Uncertain Outlook for UK corporate earnings by Greg Connell, Managing Director of InfolinkGazette
A London Stock Exchange Profit Warning is a declaration issued by a listed company to investors through the London stock exchange, normally in a trading update. It warns investors that the profit of the company in the coming quarter, half year, or full year, will significantly decline when compared with that of the same period of previous year, or be significantly below guidance. Investors should be aware of the possible loss when buying or selling its stock because share prices often fall following a profit warning being issued. 
Creditors should also be wary because it may impact on banking covenants, credit insurance limits, or in the case of Carillion, the very future of the business.

Figures released today by Business Information Publisher InfolinkGazette, revealed 26 London Stock Exchange Profit Warnings during October 2018, an average of 1.1 profit warnings per day, versus the running average of 0.9.

Greg Connell, Managing Director of InfolinkGazette, commented: 

In the current economic climate, Credit Insurers are very closely monitoring profit warnings and are frequently 
slashing cover within weeks of a retailer issuing a profit warning. Debenhams and Footasylum are classic 
examples of retailers where credit limits have been cut within weeks of a profit warning being issued.” 

The listed companies issuing profit warnings in October included: 
  • Airlines Ryanair Holdings PLC, blaming a combination of lower traffic, strikes and higher (unhedged) oil prices, and Flybe, pointing the finger at lower consumer demand, together with higher fuel prices and weaker sterling; 
  • Postal service Royal Mail, citing disappointing productivity and cost performance; Clothing company Superdry, attributing to the weather and problems with key retail partners; 
  • Builder Crest Nicholson Holdings plc, who said that the market environment for new homes in London and at higher price points in the South of England is more difficult than previously anticipated, and that sales have not picked up during the traditionally stronger early Autumn selling season; 
  • Car retailer Pendragon, pointing the finger at the introduction of Worldwide Harmonised Light Vehicle Test Procedure, which they say has caused disruption in new car sales and uncertainty over new vehicle supply. 
Greg Connell commented: 

“Macro-economic and geopolitical uncertainties have eclipsed any concerns over UK corporate earnings for most
 of the year, but October 2018 marks the first upward movement in the volume of profit warnings, and the 
first sign of a threat to the quality of future corporate earnings.

Also figures released this month from InfolinkGazette have revealed 238 unsecured creditors were left £9.4 million out of pocket when Calvetron Brands Ltd, the owner of Jacques Vert, Precis, Dash and Eastex, went in to Administration for the second time in less than a year. HMRC were once again the biggest loser but other creditors losing over six figures include: Blueleaf Communications Ltd, TNT Express UK Ltd, PricewaterhouseCoopers LLP, Melange Clothing Ltd, Seventy 7 London Ltd, Google Ireland Ltd, Alpha 211 UK Ltd, Dewhirst Ladieswear Ltd, Ligentia International Ltd, and Paris Kyri Gowns Ltd.

Commenting on the losses, Greg Connell said:

 Company Administrations, particularly, ‘Pre-Packs’ sorely test the patience of unsecured creditors, who are 
always the biggest losers, but two Administrations in the space of a year smacks of incompetence.”

Figures released in October from InfolinkGazette revealed 1036 unsecured UK based creditors with losses totalling £32.2 million from the failure of Poundworld Retail Ltd. The biggest losers include: private equity firm and leveraged buyout specialists TPG Capital LLP; Wakefield Metro District Council; soft drink producer PepsiCo; software provider PCMS Group PLC; soft tissue manufacturer Accrol Papers; and, Northern Ireland based wholesaler Laganside Wholesale Ltd.

Finally, the 2018 budget brought bad news for unsecured creditors, as HMRC unilaterally decided to move itself back up the payment pecking order in UK Insolvencies, reversing the benefits enjoyed by trade creditors, since the 2002 Enterprise Act. From April 2020, HMRC will have greater priority to recover taxes paid by employees and customers in the event of an insolvency.

Greg Connell concluded: 

In a world of macroeconomic and geopolitical ambiguity, with an uncertain outlook for UK corporate earnings, 
and a raw deal for unsecured creditors in UK insolvencies, there has never been a better time for suppliers
 of goods and services to review their credit insurance cover.
 
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