Profit warnings from Scottish companies continue to rise in 2018

The third quarter of 2018 generated half of all profit warnings for Scottish listed companies this year, according to EY’s latest Profit Warnings report.

EY’s Profit Warning Stress Index hit its joint-highest level for two years in Q3 2018 as the the number of Scottish quoted companies issuing profit warnings, rose from two in Q1, to three in Q2 and five in Q3, two more than the same period in 2017.

The index uses the percentage of UK quoted companies warning in the last 12 months to assign a ‘stress’ score from zero to 100. In Q3 2018, this index hit 72, the joint-highest level since Q3 2016.

The index has risen above 70 during two other periods: during the financial crisis and in 2015-16, when a succession of shocks – from the plunge in oil prices to the EU Referendum vote – triggered waves of profit warnings.

Colin Dempster, EY’s head of restructuring in Scotland, said: “While these figures indicate a worrying trend of a rising number of Scottish companies issuing profit warnings this could be short-lived. Companies that choose to reassess their operating model and embrace new technologies are likely to be more resilient in the short-term and be well-placed for future success post Brexit.”

Across the UK, there was a total of 68 companies issuing profit warnings in Q3 2018 with their share prices falling by an average of 21 per cent. This drop is comparable to figures seen ten years ago at the height of the financial crisis.

In a further worrying sign for the UK economy, the percentage of quoted companies warning in the last 12 months has increased to 15.6 per cent (206) compared to 14.4 per cent (191) a year ago, according to the report.

In Q3 2018, FTSE General Retailers issued eight profit warnings, the joint-highest third quarter figure since the financial crisis. In the first nine months of 2018, the sector has already surpassed 2017’s total number of warnings, with a third of FTSE General Retailers warning in the year-to-date.

FTSE Travel & Leisure companies issued seven profit warnings in Q3 2018, the highest third quarter total for two years. In the last 12 months, a quarter of the FTSE sector has warned. The ‘Travel & Tourism’ and ‘Airlines’ FTSE sub-sectors contributed seven out of the 17 sector warnings issued in the first nine months of 2018.

Mr Dempster added: “It is no surprise to see the UK retail and the leisure sectors record high numbers of profit warnings, this is another sign of people being increasingly careful with how they spend their disposable income. Retailers have also contended with a year of weather extremes but looking ahead we anticipate one of the most demanding ‘golden’ quarters leading up to Christmas trading in many years. If 2018 follows the pattern of recent years, consumers will hold back spending from now until Black Friday, which could result in heavy discounting to drive sales.”