UK profit warnings continue to rise as retail feels the strain

Quoted companies based in Yorkshire and the North East issued nine profit warnings in the second quarter of 2018, according to EY’s latest Profit Warnings report.

The figures are down slightly from 10 warnings in Q1, taking the total number of warnings in the first half of 2018 to 19.

However, this is up considerably on the seven profit warnings made in the first half of last year. Seven of the nine profit warnings in Yorkshire and North East were from smaller AIM listed companies – a much higher proportion that the rest of the country.

Given the significant headlines about the difficulties in the high street, almost a quarter of national FTSE General Retailers warned about downgraded profit prospects in the first half of 2018, with the sector issuing 20 warnings (13 in Q1 and 7 in Q2), double the figure set in H1 2017 and a seven year high, according to EY’s latest Profit Warnings report.

Across the whole of the UK, profit warnings rose by almost a third with 13 (29%) more companies resulting in 58 warnings in Q2 2018.

The FTSE sectors with the highest number of warnings in Q2 2018 are: General Retailers (7), Software & Computer Services (6), and Travel & Leisure (5).

Hunter Kelly, EY’s restructuring partner for the Yorkshire and the North East, said: “We’ve reached half-time in 2018 with the rising level of warnings showing that it is getting harder to predict for businesses. The exceptional summer weather has added to this, as I doubt many would have dared to factor such a long dry and sunny spell into their forecasts. The issues in the high street would appear to be more structural and we could see that flow through to other sectors. So far in 2018 just over a quarter of listed household goods companies have issued warnings and this includes two housebuilders. These are the first warnings in this sub sector since early 2017.

“The proportion of profit warnings citing delayed or cancelled contracts has reached a six-year high and this is worrying and points to many businesses starting to exercise caution and perhaps reign back.

“Many companies cannot say with any certainty what trading and regulatory regimes they’ll be operating under this time next year adding to the uncertainty around predicting the future.”