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Scottish firms issue record number of profit warnings as confidence plummets

Colin Dempster, EYs head of restructuring in Scotland
Colin Dempster, EYs head of restructuring in Scotland

The number of profit warnings issued by Scottish-listed businesses reached a record level in the first three months of 2020 – the highest seen in any previous quarter in the last 20 years.

Ten profit warnings were recorded by EY between 1 January and 31 March, a 43% year-on-year increase on the same quarter of last year, when there were seven profit warnings.

UK-wide, 301 profit warnings were recorded in the first three months, almost equal to the entire number issued in the whole of 2019 (313) and 5% higher than the total for 2018 (287).

Compared to the same period last year (Q1 2019), warnings rose from 89, representing a 238% year-on-year increase.

Colin Dempster, EY’s head of restructuring in Scotland said: “Covid-19 has intensified the pressures businesses were already experiencing as a result of political uncertainties and rapid structural changes, which contributed towards UK profit warnings reaching a ten-year high in 2019.

“Scottish businesses have proved to be relatively resilient so far. While profit warnings are at an all-time high in Scotland, compared to other UK locations and the UK as a whole, the increase in Scotland’s figures has been more subdued in Q1.

“In January to March, warnings have increased 43% in 2020 versus 2019, while all other UK locations have at least doubled their figures year-on-year in the quarter.

“This will be partly due to the fact there are fewer listed businesses based in Scotland from sectors which have been more adversely affected by Covid-19, such as travel & leisure and hospitality.”

Over a fifth of the UK’s quoted companies issued a profit warning in Q1 2020, more than the percentage of companies warning in the whole of 2008 (17%).

Unsurprisingly this hike was attributed to the Covid-19 crisis, which has temporarily paralysed many businesses, with very few sectors immune from its effects.

More than three-quarters (77%) of profit warnings blamed Covid-19.

Meanwhile business confidence has seen its largest quarterly fall on record, according to Deloitte’s latest survey of financial officers.

This reversal comes after the last CFO survey showed the largest increase in sentiment in the wake of the general election.

The latest survey, which took place after the UK was placed into lockdown, showed 84% of CFOs are less optimistic about the prospects for their company than they were three months ago, the lowest response on record.

Business sentiment around revenues has fallen markedly with . 97% of CFOs say they expect UK corporates’ revenues to decrease in the coming 12 months. CFOs expect their own businesses’ revenues to be 22% lower on average this year, than estimated in their pre-Covid-19 plans.

Richard Houston, of Deloitte, said: “Finance leaders are facing the toughest challenges in decades but most expect demand to start to come back this year. Leaders are already thinking beyond the downturn and how to adapt and prosper in a changed world.”

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