Midlands profit warnings plummet - EY report
Profit warnings in the Midlands plummeted by 78 per cent compared to record levels in witnessed in the first quarter of 2020, according to EY-Parthenon 's latest Profit Warnings report.
The report states that Midlands companies issued eight profit warnings in Q1 2021, compared to 37 profit warnings issued in Q1 of 2020.
Nationally, Q1 2021 had the biggest year-on-year percentage fall in UK profit warnings on record. Midlands quoted companies issued the third highest number of profit warnings during the first quarter of the year, behind London (16) and the South East (10).
Profit warnings were pushed to record levels in Q1 2020 at the onset of the pandemic but began to fall from the middle of last year.
Most FTSE sectors saw significant falls in profit warning numbers at the start of 2021, as the global vaccine roll out bolstered the economy and earnings forecasts, according to the report.
Consumer sectors are expected to benefit from a pent-up release in demand and household savings in 2021 � especially in the second quarter, as the economy re-opens. A stronger than expected economic outlook, is also likely to boost confidence, EY has said.
Dan Hurd (pictured), EY-Parthenon UK&I Turnaround and Restructuring partner in the Midlands, said: “Low levels of profit warnings are an indication of a temporary breathing space for companies. If they haven 't already, this is a time for UK business to reset and ready themselves to rebuild.
“The impact of the pandemic won 't automatically reverse when lockdown ends. For many businesses, pressures will intensify as they restart operations, government support tapers, and working capital becomes stretched. ”
Among the quoted businesses in the Midlands, 12 have issued at least their third profit warning since March 2020, while eight of these companies also confirmed they used the furlough scheme in January.
Overall, a total of 64 listed companies have issued at least their third profit warning in a 12-month period since the start of March 2020. None of these companies have entered administration, in contrast to the 15-20 per cent figure EY-Parthenon says it would normally expect to see doing so within a year of their third warning.
EY-Parthenon analysis demonstrates that government support, combined with a moratorium on winding-up petitions, has significantly reduced corporate insolvencies over the course of the pandemic.
More than 6,000 extra companies would have entered an insolvency procedure by this point if insolvency levels had continued on the same trajectory as pre-March 2020.
Dan added: “With government support set to taper away this summer, we are likely to see the start of three overlapping waves of insolvency in the UK.
“Companies which would have otherwise become insolvent in the past 15 months are back under pressure; the withdrawal of government support is also challenging companies weakened by the pandemic; and there are those companies which may be unable or too slow to adapt to rapid market change. ”