‘Calm before the storm’ warning despite better end to 2016 for profit warnings
Quoted companies in Yorkshire and the North East issued just four profit warnings in last year’s final quarter but experts have predicted that 2017 is likely to be a “much tougher one” for many firms.
The four profit warnings issued were half that of the previous quarter, and seven fewer than Q4 2015, when warnings spiked following the fall of the oil price, according to EY’s latest Profit Warnings report.
According to the report, the number of profit warnings reflects relative stability in both the UK and global economy in the second half of 2016, with UK consumer spending in particular defying expectations.
Across the UK, 73 profit warnings were issued in Q4 2016. The FTSE sectors issuing the most profit warnings across the UK in Q4 2016 were: Support Services (17), General Retailers (7), General Financial (5) and Construction & Materials (4).
Behind the headlines, however, the report says that there are less positive signals. A record level of FTSE Support Services warnings in 2016 suggests that businesses are starting to react to uncertainty, as does the 27% of warnings citing contract delays or cancellations in the final quarter. Companies exposed to the weak pound are also reporting increasing pressure on earnings, with 11% of warnings citing adverse exchange rates.
Hunter Kelly, restructuring partner at EY in Yorkshire and the North East, says: “A strong end to 2016, represents the calm before the storm. The headline numbers show the UK economy weathering the initial impact of the Brexit vote remarkably well. But, we expect 2017 to be a very different year and for many companies a much tougher one.
“Whilst for many companies it remains business as usual, they are also having to face significant changes and new challenges from a longer term outlook of a weaker pound and recent political change. The year ahead will further expose the impact of these developments and companies will have to respond to a new trading environment and look for the opportunities that it may present.”
Rising levels of multiple profit warnings illustrate the diverging fortunes of UK plc.
The report shows that in Q4 2016, 49% of companies warned for the second, third or even fourth time in the last year – compared with 37% issuing multiple warnings in the same quarter of 2015.
