Profit warnings at Scots listed firms up 45% – EY

Fiona Taylor of EY

The number of profit warnings issued by listed companies headquartered in Scotland in the first half of 2020 increased by 45% year-on-year, with 94% citing the impact of the COVID-19 pandemic, according to EY’s latest profit warnings report.

However, this was still the smallest increase of profit warnings across all UK locations.

EY said it recorded 16 profit warnings in Scotland in H1 2020 — higher than any previous H1 in the last 20 years — compared to 11 in the same period last year.

After a record breaking first quarter in 2020, when quoted companies in the Scotland issued 10 warnings, six were recorded in Q2 2020.

The profit warnings were spread across a wide range of sectors in Scotland in H1 2020, with businesses operating in the travel and leisure (three) sector most affected.

Colin Dempster, Head of Turnaround and Restructuring Strategy at EY in Scotland, commented: “Scotland’s performance compared with other UK locations in terms of profit warnings, reflects the types of listed companies based here.

“A large proportion of the Scottish economy has been able to adapt to lockdown conditions for example, the services industry has been able to shift to virtual ways of working easier than other sectors where social distancing poses much more challenging conditions for operations. 

“However, the oil and gas sector is also a key component of Scotland’s economy and has experienced a particularly challenging time across the supply chain due to a significant fall in both demand and the oil price.

“This is likely to have a subsequent impact on the wider business landscape.

“It’s vital that businesses in Scotland don’t underestimate the depth and extent of both the immediate and long-term challenges ahead.

“It is still a highly uncertain time for businesses, who are adjusting to new ways of working and changing levels of demand, with potential cliff-edges to come in government support and further twists and turns likely in Brexit negotiations.

“The economy is opening up, but it’s early days.”

Across the UK, 33% of listed companies — compared to 18% in 2019 — issued a profit warning in the first half of 2020.

EY recorded 466 profit warnings in H1 2020 – more than the total number issued in the whole of last year (313). 

“In Q2 2020, the impact of COVID-19 rippled across the UK economy and along supply chains, shifting the epicentre of profit warnings,” said EY.

“The immediate impact of the virus was felt in Q1 by sectors most impacted by lockdown – travel, leisure, hospitality, and retail – but this has since spread to industries most exposed to the knock-on effects of changing corporate and consumer behaviour.”

Fiona Taylor, Turnaround and Restructuring Strategy Associate Partner at EY in Scotland added: “We expect supply chain vulnerability to be one of the biggest areas of risk for companies in the next six months.

“Supply chain resilience will no doubt feature highly on corporate agendas, not least because of the additional challenges associated with Brexit.

“There are already large-scale restructurings in the UK market that could have considerable impact along supply and value chains …

“Boards need to guard against complacency and be ready to take swift and decisive action to reshape their business to face a different future than they imagined just a few months ago.

“Companies could find that previously healthy parts of their business are no longer profitable.

“This is a pivotal moment for Scotland and UK plc.”

About the Author

Mark McSherry
Dalriada Media LLC sites are edited by veteran news journalist Mark McSherry, a former staff editor and reporter with Reuters, Bloomberg and major newspapers including the South China Morning Post, London's Sunday Times and The Scotsman. McSherry's journalism has also appeared in The Washington Post, The Guardian, The Independent, The New York Times, London's Evening Standard and Forbes. McSherry is also a professor of journalism and communication arts in universities and colleges in New York City. Scottish-born McSherry has an MBA from the University of Edinburgh and a Certificate in Global Affairs from New York University.