ONE of the wettest summers on record contributed to the highest number of profit warnings in the UK for four years, except in the North East.
UK quoted companies issued 68 profit warnings in Q3 2012, a third more than the same quarter in 2011, and eight more than the previous quarter, Q2 2012.
A dozen firms blamed adverse weather for issuing a profit warning – the highest number since the winter freeze of 2010-11. However, bad weather was an exacerbating factor in most profit warnings; many of these companies had warned before, citing weak UK demand, a slowdown in global markets and the growing risks to the economic outlook.
However profit warnings issued in the North East and Yorkshire halved, from 10 in Q2 2012 to five in quarter three 2012. So far 22 profit warnings were made in the region in 2012, on a par with the same period last year.
Mark Hatton, Newcastle senior partner, said: “While some profit warnings from consumer facing sectors blamed the poor weather, the underlying weakness of the UK economy and global growth concerns landed the heavier blows to profits and expectations.
“In the UK, an exceptional series of one-off events has inevitably created dips in demand and productivity, which has made it hard to get an accurate fix on the state of the economy. Across Europe, the outlook still appears weak and economic growth will remain slow.”
FTSE general retailers issued just three profit warnings in Q3 2012, the lowest total since Q3 2010. Consumer behaviour has fluctuated considerably from month to month, said Ernst & Young, with the weather, public holidays and the Olympics all influencing demand.
The uptick in spending in September will give retailers a little more confidence, but the next three months are not without risk. Hatton said: “Energy prices are rising and while retailers are doing their best to absorb the recent rise in food prices, some increases are inevitable given the exceptionally poor global harvests.
“There is also strong pressure on retailers to drive sales when volumes are low, especially in the run up to Christmas when it is so vital to maintain momentum. The temptation to discount will be strong and companies will need to be careful to avoid trapping themselves in a discounting spiral that damages their brand and leaves consumer confused about the value of their product.”
He said that the recovery of consumer demand next year was likely to be long and volatile. “Companies have to adjust to the new reality and focus on strategy to protect and improve earnings. This is leading to a focus on operational improvements rather than transaction activity, although there will be opportunities to acquire technology, territory and channels to market from weaker corporates.”