Investors and lenders are acting much faster when struggling stock market quoted companies issue a string of profit warnings, according to new figures out today.
A third consecutive profit warning often proves to be a “bruising” or a “knock-out blow” for listed businesses in Scotland, with 11 per cent of companies north of the Border facing a major restructuring event, including an administration, distressed sale, or debt restructure within a year.
Analysis by EY based on the last 20 years found that almost one in five Scottish PLCs have de-listed with a year of issuing three or more successive profit warnings. UK-wide, the figures also show that by the morning of the third profit warning, a quarter of CEOs had left their post.
With Brexit looming, EY warned that profit warnings can increase dramatically when companies don’t have time or agility to adjust to rapid changes in the economy.
Colin Dempster, EY’s head of restructuring for Scotland, said: “Companies have had some time to prepare for a variety of Brexit scenarios. However, a further economic shock could cause profit warnings to spike higher later this year, with warning levels already elevated by rising uncertainty.”
Recent Scottish departures from the stock market include Goals Soccer Centres and Havelock Europa – which both ended up in administration after a string of profit warnings.
'News travels fast'
Dempster said investors and stakeholders were now “clearly acting faster” when companies issue multiple profit warnings.
“In the last two decades we’ve seen radical changes not only in technology, but also our economy and capital markets,” he said.
“In 2019 news travels fast, and capital also moves with increasing pace. Combined with a heightened level of uncertainty, this has significantly changed the speed of stakeholder response to profit warnings.”
The 17 per cent of PLCs based in Scotland that de-listed within a year of issuing three or more successive profit warnings compared to 22 per cent nationally.
The sectors to issue the highest number of profit warnings in Scotland over the last two decades were support services, travel and leisure, and technology hardware and equipment.
Since 1999, EY has recorded more than 6,000 warnings by in excess of 2,000 companies across the whole of the UK. During that time, January was found to be the month in which most companies are likely to warn, whilst Thursday is the most common day.
UK-wide support services companies – including outsourcers – have issued the highest number of profit warnings in total, whilst UK general retailers have seen the greatest proportion of its companies warn on average each quarter. Dempster said both sectors have “significant exposure” to business and consumer confidence.