UK quoted companies issued 69 profit warnings in Q2 2019, the highest second quarter total since 2008, according to EY’s quarterly analysis of UK profit warnings. This is the highest Q2 total since 2008 and the highest Q2 percentage of companies warning since 2001.
The EY profit warning stress index remains at a ten-year high and first-day share price falls in the wake of announcements continue to exceed the peak of the financial crisis at a median slump of 20.9%.
Protracted Brexit uncertainty is triggering an increasing number of profit warnings, cited as a reason for 19% of Q2 warnings; but it’s not an isolated challenge. Rising global trade and geopolitical tensions are also creating a tougher, less predictable trading environment for UK plc.
EY head of UK&I Restructuring Alex Hudson notes that almost a third of profit warnings in Q2 2019 cited either delayed or cancelled contracts. “Uncertainty bites at a record pace. Even the resilient UK consumer has started to cut back — with the housing market also softening. What makes this uncertain environment even more treacherous for UK plc is the continuing backdrop of relentless structural change. This has left many companies struggling to catch-up and vulnerable to adversity — even in benign economic conditions. And, it’s important to remember that, however tough it has been for some companies, we’re not actually in a recession. The primary impact of Brexit has been in the cost of preparation and uncertainty.
“The most significant increases in profit warnings in the last 12 months have come in sub-sectors with the highest exposure to falling investor confidence, declines in manufacturing and construction activity and pressure on consumer discretionary spending, e.g., investment services, speciality chemicals, electronic equipment, heavy construction, apparel retailers.”
