NW profit warnings up as UK figures hit an all-time annual high
During the first three quarters of 2020, listed companies across the North West issued 43 profit warnings, nearly three-quarters more than the same period last year (25), while the UK total hit an all-time high, according to the latest EY quarterly analysis of UK profit warnings.
Year-on-year the number of profit warnings in the first nine months of 2020 from companies based in the North West increased by 72%.
So far, in 2020, the majority of profit warnings from North West listed companies (84%) have been attributed to COVID-19.
Sam Woodward, EY strategy and transactions partner in the North West, said: “It’s not surprising that sectors reporting the most warnings, retail, travel and leisure, are those that have been most dramatically affected by the COVID-19 pandemic.
“This is likely to continue as parts of the country face a gradual tightening of social restrictions.
“It’s still relatively early days and, in some respects, it may just be the calm before the storm.
“It’s, therefore, crucial that businesses across the North West don’t underestimate the depth and extent of the longer-term challenges ahead, such as unpredictable demand, changes to the level of government support and further complications brought about by Brexit negotiations.”
The total number of profit warnings from UK businesses in 2020 at the end of the third quarter was 524, setting a new record for the annual total. This figure replaces the 19-year-old record of 506 from 2001.
However, the third quarter profit warnings total (58) was both below average for the quarter (64) and 25% lower than quarter three 2019, when there were 77.
The top FTSE sectors warning in quarter three 2020 were: Industrial support services (six), investment banking and brokerage (five) and construction and materials (five).
The third quarter is typically the quietest period for corporate reporting and in 2020 this was amplified by the significant fall in earnings expectations earlier in 2020, the increase in activity as COVID-19 restrictions were relaxed and as government initiatives kicked in.
Sam added: “The Summer offered some respite for businesses to prepare for what is expected to be an exceptionally difficult Autumn and Winter.
“Many businesses have managed to navigate the day-to-day stresses of the current environment by adopting survival tactics. However, with government support measures winding down and the reality of Brexit just around the corner, merely going back to basics isn’t enough.”
In the first three quarters of 2020 there were 449 profit warnings linked to COVID-19 with the sectors where social distancing has reduced demand and capacity being most affected.
However, quarter three 2020 data indicates operating costs are now of increasing concern, with 24% of profit warnings citing rising overheads compared with 12% last year.
Lisa Ashe, turnaround and restructuring strategy partner at EY, UK & Ireland, said: “Companies must recalibrate their businesses as a matter of urgency in order to secure their survival and potential to thrive in the future. It is vital they are able to adapt rapidly, and radically, to ongoing change and uncertainty if they are to ensure long-term resilience.”
In the past 12 months, more than a third (36%) of all UK quoted companies have materially lowered their profit forecasts at least once compared with 18% in 2008 and 23% in 2001.
The 36% figure offers insight into the extent of the impact of COVID-19 on the business community, particularly when you consider the numerous connections they hold within UK Plc.
Lisa added: “Supply chain resilience has never been more important. Market considerations posed by COVID-19 and Brexit have amplified the need to identify the weakest link in a supply chain and put additional support measures in place.
“Collaborative and innovative ways of working are emerging within various sectors to help stimulate business activity, while others are assessing opportunities to drive consolidation. Careful, strategic thinking across the ecosystem will prove vital.”