EY’s Parthenon Report has has recorded the lowest ever number of profit warnings from listed businesses across the UK during the period April to June 2021 since it began analysis 22 years ago.
Nationwide, just 32 profit warnings were issued by listed businesses, of which a quarter came from businesses based in the North of England. In contrast, at the start of the global coronavirus crisis, the first two quarters of 2020 saw the profit warnings analysis reach record highs.
Analysis suggests that markets tend to over-correct and last year’s drastic expectations reset, combined with a better-than-expected recovery and Government support, meant that all but a handful of companies beat depressed forecasts. EY recorded similar dips in 2002/3 and 2009 after 9/11 and the global financial crash, respectively.
Sam Woodward, EY Parthenon UK&I Turnaround and Restructuring Leader in the North West, said:
“Whilst it’s encouraging to see that profit warnings across the North remain at a historic low – a continuation of what we saw at the start of the year – these latest figures reflect the current situation of listed businesses across the UK. The economy is shifting – the reset button has been pressed – and boards are now beginning to emerge with a post-pandemic mindset.
“The number of profit warnings issued by North-based listed businesses is marginally higher than it was in Q1 2021, when seven profit warnings were issued by businesses across the region. Although this continuing low number is an encouraging sign, businesses face challenging times as they look to emerge from the global pandemic and develop fresh strategies that focus on resilience and making the most of new opportunities and potential for growth.”
The latest profit warning analysis also indicates that economic recovery from the impacts of the pandemic may not be consistent across different sectors of the economy. FTSE Industrials is the industry grouping with the highest number of warnings (11) in Q2 2021, accounting for a third of total warnings in the quarter, with many citing issues with supply chains. Warnings from consumer sectors — including travel — have remained subdued, although four in five FTSE Travel and Leisure and FTSE Retailers have warned since the start of 2020, with both sectors amongst the heaviest users of Government support. Woodward added:
We expect to see an increasingly divided recovery, with a widening split developing between companies that are largely free from restrictions and able to capitalise on the recovery — and those that are still reliant on Government support, whilst contending with trading restrictions or structural change. We also expect companies exposed to low pricing power, fixed-price contracts, and historically high levels of EU labour, to be at least temporarily vulnerable to profit warnings, especially if price and supply trends continue.”