Profit warnings down by over 40% in Yorkshire

There were four profit warnings issued by Yorkshire quoted companies between July and September this year, according to Ernst & Young’s (EY) latest Profit Warnings report.

This compares to seven in the previous quarter (Q2 2019) and ten for the same period last year (Q3 2018).

With 17 profit warnings issued in the first two quarters of the year, this takes the total number of warnings to 21 for 2019. By this time last year, 24 profit warnings had been issued within the region.

In the nine months to the end of September, UK quoted companies issued 235 profit warnings, the highest year to date total since 2008 (323). In Q3 of 2019 (July, August and September), EY recorded 77 profit warnings from UK listed businesses, up from 69 in the previous quarter (Q2 2019) and 13% higher than Q3 2018 (68).

Just over a third of profit warnings issued in Q3 2019, explicitly cited the impact of macro-economic volatility, with a further 30% blaming contract delays or cancellations.

Hunter Kelly, EY Restructuring Partner for Yorkshire, said: “The Yorkshire and Humber region has seen a significant reduction in profit warnings this quarter, compared to the summer. However, despite a reduction in our region, it is clear that UK businesses are feeling the effects of domestic concerns and the growing impact of escalating political and trade tensions across the globe.

“The negative effect of protracted and widespread uncertainty is evident, with warnings across all FTSE sectors.

“Although the economy is in better shape now than it was in 2008, there are clear parallels in terms of the sheer unpredictability. Profit warnings aren’t an absolute measure of performance, but they do track a company’s ability to meet their forecasts, which is clearly more difficult in an uncertain environment.”

In the last 12 months, almost 18% of UK listed companies have issued a profit warning – the highest figure since Q4 2008.

Profit warnings from the UK FTSE Retail sector have hit an eight-year high in 2019, ahead of the festive period. 28 warnings were recorded between January and September this year by the sector, 22% more than the total recorded in the whole of 2017 (23).

Kelly continued: “Retail’s biggest problem isn’t consumers’ ability to spend, but their willingness. Despite a strong labour market, rising wages, low inflation and improved disposable incomes, the public’s concern for the broader economy is hitting discretionary spending especially hard. This combined with higher operational costs and relatively rigid operational models makes this a very difficult sector at the moment.”

As outlined by EY in their quarterly report, 22% of the profit warnings issued in Q3 2019 cited Brexit, compared to 10% in Q1 2019 – the quarter before the March exit deadline. Around half of the ‘Brexit-related’ warnings issued in the last year have come from FTSE sectors heavily exposed to market volatility and discretionary spending.

Hunter concluded: “The uncertain economic outlook will continue to affect the decision-making and demands of both UK businesses and households. We are continuing to see reduced order books as a result of both Brexit uncertainty and the impact of other global matters, including the slowdown in the German economy, US trade barriers and lower growth in China.

“Management need to consider if these will have a more permanent effect on their business.”

“As we move further into the final quarter of the year, a particularly crucial period for consumer-facing sectors, companies will need to react quickly to avoid becoming another profit warning statistic.”