Number of UK profit warnings could hit record breaking levels

Eloise Hanson Eloise Hanson Uploaded 09 April 2020

LinkedIn

UK: According to analysis from EY, there have been 240 COVID-19 related profit warnings in total to date, exceeding the 2019 peak that matched the height of the financial crisis in 2008.

EY has been tracking UK profit warnings for over twenty years.

Of the sectors hardest hit include those affected by social distancing measures, including FTSE Retailers.

39 FTSE Travel & Leisure profit warnings have specifically blamed the impact of COVID-19 for the downgrade of profit expectations. 

That accounts for 57 per cent of FTSE Travel & Leisure companies citing COVID-19 as having a direct effect on business.

Christian Mole, UK & Ireland head of hospitality and leisure at EY, said: “COVID-19 has profoundly affected businesses’ ability to plan and forecast, driving a significant rise in profit warnings, which are currently being issued at an exceptional rate. Indeed, almost all listed hotel groups have officially withdrawn guidance for 2020. Whilst there is extensive information on recovery times from previous downturns, the unique nature of the COVID-19 economic shutdown means that these aren’t reliable guides, making forecasting particularly difficult.”

“The immediate priority for businesses has been dealing with an immediate cash crunch. The Job Retention Scheme has been a critical element of this, together with the various tax and business rates concessions available. The recent extension of the Coronavirus Business Interruption Loan Scheme to medium sized business is to be welcomed, but there remain concerns around response times and some of the loan criteria that are being applied. Additionally, the willingness and ability of landlords to support businesses through rental holidays and significant deferrals has been mixed.”

“The past month has been exceptionally tough, and the recovery timeline remains uncertain. The restaurant sector in particular was struggling with overcapacity and low margins even before COVID-19; unfortunately, it feels inevitable that some businesses will not make it through the crisis. However, long-term forecast trends for leisure and eating out are positive – and one would expect a significant immediate increase in demand for drinking and eating out once the lockdown ceases.” 

"There is likely to be a more gradual recovery in hotels demand. Given inherently high fixed cost bases and that furloughing support will no longer be available due to some employees returning to work, planning how to address this period will be crucial.”

“A longer-term concern must be the impact on business travel and conferences, a major driver of hotel occupancy. Given the recent experience of extended reliance on video conferencing, we’ll need to see whether this decreases the need for physical get-togethers in the future.”

The latest EY analyses and figures were recorded up until 5pm on 6 April 2020.

EY is a global firm specialising in assurance, tax, transaction, and advisory services. EY refers to the global organisation and may refer to one or more of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity.

The UK firm Ernst & Young LLP is a limited liability partnership. It is a multi-disciplinary practice and is authorised and regulated by the Institute of Chartered Accountants in England and Wales, the Solicitors Regulation Authority and other regulators. 

LinkedIn

Be in the know.

Subscribe to our newsletter »
Subscribe

Thank you sponsors