Profit warning drop is the lowest total of any quarter in two decades, says EY

The number of profit warning issued by listed firms across the North has Q2 dropped compared to the same period last year.

Quoted companies in the region issued eight profit warnings in Q2  2021, a 69% reduction on the number of warnings issued for the same period in the prior year.

According to the latest EY-Parthenon report, in the UK, just 32 profit warnings were issued, the lowest quarterly total EY has recorded in more than 22 years of profit warnings analysis.

A quarter of these were issued by listed businesses in the North, which includes the North East, North West and Yorkshire.

They recorded the highest number of profit warnings per region, ahead of London (7) and the Midlands (5).

In just over 12 months, the EY-Parthenon Profit Warnings report recorded both the lowest and  highest quarters of warnings since analysis began at the turn of the Millennium.

The second quarter’s record low comes in stark contrast to the record high of 301 in Q1 2020 and the second highest ever total of 165 in Q2 2020.

EY recorded similar dips in 2002/3 and 2009 after 9/11 and the global financial crash, respectively. Analysis suggests that markets tend to over-correct and last year’s drastic expectations reset, combined with a better-than-expected recovery and Government support, meant that all but a handful of companies beat depressed forecasts. But, as history has shown, companies and markets can also underestimate the challenges of recovery.

Tim Vance, EY Parthenon UK&I Turnaround and Restructuring Leader in Yorkshire and the North East, said: “Whilst it’s encouraging to see that profit warnings across the North remain at a historic low – a continuation of what we saw at the start of the year – these latest figures reflect the current situation of listed businesses across the UK.

“The economy is shifting – the reset button has been pressed – and boards are now beginning to emerge with a post- pandemic mindset.

“The number of profit warnings issued by North-based listed businesses is marginally higher than it was in Q1 this year, when seven profit warnings were issued by businesses across the region.”

In the meantime, the number of business failures increased by 19% in June compared to the previous month and by 63% compared to June last year, according to the latest government figures show.

The 1,207 company insolvencies in June was the highest monthly figure since the pandemic started and – according to the insolvency and restructuring trade body R3 – could represent the impact of the delay in lifting the final COVID restrictions.

Allan Cadman, North West chair of R3, says: “The increase in corporate insolvencies between May and June has been driven by a rise in Creditors’ Voluntary Liquidations (CVLs), a measure used by directors to voluntarily close down a company.

“The Government’s decision to delay lifting the final COVID restrictions for another month has clearly been a further blow to the business community and may have been particularly unhelpful for the hospitality and retail sectors, which have been hit hardest by trading restrictions and lockdowns.

“It may be that this impact has been reflected in these statistics as the rise in CVLs suggests that for many directors, the delay to the removal of the restrictions may have simply made it uneconomic to continue trading.”