South East: Coronavirus creates surge in profit warnings

Listed companies in the South East are issuing profit warnings at an unprecedented rate, with a sharp uptick triggered by COVID-19, according to latest analysis from EY.

Forty nine profit warnings have been recorded by EY in the region since January 1, this year, nearly three times the number (17) issued in the first three full months of 2019 (Q1 2019). Thirty-one of the warnings issued so far in 2020 specifically blamed the impact of COVID-19 for a material downgrade to their profit expectations reported EY, which has been tracking UK profit warnings for over twenty years.

When analysing all UK profit warnings made in 2020, compared to Q1 2019, EY found the South East has experienced the second greatest year-on-year increase (+188%), behind the Midlands (+209%). The North West (+150%), Yorkshire and the North East (+100%), and the South West (75%) followed.

Joe Yglesia, head of audit at EY in the South East, commented: “COVID-19 has profoundly affected businesses’ ability to plan and forecast, driving a significant increase in profit warnings, which are currently being issued at an exceptional rate.

“The impact is being felt throughout the economy, most notably in sectors closely connected to discretionary consumer spending, including travel, hospitality and leisure. With a partial lockdown set by the Government last week, we are likely to see an increasing impact on other sectors that require ‘employee proximity’, such as construction and manufacturing.”

Record breaking UK levels

UK quoted companies have issued 167 COVID-19 related profit warnings (figures correct as at 1pm on Friday 27th March), equivalent to around 13% of the whole of the Main Market and AIM.

Almost 25% (38) of the total number of COVID-19 related profit warnings issued in the UK in 2020 were from companies in the FTSE Travel & Leisure sector. Others hit hardest include sectors affected by social distancing measures, such as retailers, housebuilders and media companies – especially those impacted by event cancellations and falls in advertising spend.

EY also reported a further spike in warnings from FTSE Retailers and FTSE Household Goods and Home Construction – especially in sub-sectors that cannot easily (or at all) mitigate with online sales, such as house builders and motor dealerships.

Yglesia added: “Many regional economies are dominated by particular sectors and we know that when economic activity is concentrated in such a way the impact locally can be all too real. Beyond the implementation of immediate stabilisation measures, which will of course be the prime focus, it will be important to turn to the geographic impact of COVID-19 and to identify what additional schemes are required to protect and then restore local economies.”