LSE-listed profit warnings at highest level since 2008

The number of profit warnings from companies on the London Stock Exchange has reached its highest level since the last recession, prompting increased fears of a predicted global recession; there were 100 warnings received from companies between October to December. Although the most profit warnings came from firms in the oil sector, retailers and travel companies also stood out.

GETTY There are Credit crunch levels of pressure on UK companies

The increase in corporate profit warnings comes ahead of the release on Thursday of new economic data, which economists expect will show that the UK’s gross domestic product (GDP) grew by 2.2 per cent last year. In 2014 Britain’s economy grew by 2.9 per cent.

EY found that 313 warnings were issued by 240 London Stock Exchange-listed firms in 2015, the highest annual total since 2008 and an increase of 4.7 per cent on last year. It also found that 100 profit alerts were released during the fourth quarter alone. Although companies are operating in a growing economy, more and more are issuing profit warnings because of increased competition and structural changes taking place in their sectors, as well as increased economic and market volatility.

GETTY The UK’s gross domestic product (GDP) grew by 2.2 per cent last year

The EY survey found that 17.3 per cent of all stock market-listed companies issued profits alerts during 2015, the highest annual percentage since 2008. It also revealed that 59 of the 240 companies that put out earnings warnings last year did so more than once.

Issuing profit warnings “can be very costly” Alan Hudson, EY head of restructuring for UK and Ireland

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According to Alan Hudson, EY head of restructuring for UK and Ireland, corporations that issued profits alerts during the fourth quarter saw their share prices fall by an average of 14 per cent. He added that given the challenges facing companies, such as slowing growth in China, the volatile oil price and the upcoming referendum on Britain’s European Union membership, firms need to stress test their business plans, capital levels and forecasts, as issuing profit warnings “can be very costly”.

GETTY 17.3 per cent of all stock market-listed companies issued profits alerts in 2015

“With so many new realities, companies need to undertake a realistic assessment of their business and their market, looking at their operational and capital resilience and where and how they can create value,” Hudson said. The dramatic collapse in the price of oil led many firms in the sector to issue profit warnings. Half of the companies that provide services to oil and resources groups issued earnings alerts last year, EY found.

GETTY 59 of the 240 companies that put out earnings warnings last year did so more than once