Yorkshire Profit Warnings Up By Over Three-quarters As UK Figures Hit An All-Time Annual High After Only Nine Months

During the first three quarters of 2020, listed companies across Yorkshire issued 37 profit warnings, over three-quarters more compared to the same period last year (21), while the UK total hit an all-time high, according to the latest EY quarterly analysis of UK profit warnings.

Year on year the number of profit warnings in the first nine months of 2020 from companies headquartered in Yorkshire increased by 76%. Unsurprisingly, the majority of profit warnings from Yorkshire’s listed companies (78%) have been attributed to COVID-19.

Hunter Kelly, Turnaround and Restructuring Strategy Partner at EY in Yorkshire commented: “The sectors that reported the most warnings were retailers and construction companies. Following the peak in the second quarter, there was a drop in the third but it’s still relatively early days and, in some respects, it may just be the calm before the storm. It’s therefore crucial that businesses across the Yorkshire region don’t underestimate the depth and extent of the longer-term challenges ahead, such as unpredictable demand, changes to the level of government support, as well as the looming implications from Brexit negotiations, particularly as a no-deal scenario is looking more likely.”

The UK-wide perspective

After just nine months, the number of profit warnings issued by UK quoted companies has reached a new, annual high with more expected due to continued uncertainty from COVID-19, Brexit and the easing of government support.

The total number of profit warnings from UK businesses in 2020 at the end of Q3 was 524, setting a new record for the annual total. This figure replaces the 19-year-old record of 506 from 2001.

However, the Q3 profit warnings total (58) was both below average for the quarter (64) and 25% lower than Q3 2019, when there were 77. The top FTSE sectors warning in Q3 2020 were: Industrial Support Services (6), Investment Banking and Brokerage (5) and Construction and Materials (5).

The third quarter is typically the quietest period for corporate reporting and in 2020 this was amplified by the significant fall in earnings expectations earlier in 2020, the increase in activity as COVID-19 restrictions were relaxed and as government initiatives kicked in.

Hunter added: “The lock down period and subsequent lower sales activity has enabled businesses to prepare for what is expected to be an exceptionally difficult Autumn and Winter. Many businesses have managed to navigate the day-to-day stresses of the current environment by adopting tactics to preserve cash and shrinking their operations. However, with government support measures winding down and the reality of Brexit just around the corner, merely going back to basics isn’t enough.”

A shift in focus

In the first three quarters of 2020 there were 449 profit warnings linked to COVID-19 with the sectors where social-distancing has reduced demand and capacity being most affected. However, Q3 2020 data indicates operating costs are now of increasing concern, with 24% of profit warnings citing rising overheads compared with 12% last year.

Suzanne Robinson, Managing Partner for EY in Yorkshire and Humberside commented: “Companies must recalibrate their businesses as a matter of urgency in order to secure their survival and to grab the market opportunities that is occurring from this disruption. It is vital they are able to adapt rapidly, and radically, to on-going change and uncertainty if they are to ensure long-term resilience.”

Protecting ecosystems

In the last 12 months, more than a third (36%) of all UK quoted companies have materially lowered their profit forecasts at least once compared with 18% in 2008 and 23% in 2001. The 36% figure offers insight into the extent of the impact of COVID-19 on the business community, particularly when you consider the numerous connections they hold within UK Plc.

Suzanne added: “Supply chain resilience has never been more important. Market considerations posed by COVID-19 and Brexit have amplified the need to identify the weakest link in a supply chain and put additional support measures in place.

“Collaborative and innovative ways of working are emerging within various sectors to help stimulate business activity, while others are assessing opportunities to drive consolidation. Careful, strategic thinking across the ecosystem will prove vital.”