Profit Warnings Hit Three-Year High

Profit Warnings From UK Companies Are Continuing To Rise

28.07.2014

Fergal Dowling, Partner | +44 (0)121 214 5476

A new report from EY shows there were 137 profit warnings in the first six months of 2014 - the highest first half total since 2011.

Although the wider economic recovery is beginning to gain pace, analysts have claimed that more businesses than at any time since the UK emerged from recession are telling investors they are facing difficulties.

High levels of competition across all sectors, pressure on profit margins and a strong pound are quoted as the main difficulties facing firms in the UK by EY.

Consumer goods manufacturers were the worst affected by pricing and currency pressures, with 16 per cent of FTSE companies in this sector issuing profit warnings in the first half of 2014 - up from nine per cent a year earlier.

Keith McGregor, EY's capital transformation leader for Europe, said: "The pound's rapid rise is one of the biggest pressures on earnings. Although, the problem highlighted in profit warnings isn’t one of sales, but of currency translation.

"Recent history shows that UK exports are relatively insensitive to currency effects. However, the pound’s leap to multi-year highs has caught out a number of companies who translate foreign earnings back into pounds."

These views were shared by Alan Hudson, head of restructuring for EY in Ireland and the UK, who said that deep reform is currently on-going in a number of sectors across the economy.

However, despite this negative news from EY, the UK's private sector is generally performing above expectations.

The UK remains the fastest growing developed country in the world, despite concerns about the on-going conflicts in Eastern Europe - as well as the continent's general long-term economic health.

Coalition ministers believe improved jobs figures in recent months will boost their chances of being re-elected, but Labour strategists think the UK's rising cost-of-living will make voters look for an alternative as the May 2015 poll approaches.

Expert Opinion
Although there has been some positive news about the UK economy recently, this is a timely reminder that we cannot be complacent.

“These figures relate to large FTSE organisations, however, many of the issues that are affecting larger businesses are having an impact on SMEs - particularly the strong pound which is driving down profits of the growing number of businesses which are being encouraged to export and look for sales opportunities overseas.

“There are plenty of positives and we must remember that we have a resilient economy here in the UK. As a nation, our economy is growing faster than any other in the developed world. Small and medium sized companies are at the heart of this and it is vital that the sector continues to receive support in order to take full advantage of the opportunities that exist.

“We live in a competitive world and the entrepreneurial spirit that exists here in the UK has been crucial in ensuring the economy is in the strong position that it is currently.”
Fergal Dowling, Partner