Profit warnings soar as businesses struggle

After just nine months, the number of profit warnings issued by UK quoted companies has reached a new, annual high with more expected as the impact of Covid-19, Brexit and reduced government support take effect, according to EY

The total number of profit warnings from UK businesses in 2020 at the end of Q3 was 524, setting a new record for the annual total, the firm calculated.

This figure replaces the 19-year-old record of 506 from 2001.

In the last 12 months, more than a third (36%) of all UK quoted companies have materially lowered their profit forecasts at least once compared with 18% in 2008 and 23% in 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).

EY said 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, coupled with the increase in activity as Covid-19 restrictions were relaxed and as government initiatives kicked in.

Alan Hudson, turnaround and restructuring strategy leader at EY, UK & Ireland, said: ‘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.

‘Covid-19 cannot be considered in isolation from other, broader market issues facing organisations. For example, the revolutionary, and persistent, impact of emerging technologies and changes to consumer behaviours and priorities.’

In the first three quarters of 2020 there were 449 profit warnings linked to Covid-19 with the sectors where social-distancing has reduced demand and capacity being most affected.

However, Q3 2020 data indicates operating costs are now of increasing concern, with 24% of profit warnings citing rising overheads compared with 12% last year.

Pat Sweet |Reporter, Accountancy Daily [2010-2021]

Pat Sweet was the former online reporter at Accountancy Daily and contributor to the monthly Accountancy magazine, pub...

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