Profit Warnings Reach Two-year High

31st January 2018.

The number of companies issuing profit warnings reached a two-year high last year, suggesting further trouble for businesses in the year ahead.

According to new research, 81 profit warnings were released by quoted companies, with support services and retail businesses feeling under the most intense pressure. The instigator of this scrutiny was the construction giant, Carillion, who collapsed last month, throwing thousands of sub-contractors into chaos. The company released a string of profit warning before its eventual collapse, but these were largely ignored and it went on to accept new contracts. Here at the Credit Protection Association we encourage our members to keep a close eye on their financials, and we offer various credit report services to keep an eye on the status of your customers and suppliers.

Carillion’s spectacular failure has led to renewed and intense scrutiny within not only the construction sector, but in the wider business culture of the UK.

EY, who conducted the research, said pricing pressures are continuing to build up in the sector, exposing problems within long-term contracts that are only slowly becoming apparent as poor internal controls at companies are exposed.

Retailers are also feeling the strain, with six companies in the sector sounding profit alarms in the final quarter of 2017, and 24 across the full year.

The key Christmas period was brutal on the high street retailers as consumers cut back on non-food spending. EY said that in the first two weeks of 2018 more retail business put out profit warnings than in the first three months of the previous year.

EY said that the most common cause for profit warnings were cost and competitivity pressures, cited in 30 percent of all warnings during the year, followed by delays or cancellations of contracts, named in 25 percent of warnings – but 40 percent of those made by businesses in the support services sector.

The failure of Carillion has opened businesses up to intense scrutiny- Are you paying your invoices late? Have your profits dropped rapidly? These are important questions to ask, particularly if we are to sidestep another crisis. The major failure of Carillion was that because of its solid standing in the industry and its support by Government, it was assumed to be without risk. Since the collapse of the construction giant, as well as other large companies such as Palmer & Harvey and clothes retailer, BHS, it has become increasingly apparent that size really doesn’t matter. Profits can take a hit whether your big, small or somewhere in the middle. It’s just that next time, we need to pay attention.

Here at the Credit Protection Association we encourage our members to monitor their customer closely as well as scrutinise their own finances. We are all part of a vulnerable supply chain, and one chink could cause us all to fall. If retailers are going to make it to 2019 they need to pay closer attention to what them and their suppliers are up to and avoid following Carillion into administration,

We encourage any business owners who are concerned for their profits, or their cash flow, to seek help from CPA. We can provide solutions to bad credit, as well as utilise our debt collection staff to get your cash flow thriving again.