COVID-19 linked to all North East profit warnings in first half of 2020

The number of profit warnings issued by listed businesses across the North East increased fivefold in the first half of 2020, with all warnings citing the impact of the coronavirus pandemic on business operations.

A new Profit Warnings report from EY shows that few sectors were immune from the effects of COVID-19 in the region, after four new profit warnings in the second quarter followed a record breaking first quarter when seven warnings were issued.

Across the UK, 33 per cent of all listed companies issued a profit warning in the first half of 2020. This compares to 18 per cent in 2019.

EY recorded 466 profit warnings nationally, more than the total number for the whole of last year (313).

The impact of COVID-19 shifted the epicentre of profit warnings in Q2 by rippling across the real economy and supply chains.

Following the immediate impact of lockdown on businesses in the travel, leisure, hospitality and retail sectors in Q1, a much broader spread of industries were affected in Q2 owing to the knock-on effects of changing corporate and consumer behaviour.

In fact, profit warnings from consumer-facing companies were actually less prominent in Q2, following the exceptionally high number of warnings and forecast adjustment in March when the pandemic first hit.

The FTSE Retailers and FTSE Travel and Leisure sector continues to have the highest number of companies warning three or more times in a 12-month period.

This means that firms in these sectors have a one in five chance of encountering a stress event such as an administration, CVA, debt restructuring or distressed sale in the year ahead.

Hunter Kelly, turnaround and restructuring strategy partner at EY, said: “Unsurprisingly, the most immediate and significant impact of COVID-19 has been acutely felt by companies whose existing structural challenges have been exacerbated by the pandemic.

“However, many businesses that were essentially sound before the virus struck, have been forced to fundamentally reassess their expectations and business plans too.

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

“It is still a highly uncertain time for many businesses, who are responding to new ways of working with changing and unpredictable levels of demand, including the risk of cliff-edges to come in government support.

“This is before considering the twists and turns likely to come from the Brexit negotiations.

“The UK economy is opening up from COVID-19, but it is very early days and it is going to be a long while before most businesses will be able to say they are getting close to normal.”