• Register
Return to: Home > News > Financial Results > Three profit warnings and you’re likely out!

Three profit warnings and you’re likely out!

EY has been tracking UK profit warnings for 20 years. Analysing some 6000 profit warnings, the firm said: “Most striking of all are the results of a thought-provoking study we’ve undertaken into the impact of issuing three or more successive profit warnings. For a fifth of these companies, it is a case of three strikes and you’re out – and this is happening quicker than ever.” Half of companies that do so will have lost their CEO and 40% their CFO.

Over the last two decades, an average of 15% of UK companies have issued warnings each year. In the toughest year, 2001, it was 23%. Profit warnings can sometimes be unavoidable, for example after extreme economic or sector shocks, but they are not inevitable. Most companies don’t issue profit warnings.

EY said behind the numbers, many of the problem contracts triggering multiple profit warnings have flaws in their inception and execution, often exacerbated by a slow or insufficient response. Management teams that have weak visibility across their business and poor internal controls won’t spot problems early. Companies that don’t respond quickly to changes in their market, risk falling into a negative spiral of falling customer and investor confidence.

Analysis of multiple profit warnings (companies that issue a chain of three or more profit warnings in one year) shows that third warning is often the final blow and capital is becoming ‘flightier’.  Using this measure, 18% of companies that have issued a profit warning in the last 20 years has gone on to issue multiple warnings. Most of these come from the sectors identified as being structurally vulnerable to warning, which also makes them vulnerable to multiple warnings if they don’t get a handle on their problem.

A year after companies issued a chain of three or more profit warnings:

  • 25% have had a breach or waiver of covenant
  • 20% of companies have delisted
  • 10% have gone into administration
  • 9% have recovered their share price

In total, around 18% of companies will experience a restructuring event (administration, CVA, debt restructuring or distress sale) within a year of issuing a chain of three or more warnings.  

Top Content

    South Africa: sensing new opportunities

    It has been an interesting couple of years for the profession in South Africa. A number of high-profile scandals have brought the profession and the role of auditors into sharp public focus, brewing a distrust towards accountants and a large expectations gap. Joe Pickard reports.

    read more

    Ghana: a quest for consistency

    Ghana’s current economic profile would suggest a fertile landscape for purveyors of accounting services. But inconsistent approaches to compliance and application of standards – coupled with problems in the banking sector and consequent liquidity constraints – have created a challenging environment. Paul Golden writes.

    read more

    Drone technology: audit takes to the skies

    The movement towards a digitised era has already impacted the auditing profession in a number of ways, from blockchain to artificial intelligence. Now firms are taking to sky and using drone technology in their audits. Mishelle Thurai speaks to Big Four firms to find out more.

    read more

    SBC: a new alliance joins the market

    Jonathan Minter speaks to Paul Tutin, chair of founding firm Streets Chartered Accountants, about why the business and its European partners took the decision to launch their own association.

    read more
Privacy Policy

We have updated our privacy policy. In the latest update it explains what cookies are and how we use them on our site. To learn more about cookies and their benefits, please view our privacy policy. Please be aware that parts of this site will not function correctly if you disable cookies. By continuing to use this site, you consent to our use of cookies in accordance with our privacy policy unless you have disabled them.