Covid-19 sparks record rate of UK profit warnings

Almost nine in every ten profit warnings issued to UK listed companies in the past three weeks have cited the impact of coronavirus, according to new data from Ernst & Young (EY).

Since the start of 2020, 54 profit warnings – including 25 in the past week alone, up to 5pm yesterday – have pointed the finger of blame at Covid-19 for a material downgrade to profit expectations.

EY has been tracking UK profit warnings for more than 20 years, and said the recent spate has come at a rate ‘far exceeding’ anything else its experts have recorded during that time.

The company’s Head of Restructuring in the South West, Lucy Winterbourne said: “Covid-19 is fundamentally affecting companies’ ability to operate and plan on a global level.

“As a result, we are recording profit warnings at a pace that far exceeds anything we’ve seen in more than two decades.

“What is noticeable is the shift in pressure since the start of the month – from industrials to consumer discretionary – as the main driver behind profit warnings moves from supply chain disruption to the impact of ‘social isolation’.”

More than 40% (23) of the total number of Covid-19 related profit warnings issued in the UK in 2020 so far, have come from companies in the FTSE travel and leisure sector.

Airlines, tour operators, pubs, hotels, restaurants and cinemas are among those most affected by travel and social restrictions, which have also had a knock-on effect on betting and gaming companies due to the cancellation of sporting events.

EY recorded an exceptionally high level of profit warnings in 2019 (313) – equal to 2008 levels at the height of the financial crisis. 2020 had opened in the same way, before the added pressure of Covid-19, which has created an unparalleled challenge for UK plc.

Winterbourne added: “Covid-19 has generated an exceptional list of challenges in supply, demand, operations, planning and liquidity, alongside high levels of uncertainty and an ongoing backdrop of existing volatility and weak demand.

“In this rapidly moving environment, companies should be focused on four actions: putting people’s safety first; focusing on business continuity; building and securing liquidity; and engaging stakeholders.”