More proof business had a terrible start to 2016 as profit warnings remain "remarkably high", EY research finds

 
Lynsey Barber
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The year did not get off to a great start and now their's more proof that for business 2016 is hardly a vintage year.

Global economic worries and weak oil prices are among the reasons why the number of profit warnings issued by the UK's listed companies remains "remarkably high" according to the latest research from EY.

There were 76 profit warnings issued in the first quarter of the year, and while this was a decline on the previous quarter and on the same period last year, in the preceding 12 months to the end of the quarter, the percentage of UK companies issuing warnings is running at a higher rate than at the same point in 2015 (17.2 per cent versus 16.5 per cent).

Nearly half of companies which did issue a profit warning had already done so last year, the research found, a rise on the third which had done so at the same at the start of 2015.

While the majority met their forecasts, "when companies get it wrong, they seem more likely than before to get it wrong again," said the report. "Sixteen companies warning in the first quarter of 2016 had issued three or more warnings in the last 12 months. Profit warnings clearly don’t always come in threes – as the old adage goes – but that pattern is becoming more common".

"The ambiguous outlook gives potential for misreads and we’re unlikely to see a significant drop in the number of UK profit warnings, despite the drop in expectations and sustained UK growth. Successful companies are those that have acclimatised to unpredictability and have developed the operational and capital flexibility to ride the dips and make the most of opportunities."

Retail woes

Beleaguered retailers issued the second highest number of profit warnings of any sector so far this year and the highest number in the first quarter since 2011. A fifth of retailers warned across the fourth quarter in 2015 and first quarter of 2016, a period widely regarded as the crucial time of the year during Christmas and sales periods.

"Costs are rising, whilst the sector is still struggling to adjust to competitive and disruptive pressures."

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