Home Latest News Profit warnings by Scottish firms at 20-year high

Profit warnings by Scottish firms at 20-year high

by Jonathan Adams
profit

Businesses in the travel & leisure sector most affected, with three out of the 16

The number of profit warnings by Scottish-based stock market-listed firms in the first half of 2020 reached a 20-year high, according to EY.

The professional services firm’s latest Profit Warnings report recorded 16 profit warnings during the six months, up by 45% year-on-year.

That compared with 11 in the same period last year. During a record breaking first quarter in 2020, quoted companies in the Scotland issued 10 warnings, while six were recorded in Q2.

Businesses in the travel & leisure sector most affected, with three out of the 16.

The UK’s biggest year-on-year increase in profit warnings was seen in the north east of England, with 5.5 times more than last year, followed by London with 4.6 times as many and East Anglia with four times as many.

Colin Dempster, Head of Turnaround and Restructuring Strategy at EY in Scotland, said: Scotland’s performance compared with other UK locations in terms of profit warnings, reflects the types of listed companies based here.

A large proportion of the Scottish economy has been able to adapt to lockdown conditions. For example, the services industry has been able to shift to virtual ways of working easier than other sectors where social distancing poses much more challenging conditions for operations, Dempster said. However, the oil and gas sector is also a key component of Scotland’s economy and has experienced a particularly challenging time across the supply chain due to a significant fall in both demand and the oil price. This is likely to have a subsequent impact on the wider business landscape.

UK-wide, 33% of listed companies, compared with 18% in 2019, issued a profit warning in the first half of 2020. EY recorded 466 profit warnings in H1 2020, compared with the 313 issued last year.

The immediate impact of Covid was felt in Q1 by sectors most impacted by lockdown – travel, leisure, hospitality, and retail – but this has since spread to industries most exposed to the knock-on effects of changing corporate and consumer behaviour.

Fiona Taylor, Turnaround and Restructuring Strategy Associate Partner at EY in Scotland, added: We expect supply chain vulnerability to be one of the biggest areas of risk for companies in the next six months. Supply chain resilience will no doubt feature highly on corporate agendas, not least because of the additional challenges associated with Brexit.

There are already large-scale restructurings in the UK market that could have considerable impact along supply and value chains, she said.

The FTSE Retailers and FTSE Travel & Leisure sector has the highest number of companies warning three or more times in a 12-month period, which EY found gave a company a one in five chance of a distress event – such as an administration, CVA, debt restructuring or distressed sale – in the year ahead.

Taylor added: Boards need to guard against complacency and be ready to take swift and decisive action to reshape their business to face a different future than they imagined just a few months ago. Companies could find that previously healthy parts of their business are no longer profitable. This is a pivotal moment for Scotland and UK plc.

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