Competition and sterling hit profit margins

Chris Papadopoullos
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THE NUMBER of profit warnings issued by companies increased over the summer as margins were squeezed by greater competition, rising input prices, and a strong pound.

UK quoted companies issued 69 profit warnings in the third quarter of 2014 – 13 more than the same quarter last year, a report released yesterday by accountants EY showed. However, the figure can be erratic and remains far below its financial crisis levels.

Rising input prices are becoming an issue for construction firms. During the worst months of the financial crisis, many firms took on long-term, low-price contracts to keep business going.

Firms are now having profits squeezed by these contracts as input prices rise, the report says.

The strong pound remains an ongoing concern. The proportion of companies citing currency issues in their profit warnings rose to 22 per cent in the third quarter from 14 per cent in the second. The a stronger pound reduces the sterling value of revenue made abroad. It also makes British goods more expensive to foreigners.

Increased competition was seen in the retail sector. The report stressed that the biggest squeeze on sales and margins was among the biggest supermarkets. Incumbent supermarkets are seeing are losing market share to Lidl and Aldi.