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.