COVID-19 triggers profit warning spike in Yorkshire

Hunter Kelly, Restructuring Partner at EY

Listed companies in Yorkshire and the North East are issuing profit warnings at an unprecedented rate, with 75% triggered by COVID-19, according to the latest analysis from EY (figures recorded up until 1pm 27 March 2020).

Twenty profit warnings have been recorded by EY in Yorkshire and the North East since 1 January this year, double the number (10) issued in the first three full months of 2019 (Q1 2019). 75% of the warnings issued so far in 2020 specifically blamed the impact of COVID-19 for a material downgrade to their profit expectations reported EY, which has been tracking UK profit warnings for over 20 years.

When analysing all UK profit warnings made in 2020, compared to Q1 2019, EY found the Midlands has experienced the greatest year-on-year increase (209%), followed by the South East (188%), the North West (150%) and Yorkshire & the North East (100%).

Hunter Kelly, Restructuring Partner at EY, said: “COVID-19 has profoundly affected the ability of businesses across Yorkshire and the North East to operate, which has made previous forecasts and plans redundant, and is driving an exceptional rise in profit warnings.

“The impact is being felt throughout the economy, most notably in sectors closely connected to consumer spending, including travel, leisure and retail. With the partial lockdown set by the Government last week, we are likely to see an increasing impact in other sectors that require ‘employee proximity’, such as construction, manufacturing and business support services.

“Whilst the many Government support schemes are extremely welcome, they will only serve to moderate the impact and will not be a complete answer. Businesses should plan for a pro-longed impact after the partial lockdown has ended, such as considering how they will be able to deal with liabilities that are being stored up.”

Record breaking UK levels

UK quoted companies have issued 167 COVID-19 related profit warnings (figures correct as at 1pm on Friday 27th March), equivalent to around 13% of the whole of the Main Market and AIM.

Almost 25% (38) of the total number of COVID-19 related profit warnings issued in the UK in 2020 were from companies in the FTSE Travel & Leisure sector. Others hit hardest include sectors affected by social distancing measures, such as retailers, housebuilders and media companies – especially those impacted by event cancellations and falls in advertising spend.

EY also reported a further spike in warnings from FTSE Retailers and FTSE Household Goods and Home Construction – especially in sub-sectors that cannot easily (or at all) mitigate with online sales, such as house builders and motor dealerships.

Hunter Kelly concluded: “While Yorkshire and the North East’s specialism in the food sector may provide some partial insulation, the impact to the overall regional economy will be significant. Beyond the implementation of immediate country-wide support measures, it will be important to identify what additional schemes are required to protect and restore local economies.”