Region records more than double the number of profit warnings in first nine months of 2020

During the first three quarters of 2020, listed companies headquartered in the West Midlands issued more than double the number of profit warnings compared to the same period last year, as 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 in the West Midlands increased by 119% from 16 to 35 warnings.

In 2020, the overwhelming majority of profit warnings from listed companies in the West Midlands (80%) have been attributed to COVID-19.

Dan Hurd, head of turnaround and restructuring strategy at EY in the Midlands said: “Most of the profit warnings from quoted companies in the West Midlands have been attributed to COVID-19, demonstrating the very real impact the pandemic is having on our listed companies.

“The Midlands is arguably most well-known for its strength in automotive manufacturing; which has certainly had its challenges so far this year. First the pandemic affected demand and international supply chains. Then, as demand and production levels began to return, companies had to grapple with making their workplaces COVID-19 secure. I think it’s fair to say our regions’ listed companies – including our automotive manufacturers – will be keeping a close eye on the risk of further restrictions, as well as their working capital requirements and the potential for Brexit disruption during the next quarter and beyond.”

The UK-wide perspective

After just nine months, the number of profit warnings issued by UK quoted companies has reached a new, annual high with more expected due to continued uncertainty from COVID-19, Brexit and the easing of government support.

The total number of profit warnings from UK businesses in 2020 at the end of Q3 was 524, setting a new record[1] for the annual total. This figure replaces the 19-year-old record of 506 from 2001.

However, the Q3 profit warnings total (58) was both below average for the quarter (64) and 25% lower than Q3 2019, when there were 77. The top FTSE sectors warning in Q3 2020 were: Industrial Support Services (6), Investment Banking and Brokerage (5) and Construction and Materials (5).

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.

Hurd 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.”

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