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Profit warnings increase in Yorkshire despite UK economic uptick

Despite the positive news about the UK economy the number of profit warnings in Yorkshire increased in the first quarter of this year, according to EY’s latest Profit Warnings report.

The region’s quoted companies issued eight profit warnings in Q1, up from three in the previous quarter to the same number as the corresponding period in 2013 when the economic outlook had more clouds on the horizon.

Warnings came from businesses in Industrial Engineering and Food & Drug Retailers both with two warnings each, Software & Computer Services, Technology Hardware & Equipment, Chemicles, Oil Equipment Services & Distribution each issuing one warning.

Hunter Kelly, restructuring partner at EY in Yorkshire, said:

“Confidence is unquestionably returning to the wider UK economy, but the reality for many Yorkshire and North East-based PLCs is very different in what remains a consumer-led recovery.

“Pricing pressures, increased competition across a number of sectors and delayed contracts have all been cited by Yorkshire and North East businesses as reasons for profit warnings in Q1 2014.

“These issues, alongside the strong pound, impacting exports, continue to challenge the Yorkshire and the North East’s industrial sector businesses.

“It is speculation if these increased pressures also reflect the restricted investment by UK businesses over the past five years.

“The rest of 2014 looks set to bring new challenges, which together with low inflation, will test earnings forecasts.

“Yorkshire and North East businesses should think carefully about capital needs and allocation in the next 12-18 months, and how they will leave themselves operationally and financially agile enough to respond to growth opportunities as they arise.

“Efficiency savings or transactions are two possible ways to achieve growth in this environment.”

UK quoted companies issued 74 warnings in total in Q1, one more warning than the previous quarter and the highest first quarter total since 2011.

The strengthening pound and weakening emerging market currencies dominated  profit warnings nationally in Q1 2014, with just over a quarter of warnings citing adverse exchange rates, against an average three per cent in the previous four quarters.

Just shy of  20 per cent of companies cited “pressure on pricing”’ in their profit warning, compared with a five-year average of  seven per cent.

Businesses in the FTSE 100, most exposed to emerging markets and with high foreign currency exposure, issued 14 warnings in Q1 2014 – more than at the height of the financial crisis.

FTSE sectors issuing the highest number of profit warnings in Q1 2014 were Support Services (12), Food Producers (5) and General Retailers (5).

Hunter Kelly added:

“The level of UK profit warnings was high in the first quarter of 2014, with expectations coming under pressure from a number of new quarters.

“Whilst the UK recovery gathers some momentum and with vital global markets also growing the UK appears to be being held back through adverse exchange rates and a lack of investment.

“As a result, UK profit forecasts are still falling in response.

“While the economic backdrop should continue to improve in 2014, it will be far from plain sailing for UK PLC.”

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