UK profit warnings rose substantially year-on-year to 58 in Q2 2018, with quoted companies issuing 13 (29%) more warnings than the same period in 2017, according to EY’s latest Profit Warnings report.
The year-on-year rise in profit warnings mainly stems from the consumer sector, which continued to issue an exceptionally high number of warnings. Almost a quarter of FTSE General Retailers warned in the first half of 2018, with the sector issuing 20 warnings (13 in Q1 and 7 in Q2), double the figure set in H1 2017 and a seven year high.
The FTSE sectors with the highest number of warnings in Q2 2018 are: General Retailers (7), Software & Computer Services (6), and Travel & Leisure (5).
The report says that a two-year high in the median share price fall on the day of warning indicates that more warnings are being regarded as structural, rather than one off events. UK companies reported a median share price fall of 15.9% in Q2 2018, compared with 12.5% in the same quarter last year – the highest since Q2 2016.
Alan Hudson, EY’s head of restructuring for UK & Ireland, comments: “We’ve reached half-time in 2018 with forecasts on the line. An exceptional summer has boosted consumer spending; but growing downside risks at home and abroad look more enduring. At the same time the retail revolution continues to reshape the high-street and operational models, leaving more companies in its wake.
“Beyond the consumer sphere, profit warnings could rise from their low base, if uncertainty delays decision making. The proportion of profit warnings citing delayed or cancelled contracts reached a six-year high in 2018. Many companies cannot say with any certainty what trading and regulatory regimes they’ll be operating under this time next year.”