Written by: Keith Tully
Reviewed: Monday 27th April, 2015
The first three months of the year saw a rise in the number of listed companies issuing profit warnings as compared with the same period in 2014, according to a new report looking into the subject.
Ernst & Young (E&Y) reports that there were 77 profit warnings issued in the first quarter of 2015 by British companies listed on the London Stock Exchange, which is three more than the same period last year.
Analysts said that the figure was higher than expected, with the low price of oil cited as a key reason why more publicly traded UK companies have been struggling to deliver profits as forecast.
Indeed, relatively low oil prices worldwide in recent months made a direct contribution to 16 profit warnings issued in the first quarter of the year, E&Y said in its report.
But oil prices at 40 per cent lower than last summer was not the only source of financial pressure for UK companies, with many blaming intensified competition for their inability to match profit expectations.
There were a total of eight profit warnings issued by companies in the support services sector and seven from businesses operating in the computing and software industry.
Retailers Boohoo and AO World also issued profit warnings in the first quarter of 2015, with 5.4 per cent of all the companies listed on the London Stock Exchange doing so in the period, according to E&Y. Worryingly perhaps, that figure is the highest for a first quarter since 2009.
"This is still a tough environment in which to plan and invest," noted Alan Hudson from E&Y.
"The recovery hasn't increased predictability and companies still have little room for manoeuvre when things go wrong, such as a lost contract, adverse currency movement or price drop,” he said.
In recent days, it emerged that Trap Oil, which is listed on London’s Alternative Investment Market and drills for oil in the North Sea, looks set to go out of business unless it can find new forms of funding urgently after seeing its profits squeezed significantly by the fall in oil prices over the past several quarters.
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