TheChek News Flow

Profit warnings from UK companies forecast to rise in 2017

Report by EY suggests 2016 figures ‘flattered to deceive’

Profit warnings by UK listed companies tailed off towards the end of 2016, reflecting relative economic stability after the Brexit vote, but 2017 could be much tougher for British groups, according to a report by EY, the accounting firm.

Quoted British companies issued 73 profit warnings in the last three months of 2016 compared with 100 during the same period in 2015, said the EY report.

With Britons having voted in a referendum in June last year to leave the EU, the number of warnings in the second half of 2016 “reflects relative stability in both the UK and global economy”, added EY.

Alan Hudson, EY’s head of restructuring in the UK, said: “The headline numbers show the UK economy weathering the initial impact of the Brexit vote remarkably well.” However, he added: “We expect 2017 to be . . . much tougher.”

Since the start of 2017 there has already been a marked uptick in companies prompting analysts to rein in earnings forecasts.

These include BT, Pearson, Next, Bovis Homes, Premier Foods and Lamprell. “There have been 21 profit warnings in the first 25 days of January this year compared with 15 in the first 25 days of 2016,” said EY.

The fall-off in profit warnings in the last quarter of 2016 compared with the corresponding period in 2015 “flattered to deceive”, said Mr Hudson.

Warnings at the end of 2015 jumped following the collapse in the oil price. The overall figures in 2016 also masked a stark divergence between midsized companies in the FTSE 250 and the 100 largest companies in the FTSE 100.

The number of profit warnings from FTSE 100 companies fell from 16 in the first half of 2016 to seven in the second half. By contrast, the number of warnings by FTSE 250 companies rose from 23 in the first half to 31 in the second half.

According to EY, the fourth quarter of 2016 marked a three-year high in the number of warnings from midsized FTSE 250 companies.

In part, this was because of rising costs, as a result of sterling’s weakness against other currencies since the Brexit referendum.

Many companies are struggling with uncertainty over pricing, and 27 per cent of the profit warnings by UK companies in the fourth quarter of 2016 were linked to cancellations and contract delays. None of these pressures are easing off, said EY.

Retailers and support services companies issued more profit warnings than groups in other sectors last year.

There was a sharp rise in repeat warnings. Half of the companies that issued warnings during the fourth quarter of 2016 had done so before last year.

Essentra, Cobham and Mitie have issued several warnings in the past year.

French mobile groups’ bundling trend risks harm, watchdog warns

Cost of buying TV content is a danger to network investment, says head of Arcep

The head of the French telecoms regulator has warned that the growing trend for mobile operators to offer bundles of telecoms and TV services across Europe risks harming investment in their networks.

“If telecom operators are massively investing in content . . . there’s a high risk that this deters investment in telecom networks in France,” Sébastien Soriano, chairman of Arcep, told the Financial Times.

“I would prefer to hear them with a clearer message of investing in fibre, in 4G, in 5G, than this kind of permanent discussion about content.”

Mr Soriano’s comments come as the country’s four telecoms operators — Orange, SFR, Bouygues and Iliad — weigh up the benefits of owning and creating TV content, including exclusive sports rights, that can be broadcast over their broadband and mobile networks.

These operators have been locked in a price war since 2012, when Xavier Niel’s Iliad launched its mobile service, Free. Content is seen as a potential means to differentiate from competitors, improve average revenue per user and reduce the churn rate — a measure of customer loss — although the cost of doing so can be expensive.

Convergence of media and telecoms is a strategy backed in particular by SFR, the French telecoms provider owned by cable entrepreneur Patrick Drahi’s investment vehicle Altice

Altice announced in December that it would offer eight entertainment channels to customers of its network. SFR is fighting to keep customers after losing 2.5m subscribers since it was bought from Vivendi just over two years ago.

Orange owns sports rights and OCS (previously known as Orange Cinéma Séries) — TV content also available for subscribers of other providers. Orange chief executive Stéphane Richard said in December he was also open to buying leading French pay-TV channel Canal Plus, which is owned by Vivendi.

Vivendi, under the control of billionaire Vincent Bolloré, is building a European media content business across France, Italy and Spain. As part of this plan, Vivendi has built up stakes in Telecom Italia and Italian broadcaster Mediaset.

Bouygues, owner of French television channel TF1, and Iliad have an open model of allowing clients to access as wide a range of content as possible without a premium on exclusivity.

Mr Soriano said that a good solution to the price war should be differentiation by networks, rather than differentiation by content.

He added: “A really bad scenario for us would be a scenario where two players would be engaged in media differentiation strategies. Then there’s a high risk that the market goes to a duopoly, which for us is terrible. Duopolies are very hard to regulate.”

Mr Soriano said that Arcep, which concentrates on ensuring France’s telecoms providers continue to invest in infrastructure, was largely powerless to prevent convergence, and that if the trend developed, a new regulatory framework might be needed.

He said: “My main concern is that we don’t go further on this telecom media story. For the moment there are no big problems — but please could we just stay at this point.”

Arcep ruffled feathers earlier this month when commenting on Orange’s investment in fibre networks. It said that “Arcep will work to prevent any obstructive behaviour from Orange”.