More firms face collapse as profit warnings rise

THE number of profit warnings issued by listed companies in the West Midlands has risen sharply amid with more corporate insolvencies likely, according to new research.

There were 38 profit warnings in the region in 2020, an increase of 46 per cent from the 26 outlined to the market the previous year.

They came from a range of sectors such as industrial metals and mining (seven), automobiles and parts (five), travel and leisure (four) and electronic and electrical equipment (four). Six of the 38 companies issued at least three profit warnings during 2019. The new ‘Profit Warnings Report’, published by financial services firm EY, said 82 per cent of those profit warnings cited covid-19 as the reason.

The national picture mirrored that of the West Midlands, with the figure climbing from 313 in 2019 to 583 last year, which was the highest annual total in the 21 years EY has been conducting the research.

There was also a surge in the number of companies issuing at least three profit warnings in the calendar year, with 62 nationally, up from 32 in 2019.

Dan Hurd, head of turnaround and restructuring strategy at EY in the Midlands, said: “Businesses operating in the consumer discretionary industries are often most sensitive to economic cycles as they include automotive, household durable goods, textiles and apparel and leisure equipment - all areas of the economy that feed into nonessential consumer items.

“Many UK businesses have been treading on thin ice for months with government support propping them up. While there is speculation these measures could be extended until the summer, the countdown has started and, in the coming weeks or months, we’ll find out how many of these companies can keep their head above water. The record-breaking levels of profit warnings, particularly from the first half of the year, are at odds with the significantly low number of corporate insolvencies.

“Insolvencies in the UK haven’t been dodged, they’ve been deferred and we’re likely to see an influx of these from spring onwards.

“For businesses that avoid administration, the mission ahead is immense, but not insurmountable.”