East Anglia profit warnings fall 30% year on year


25-01-2016

The total number of profit warnings issued by quoted companies in East Anglia fell by 30% in 2015 (9), compared with 13 in 2014 – the lowest number of warnings recorded since 2009.

 

According to EY’s latest Profit Warnings report, there were two warnings issued in East Anglia in the final quarter of last year, the same as Q3 and the same period of 2014.

Two sectors saw the highest number of companies issuing warnings in East Anglia in 2015 – Software & Computer services (3) and Household Goods (2).

Nick Gomer, EY’s office managing partner in East Anglia (pictured), says: “Although East Anglian companies are benefiting from a period of economic growth, they are also contending with intense competition and rapid economic and structural change in their marketplace.

“In this environment, companies need to undertake a realistic assessment of their business and their market, looking at their operational and capital resilience and where and how they can create value. This should help businesses across the East of England build more robust forecasts and adapt quickly to change in these fast moving markets.”

UK outlook

The results from East Anglia came in stark contrast to those of the wider UK. Nationally quoted companies saw an increase in profit warnings, with 313 warnings in 2015, up from 299 in the previous year and the highest annual total since 2008.

The final quarter of 2015 saw 100 profit warnings issued from 7.3% of UK quoted companies, representing the highest quarterly total since Q1 2009 and the highest percentage of companies warning in a single quarter since Q4 2001. During 2015, 17.3% of current UK quoted companies warned, the highest annual percentage of companies warning since 2008.

The FTSE sectors which issued the highest number of UK profit warnings in the final quarter of 2015 were: Support Services (16), Electronic & Electrical Equipment (7), General Retailers (7), Media (6) and Travel & Leisure (6).

General Retailers feel the squeeze

FTSE General Retailers in the UK issued seven profit warnings in Q4 2015, up from three in the previous quarter and the same period of 2014. This is the biggest fourth quarter peak in FTSE General Retailer UK profit warnings since 2011 and takes the yearly total to 21.

That one third of the sector issued a profit warning in 2015 seems remarkable in the current consumer-economic environment.  But, as trends in the “golden quarter” highlight, retail’s fate is not just about the amount of disposable income available, but when and where it is spent and the hard bargain being driven by the UK consumer. 

Gomer continues: “The UK saw a collective rise in warnings led by retail in consumer facing sectors. It seems that some companies are underestimating the competitive and disruptive challenge and the level of investment required to keep up.Volatile demand and margins squeezed by the rise of online and consumer austerity certainly look set to stay.

“Retailers across the East of England will need to ensure that their business models are fit for purpose. Those who can innovate and use online to capture consumer imaginations and loyalty will certainly have an advantage. M&A is also back on the table although isn’t the answer for everyone, given the limits of competition and real-estate complications. But many retailers will need cash or new partners to make the transformation necessary to compete in this environment and low valuations may well encourage private equity back into the fray.”

Economic outlook

Gomer concludes: “Most businesses are standing up to the test, but the New Year brought new twists on familiar challenges. Geopolitical tensions are rising. China’s economic path has clouded further, with uncertainty feeding into global markets. Low oil prices should be more of a blessing than a curse, but increasing market tensions threaten to swamp economic benefits.

“There are positive elements to balance against rising worries and risks. Swathes of the global economy still have significant positive momentum. This includes the UK, where the economy remains unbalanced, but growth continues apace. But a failure in confidence is still a serious risk.

“We expect to see companies building resilience by intensifying their focus on operational improvement and their capital and portfolio management.  Without operational and capital flexibility, companies will struggle to adjust their business models to rapidly shifting markets. The one option listed businesses don’t have in this market is to do nothing. They have to adapt to the challenges ahead to thrive and survive.”

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EY is a global leader in assurance, tax, transaction and advisory services. With over 400 employees in our Cambridge and Luton offices, our teams provide a range of services to a variety of sectors, including manufacturing, life sciences, consumer products and retail, technology, real estate and construction, health, and the public sector. The broad array of companies across the East allows us to bring real, relevant and key insights to our clients.

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