Half of year's Scots alerts in Q3
Profits warnings surge close to financial crisis figures
Glasgow-based Quiz was among firms issuing profits alerts
Business advisers have warned that a surge in profits warnings is similar to the trends last seen at the time of the financial crisis ten years ago.
Retailers and travel & leisure companies were among those issuing the most warnings in the year to date, according to EY’s latest Profit Warnings report.
Across the UK, 68 companies issued warnings in the third quarter with their share prices falling by an average of 21%. This drop is comparable to figures seen ten years ago at the height of the financial crisis.
Half of all profit warnings among Scottish quoted companies this year came in the third quarter and most recently included Quiz Clothi.
Two Scottish firms recorded warnings in Q1, three in Q2 and five in Q3. The Q3 total is two more than the same period in 2017 and is the highest profit warnings total for the quarter since 2015.
Colin Dempster, EY’s head of restructuring in Scotland, said: “While these figures indicate a worrying trend of a rising number of Scottish companies issuing profit warnings this could be short-lived.
“Companies that choose to reassess their operating model and embrace new technologies are likely to be more resilient in the short-term and be well-placed for future success post Brexit.”
Across the UK the percentage of quoted companies warning in the last 12 months has increased to 15.6% (206) compared to 14.4% (191) a year ago, according to the report.
In the third quarter FTSE general retailers issued eight profit warnings, the joint-highest third quarter figure since the financial crisis. In the first nine months of 2018, the sector has already surpassed 2017’s total number of warnings, with a third of FTSE general retailers warning in the year-to-date.
FTSE travel & leisure companies issued seven profit warnings in Q3 2018, the highest third quarter total for two years. In the last 12 months, a quarter of the FTSE sector has warned. The ‘Travel & Tourism’ and ‘Airlines’ FTSE sub-sectors contributed seven out of the 17 sector warnings issued in the first nine months of 2018.
Mr Dempster added: “It is no surprise to see the UK retail and the leisure sectors record high numbers of profit warnings, this is another sign of people being increasingly careful with how they spend their disposable income.
“Retailers have also contended with a year of weather extremes but looking ahead we anticipate one of the most demanding ‘golden’ quarters leading up to Christmas trading in many years.
“If 2018 follows the pattern of recent years, consumers will hold back spending from now until Black Friday, which could result in heavy discounting to drive sales.”
EY’s Profit Warning Stress Index hit its joint-highest level for two years in Q3 2018. The index uses the percentage of UK quoted companies warning in the last 12 months to assign a ‘stress’ score from zero to 100. In Q3 2018, this index hit 72, the joint-highest level since Q3 2016.
The index has risen above 70 during two other periods: during the financial crisis and in 2015-16, when a succession of shocks – from the plunge in oil prices to the EU Referendum vote – triggered waves of profit warnings.