South East: Profit warnings point to changing balance of the economy

Thirteen listed businesses in the South East issued profit warnings in the first quarter of 2017, one less than the previous quarter and four more than the same period of last year, according to EY’s latest Profit Warnings report.

Seven of the profit warnings recorded in Q1 2017 in the South East were from AIM-listed businesses, while no particular sector was hit more than another.

Across the whole of the UK, quoted companies issued 75 profit warnings in Q1 2017, with 17% of these warnings coming from the South East region.

The report says that UK profit warnings from industrial and commodity sectors have fallen significantly since the end of 2015, helped by a higher oil price and improving global economy. But, the impact of a weaker pound and rising pricing pressures loom large. In Q1 2017, 28% of warnings cited rising costs and pressure on prices, compared with 15% in 2016. At the same time, uncertainty increasingly prevails, with 28% of warnings citing contract delays or cancellations – the highest proportion of warnings in more than five years.

Neil Hutt, transactions partner at EY in Reading and across the Thames Valley, commented: “Improving global growth and the positive impact of a weaker pound on exports, combined with falling expectations in stressed areas, should limit the number of profit warnings in the near-term.

“However, increased overheads, political and regulatory change, and digital disruption are piling pressure on sectors with long-standing structural issues, especially in consumer and business services. Periods of rapid change often leave companies behind and the next few years are unlikely to prove an exception.”