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Finance


Sector Focus


Dan Hurd: Temporary breathing space


Firms report drop in profit warnings


There has been a massive drop in the number of Midlands companies declaring profit warnings this year, despite the continuing coronavirus crisis. According to a new profit


warnings report by Ernst & Young's global strategy consulting arm, EY- Parthenon, Midlands quoted companies issued eight profit warnings in Q1 2021, a 78 per cent decrease from record levels in Q1 2020, when 37 were issued. Nationally, Q1 2021 saw 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. However, the continued withdrawal of forecasts by 15 per cent of FTSE 350 companies indicates ongoing uncertainty. 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. There will be some issues to look out for though, not least inflationary risks, which will grow as the recovery gains pace, and monetary policy remains accommodating.


Perhaps unsurprisingly, the FTSE


sectors issuing the most profit warnings in Q1 2021 were retailers (eight) and travel and leisure (five). When measured by the percentage of companies in a sector issuing a warning, the top FTSE sectors were beverage (22 per cent), personal goods (20 per cent) and retailers (17 per cent).


‘This is a time for UK business to reset and ready themselves to rebuild’


Dan Hurd, 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. “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.”


June 2021 CHAMBERLINK 61


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