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EY says Brexit Blamed for Nearly a third of UK Profit Warnings in Q3


11/01/2016


EY says Brexit Blamed for Nearly a third of UK Profit Warnings in Q3
According to professional services firm, EY, which says the full effect has yet to feed through to many other companies, nearly a third of the 68 British companies that issued profit warnings in the third quarter have put the blame on Brexit.
 
EY's Head of Restructuring, Alan Hudson, said in a TV interview that it's important to remember the bar is now lower although the total number of profit warnings of 11 is lower than in the same period last year.
 
"We're seeing reductions in the mid-teens in terms of overnight adjustments to value," he said.
 
"Actually compared to some of the shocks we've seen in the past, that's not so bad but also you have to recognize that the market has already priced in lower earnings expectations and yet we're still seeing a shock over and above that," Hudson said.
 
With support services counting six warnings and four apiece for travel & leisure and real estate investment and services, sectors most exposed to business uncertainty and the weaker pound have led on the negative outlook.
 
EY's Hudson thinks we have not yet seen many of the ramifications from the referendum's outcome and says it is "still very early days".
 
"In truth I think the impact is yet to really hit us," he said.
 
Retailers as a sector with clear risks on the horizon, highlighted Hudson.
 
"They are already battling a number of price pressures but at the moment they are largely hedged, going into next year they're going to have to withstand quite significant currency swings and those that source from overseas are going to be even more challenged than they are today," he cautioned.
 
A potential response to the difficult conditions is that retailers' output will shrink – or in Hudson's words, "Your chocolate bar will just get smaller", created by what is widely expected to be ballooning import and raw materials prices in the year ahead.
 
Cutting investment by 20 percent over the year ahead is anticipated by a third of British business and this is another recent report from EY which was recorded. However, EY believes the solution is not for companies to sit on their hands despite the uncertainty caused by Brexit and the problems regarding sterling weakness and an awaited spike in inflation.
 
"Brexit is but one disruption in the market. You can't stand still - depending what business you're in there is probably someone in Silicon Valley or in China who is out-innovating your business right now," according to Hudson,
 
"Otherwise when Brexit plays out you'll have been out-innovated by someone else," he warned.
 
On the other hand the survey report also found out that due to fears about the country’s plans to exit the European Union added complexity to international deals, for the first time in seven years the U.K. dropped out of businesses’ top five locations for investments.
 
EY said in its Global Capital Confidence Barometer report, which is based on a survey of more than 1,700 executives in 45 countries in August and September that the British businesses rank behind investments in the U.S., China, Germany, Canada and France, which make up the top destinations for deals activity.
 
(Source:www.cnbc.com & www.bloomberg.com)  


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