Yorkshire firms buck trend as profit warnings almost halve

Just 17 Yorkshire companies issued profit warnings last year, down from 33 in 2011, according to Ernst & Young’s latest report.

The impressive regional performance was in stark contrast to the rest of the country.

UK quoted companies issued the highest level of profit warnings since 2008.

Some 287 warnings were recorded by UK main market and AIM listed companies in 2012. In total, over 15 per cent of UK quoted companies issued profit warnings in 2012, the highest number since 2008 when nearly 18 per cent issued warnings.

Concern over the economic outlook for 2013 peaked in the final quarter of last year, when 26 companies gave delayed or cancelled contracts as the reason for their profit warning. This was higher than the previous peak in 2008.

Industrial companies saw the largest increase in profit warnings in 2012, with customers reacting to a volatile economic landscape by delaying orders and destocking.

Business service companies issued the highest number of warnings in both the fourth quarter and 2012 as a whole. They were hit by falling activity, widespread corporate cost cutting and contract delays.

FTSE support services issued 15 profit warnings in the fourth quarter of 2012, taking their annual total to 46 and FTSE software & computer services issued eight warnings in the final quarter and 24 warnings in 2012.

Hunter Kelly, Yorkshire restructuring partner at Ernst & Young, said: “A combination of Governments in both the eurozone and US being focused on reducing deficits and a slowdown of growth in China has knocked business confidence and is encouraging a climate of inertia.”

In Yorkshire and the North East, support services issued seven warnings and the three areas of electronic & electrical equipment, industrial engineering and mining all issued four warnings.

One of the most high profile was Thirsk-based steel producer Severfield-Rowen, which issued a profits warning last June.

Last week it axed its chief executive Tom Haughey and issued a second profits warning.

The group has launched a review of contracts after overshooting its budget on a major skyscraper. Known as The Cheesegrater because of its distinctive shape, main contractor Laing O’Rourke described 122 Leadenhall Street’s construction as “exceptionally challenging”.

Severfield said its contract to supply and erect structural steel at the skyscraper had been “materially adversely affected by cost overruns”.

Other Yorkshire companies to issue warnings last year include Wakefield-based engineer Redhall, York-based credit card insurer CPP, Leeds-based recycling group Straight, York-based pet drugs company Animalcare and Doncaster-based miner ATH Resources, which has since gone into administration.

Mr Kelly said profit expectations dropped sharply in 2012 which partly accounts for the reduction in warnings.

“The UK economy lacked the strength to gather momentum and finished 2012 with nothing more than a low growth landscape on the horizon.

“My concern is that lower profits and uncertainty is leading to delayed investment and purchasing decisions and contributing to the lack of growth,” he added.

Surprisingly, Ernst & Young said the overall rise in UK profit warnings was not accompanied by a rise in warnings from consumer-facing sectors, such as retail.

But Mr Kelly said this doesn’t mean that the consumer service sector is under less stress.

“Profit warnings are a matter of performance against expectations and a squeeze on consumer spending was factored into retailers’ 2012 forecasts.

“The discrepancy between the low number of profit warnings and the recent retail insolvencies that have occurred is more to do with specific operating models that are no longer fit for the majority of today’s consumers.”

He said the insolvencies highlight the polarisation of consumer sectors exposed to the greatest technological changes and transformation in consumer behaviour.

“Those who have adapted best and newer entrants with no baggage have emerged as strong winners. In a flat market, this inevitably creates significant losers and this will continue.”

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