Profit alerts hit a sixth of firms in 2018
Number of warnings is the second highest in a decade
THE NUMBER of stock marketlisted firms issuing profit warnings last year hit levels close to the last recession, according to research from accountancy giant EY.
It said that 225 (16.8 per cent) of companies on the London Stock Exchange and its junior AIM market issued a total of 287 profit warnings among them last year. That is the second highest number of both warnings and issuing companies since 2009, when 13.4 per cent of companies (232) issued a total of 281 profit alerts.
EY said one of the reasons why the percentage of companies issuing profit warnings had spiked is because of an increase in the number of “new” firms reporting reduced earnings forecasts.
Of the firms that issued alerts during the fourth quarter of 2018, EY said 74 per cent were doing so for the first time in 12 months. That compares to 52 per cent for the first quarter of last year. Retail and the travel and leisure sectors saw the highest number of new firms putting out warnings.
EY attributed the increase to growing uncertainty surrounding the economy and Brexit, which has weakened business and consumer confidence, and halted spending.
Alan Hudson, EY head of restructuring for UK & Ireland, said: “It is particularly significant that we have seen more ‘new’ firms warning in 2018. It shows that there are more wide-reaching pressures at work, namely the impact of rising uncertainty on confidence and demand, contributing to a wider spread of profit warnings.
“Investors, like many businesses, are positioning for the worst. Recent events have created further political and economic uncertainty and there is no let-up in the pace of structural change.”
The only other time that so many negative profit updates were issued by so many firms over the past decade was in 2015, when 240 firms put out a total of 313 warnings.
General retail was the sector with the highest number of warnings last year at 36, followed by 29 for travel and leisure, support services at 27 and software and computer services with 23.
Hudson added that with the retail sector and the high street suffering from increased online competition and falling levels of consumer confidence and spending, landlords will find life tougher and tougher, especially those with vacant properties in secondary or tertiary locations: “Retail has been through many periods of radical change before, but none that have brought into question the future of shops themselves. There is still a place for physical stores, but far fewer than we have now. For many retail landlords 2019 will be no less challenging than 2018.”
EY’s research also found that when firms issued warnings during Q4 in 2018, their shares fell by a record average of 22.6 per cent. The last time negative earnings alerts triggered such falls was the third quarter of 2008, when warnings on average led to share prices tumbling 22.5 per cent.