Study shows 77 profit warnings in first quarter; 16 due to oil price slump
Profit warnings issued by listed UK companies increased in the first quarter of this year compared with the previous year due to the lower price of oil, rising volatility and increasing competition, according to a study by EY.
The number of profit warnings in the UK rose to 77 in the first quarter of 2015 from 74 in the same quarter last year, according to the report. The figure was down from 93 in the fourth quarter of 2014 but still higher than analysts expected, EY says.
The 40 percent drop in the oil price in the past year is the single biggest factor in profit warnings over the first three months of the year, accounting for 16 warnings in total, EY says in a press release. Oil and gas producers and support services each issued eight profit warnings, while the software and computer services sector was also hit, accounting for seven profit warnings. Six general retailers also issued profit warnings, making it the fourth-worst-hit sector.
EY says rising competition has prompted many companies to keep prices low, even as the economy appears to recover, to attract consumers who are displaying less brand loyalty than in the past and are increasingly ‘value hungry’. On top of that, changing technologies, regulatory pressure and chaotic international politics are making it difficult for companies to plan effectively.
‘In this maelstrom of change and volatility, it’s imperative that companies take a fresh look at their strategies, business models and portfolios,’ says Alan Hudson, EY’s head of restructuring for the UK & Ireland. ‘There are significant benefits for companies that can build a business that has the capital, market, operational and stakeholder resilience to meet the challenges of this recovery and implement more effective planning and decision-making – not least because companies can now expect a greater interest in how they perceive the future from more activist stakeholders and regulators.’
