The number of profit warnings issued by quoted companies in Yorkshire and the North East in the final quarter of 2015 increased to 11 representing 40 per cent of the total for the year, according to EY’s latest Profit Warnings report.
The 11 profit warnings were an increase from six in the previous quarter and seven for the same period in 2014. Across the UK and Ireland there was an increase in the number of profit warnings with 100 issued in Q4 2015 which is the highest quarterly total since 2009.
Hunter Kelly, restructuring Partner at EY in Yorkshire and the North East, said: “These latest figures demonstrate that Yorkshire and the North East is broadly in step with the wider UK. For Yorkshire and the North East, exposure to the oil and mining markets is responsible for four of the warnings.
“For the UK, sectors which recorded the greatest number of profit warnings both in the final quarter of 2015 and across the year were Support Services, followed by Industrial Engineering with the rest spread fairly evenly.
“Many of the challenges that dominated last year – oil, China, and the emerging markets – have continued into 2016.
“However, there always seems to be something creating new challenges and this begs the question: faced with consistent volatility do companies and their forecasts need to be more cautious to take account of the unexpected or should they invest to expand into different markets and geographies’ to ultimately reduce the risk of volatility?
“With so many new realities, companies need to undertake a realistic assessment of their business and their markets, looking at their operational and capability and where and how they can create value. This should help businesses adapt quickly to the unexpected.
Out of the 240 companies warning in 2015, just under a quarter – warned more than once. With each warning leading to a median share price fall of just under 14 per cent, failure to forecast accurately can be very costly.”
Hunter Kelly added: “Most businesses are standing up to the test, but the New Year brought new twists on familiar challenges. Low oil prices should be more of a blessing than a curse for the UK and Europe, but increasing market tensions threaten to swamp these economic benefits.
“In the UK, while the economy remains unbalanced, there is still growth but one wonders how robust it would be from a failure in confidence from the markets.
“We expect to see companies building resilience by focusing on operational improvement and their capital and portfolio management. Without operational and capital flexibility, companies will struggle to deal with rapidly shifting markets.
The one option businesses don’t have is to do nothing and they should be looking at the likes of investment in automation to improve productivity as well as looking to expand in overseas markets, such as the US, Europe and China.”