Profit warnings buck national trend to fall again in Q3

THE number of profit warnings issued by quoted companies in the North West halved to just three in the third quarter of 2015, compared with six in the previous quarter, according to EY’s latest Profit Warnings report.

Q3 showed the second successive quarterly fall in profit warnings in the region after eight were recorded in the first quarter of 2015, the highest number since Q1 2013.

However, the Q3 2015 total of three represents an increase compared with the single warning recorded in the North West during the corresponding period in 2014.

These positive results for the North West came in stark contrast to those of the wider UK. Nationally quoted companies issued 79 profit warnings in Q3 2015, more than a third more than the previous quarter and 10 more than same period in 2014.

EY restructuring partner in the North West, Tom Jack, said: “Following a challenging start to the year, North West PLCs enjoyed a stable Q3, with profit warnings falling even further following an improvement in the second quarter of the year.

“To secure this further decline in warnings against a more challenging UK backdrop illustrates the resilience of many of the region’s PLCs, as well as their ability to forecast and meet earnings expectations.

“In general, macroeconomic concerns created by Chinese stock market volatility and the possibility of US interest rate moves have created uncertainty for UK listed businesses.

“Even in the UK’s consumer sweet spot, some companies are struggling to forecast and meet earnings expectations as technological disruption requires them to rapidly adapt and invest.

“There is an increasing need for businesses to invest to keep pace with new entrants and developments. Record M&A activity reflects companies’ efforts to adapt to new patterns of growth and rapid changes in technology and behaviour.

“Active capital allocation and a strong focus on operational resilience are vital tools in this disrupted recovery.”

Looking ahead, Jack said that with markets changing  so fast and companies’ profits buffeted by many forces, a greater divide in corporate experiences was expected.

“Even in the same sector, companies could have very different outlooks depending on their operational agility and how well they have allocated their capital in terms of investment – and deals,” he said.

“Many of the issues highlighted in recent profit warnings relate to long-term adjustments in global and sector growth patterns that will require companies to look beyond the current cycle.”