Accounting Firms

Covid-19 triggers profit warning hike

Some 87% of all profit warnings issued by UK listed companies in the last three weeks cited coronavirus (Covid-19) as a contributing factor, according to EY.

The ‘Big Four’ accountancy firm said that since the start of 2020, 54 profit warnings have blamed the impact of the virus for a material downgrade to their profit expectations.

More than 40% (23) of the total number of Covid-19 related profit warnings issued in the UK in 2020 so far, have come from companies in the FTSE Travel and Leisure sector.

The firm added that airlines, tour operators, pubs, hotels, restaurants and cinemas are amongst those “most affected” by travel and social restrictions, which have also had a knock-on effect on betting and gaming companies due to the cancellation of sporting events.

EY said it recorded an “exceptionally” high level of profit warnings in 2019 (313) – equal to 2008 levels at the height of the financial crisis. 2020 had opened in the same way, before the added pressure of Covid-19, which it said has created an “unparalleled challenge for UK plc”.

Restructuring partner, Taylor Dewar, said: “Covid-19 is fundamentally affecting companies’ ability to operate and plan on a global level. As a result, we are recording profit warnings at a pace that far exceeds anything we’ve seen in more than two decades.

“What is noticeable is the shift in pressure since the start of the month – from Industrials to Consumer Discretionary – as the main driver behind profit warnings moves from supply chain disruption to the impact of ‘social isolation’.”

EY restructuring partner, Mona Bitar, added: “Covid-19 has generated an exceptional list of challenges in supply, demand, operations, planning and liquidity, alongside high levels of uncertainty and an ongoing backdrop of existing volatility and weak demand.

“In this rapidly moving environment, companies should be focused on four actions: putting peoples’ safety first; focusing on business continuity; building and securing liquidity; and engaging stakeholders.”

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