It has been a bad year for UK companies trying to accurately predict their profits.
According to a report by financial services firm EY, the number of profit warnings issued by the UK's largest listed companies in 2014 was higher than in any year since the height of the financial crisis.
During the 12 months to mid-December this year, 87 profit warnings were issued by FTSE 350 companies – 12 more than were issued in 2013. The last time this number was exceeded was in 2008, when 90 warnings were issued.
In terms of the number of companies issuing warnings, this amounted to approximately one in five – a higher proportion than in any year since 2008.
Of all the major companies that have issued warnings this year, Tesco has suffered the most. In December, it issued its fourth warning in six months as its business continued to be affected by trading inaccuracies.
But for the majority of companies issuing warnings, the cause was poor performance in the energy and mining sectors according to Robert Parkes – an equity analyst at HSBC.
“Some of the profit warnings this year can perhaps be explained by the UK market’s exposure to the energy and mining sectors, which have faced significant headwinds in the form of falling commodities prices,” he told the FT.
LESS VOLATILITY THAN 2008
In 2008, the high number of warnings could be explained to a large degree by the increased market volatility.
“It should have been a more predictable business environment than 2008,” said Keith McGregor, a restructuring partner at EY.
But he added that this year, the warnings could not be explained away so easily. He said the results indicate that several groups may be struggling to explain to investors how their businesses are performing.
“This number of companies issuing warnings indicates that a significant part of the market is having trouble with planning and forecasting processes or with communicating with the City,” he said.