises and volatility, especially on oil prices.
“The underlying forecast is for improved, albeit below par, growth, boosted by cheaper oil. However, the low oil price isn’t without complications and it’s not enough to compensate for weaknesses elsewhere, which look set to dampen confidence and limit global investment and consumption yet again. This mixed global outlook – and a relatively strong pound – will leave the UK economy once again reliant on domestic momentum in 2015,” he said.
