Earnings hit despite the recovery

PROFIT warnings issued by UK stock market-listed firms have surged to a six-year high even though the economy is recovering, a new report has revealed.

London Stock ExchangeGETTY

More profit warnings were issued by FTSE 100 companies last year than at the height of the crisis

Last year 299 profit warnings were issued by companies compared with 255 in 2013, an increase of 17.3 per cent, according to accountancy giant EY.

Its data also showed that FTSE 100 companies issued more warnings in 2014 than at the height of the financial crisis.

EY’s Alan Hudson said an improving economy is no longer a guarantee of a smooth ride.

He added: “The six-year high in the number of profit warnings appears incongruous given that UK and global economic outlooks still signal growth. But increasing political, policy and pricing uncertainties conspired to hit confidence at the end of 2014.”

The sectors most vulnerable to profit warnings were support services with 47 profit warnings, software and computer services with 28 and media recording 16. One in five firms blamed adverse exchange rates and a strong pound for their poor performance, while a similar number cited contract delays and cancellations.

The final quarter of 2014 saw a spike in warnings due to global uncertainty caused by falling oil and food prices, as well as the collapse of the Russian ruble.

Hudson added: “Many of these pressures represent new realities rather than a passing phase.

“To avoid being at the mercy of events companies need to take the initiative, build operational and capital resilience and adapt their forecasting and planning capabilities to the post-crisis economy.”

To avoid being at the mercy of events companies need to take the initiative, build operational and capital resilience and adapt their forecasting and planning capabilities to the post-crisis economy

Alan Hudson, EY

Food and drug retailers issued eight profit warnings last year, the highest on record.

In contrast, just 14 per cent of FTSE general retailers warned in 2014, a record low. EY noted that while Black Friday discounting saw increased footfall for retailers, the price cuts may ultimately have dented profits.

Jessica Clayton at EY said: “Once retailers had discounted, it was hard to revert to full prices.

“The extreme peak in sales placed significant pressure on retailers’ infrastructure.

“This begs the question: ‘Is it worth it?’ However, it will be hard to put the genie back in the bottle.”

Hudson said that cheap oil would help keep the British economy growing, albeit at a reduced rate.

“It’s been a breathless start to 2015, full of surprises and volatility. The underlying forecast is for improved, albeit below par, growth, boosted by cheaper oil.

“This mixed global outlook, and a relatively strong pound will leave the UK economy reliant on domestic momentum in 2015,” he said.

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