Member Article

Yorkshire sees drop in profit warnings according to EY report

According to EY’s latest Profit Warnings report, five profit warnings from listed businesses in Yorkshire and the North East were made between October and December 2013, compared to seven in the previous quarter.

This was broadly in line with the annual trends where there was a slight drop in the total number of profit warnings issued in 2013 (25), compared to 2012 (26).

Five profit warnings in Q4 came from General Finance (2), Industrial Engineering, Food Producers and Support Services (all with 1).

The Support Services sector saw the highest proportion of companies issuing profit warnings in Yorkshire and the North East in 2013.

In the UK as a whole profit warnings fell to a three-year low in 2013 but the year ended with a spike that saw 73 warnings issued in the final quarter – a rise of 30% on the previous quarter.

This was in direct contrast to improving economic data seen in the regions. In total, UK quoted companies - Main Market and AIM listed – issued 255 warnings in 2013, compared to 287 in 2012.

Interestingly, larger businesses seemed to be suffering more with 31 warnings in Q4 2013, from the FTSE350 which was as many from that segment as in Q4 2008, at the height of the financial crisis.

Hunter Kelly, EY’s restructuring partner in Yorkshire, says: “The 30% quarterly rise in UK profit warnings in the final quarter of last year seems incongruous next to the improving economic data, as the better outlook should, in theory, see profit warnings fall.

“Having said that we have historically seen improving business confidence leading to some over optimistic expectations.

The UK picture

The sectors with the highest number of companies issuing profit warnings for Q4 2013 were FTSE Support Services (14), FTSE Software & Computer Services (8) Aerospace & Defence, Media and Industrial Engineering (all with 5).

Profit warnings from business services, industrial sectors and companies exposed to volatile natural resources markets and the US shutdown led the way in Q4 and 2013 as a whole.

The sectors with the highest proportion of companies issuing profit warnings in 2013 were Aerospace & Defence (55%) and General Industrials (54%).

The number of profit warnings from FTSE Support Services companies stayed within a whisker of 2012’s figure, despite rapidly improving industry surveys.

Support Services is the UK’s largest FTSE industry group, and 45 warnings from 37 companies equated to almost one quarter of the sector warning in 2013.

Kelly adds, “Volumes may be increasing, but public and private sector alike are still keeping a tight control on costs, resulting in tight margins, intense competition and little room for error for many in a sector where the loss of just one contract can be significant.”

In contrast, the consumer and housing revival kept profit warnings low across consumer-facing sectors in 2013. FTSE General Retailers are particular notable with a record low of just nine warnings in 2013.

Kelly continues, “It was a mixed Christmas for retailers, with a broad spectrum of results.

“There were certainly retailers, who outperformed the market and overall sales were up and retail profit warnings dropped back to their lowest Q4 level for four years, albeit helped by weak surveys that dampened market expectations.

“However, trading statements also tell a bruising story for some retailers who didn’t get their proposition and strategy right.

“The winners generally had one or more of three linked elements: they held their nerve on pricing, they balanced bricks and clicks and they hit the ‘value for money’ or ‘brand’ sweet spot.”

Concluding, Kelly said, “Overall, it is an improving picture, and perhaps marks a shift to a new stage where companies are thinking about how they grow using their own mettle and get ready for the end of cheap credit.

“In the UK, low inflationary pressure should delay monetary tightening to 2015 but the countdown has begun, and companies need to be fit for the next stage to take advantage of the options that open up.

“We are beginning to see companies thinking about their capital needs and allocation, with large corporates seeking to divest of noncore divisions or divisions that require too great a share of the available investment.

“For those seeking growth, these and the IPO markets are opportunities to take full advantage.”

This was posted in Bdaily's Members' News section by Clare Burnett .