The coronavirus pandemic has pushed up the number of profit warnings issued by South West listed businesses to a 20-year high, with those in the travel and leisure sector hardest hit.
According to new figures from accountancy group EY, profit warnings soared by 73% year-on-year in the first half of 2020 to 26 – with 85% citing the impact of the Covid-19 crisis. 
EY fears that pressure on supply chains caused by the pandemic and against a backdrop of stalled Brexit negotiations could result in further largescale profit warnings in the second half.
After a first quarter of this year when quoted companies in the South West issued a record 19 warnings, the period between April and June accounted for a dip to just seven.
However, that was not enough to prevent the half-year figure being the highest for two decades. EY said the warnings were spread across a wide range of sectors in the region, although the travel & leisure sector was most affected, accounting for five of the warnings.
EY’s head of turnaround and restructuring strategy in the South West, Lucy Winterborne, pictured, said: “Unsurprisingly, the most immediate and significant impact of Covid-19 has been acutely felt by companies whose existing structural challenges have been exacerbated by the pandemic.
“Many businesses that were essentially sound before the virus struck, have been forced to reassess their expectations and business plans too. It’s vital that businesses in the South West do not underestimate the depth and extent of both the immediate and long-term challenges ahead.
“It is still a highly uncertain time for businesses, which are adjusting to new ways of working and changing levels of demand, with potential cliff-edges to come in government support and further twists and turns likely in Brexit negotiations. The UK economy is opening up, but it’s early days.”
Across the UK, a third of listed companies – compared to 18% in 2019 – issued a profit warning in the first half of 2020. EY recorded 466 profit warnings in six months – more than the total of 313 issued last year.
In the second quarter, the impact of Covid-19 rippled across the UK economy and along supply chains, shifting the epicentre of profit warnings. The immediate impact of the virus was felt in the first quarter by sectors most impacted by lockdown – travel, leisure, hospitality and retail – but this has since spread to industries most exposed to the knock-on effects of changing corporate and consumer behaviour, EY said. 
Lucy Winterborne added: “We expect supply chain vulnerability to be one of the biggest areas of risk for companies in the next six months. Supply chain resilience will no doubt feature highly on corporate agendas, not least because of the additional challenges associated with Brexit.
“There are already large-scale restructurings in the UK market that could have considerable impact along supply and value chains.”
Profit warnings from consumer-facing companies were less prominent in the second quarter, however this was only after an exceptionally high level of warnings and forecast adjustments in March, she said.
The FTSE Retailers and FTSE Travel & Leisure sector still had the highest number of companies warning three or more times in a 12-month period, which EY found gave a company a one in five chance of a distress event – such as an administration, CVA, debt restructuring or distressed sale – occurring in the year ahead.
“Boards need to guard against complacency and be ready to take swift and decisive action to reshape their business to face a different future than they imagined just a few months ago,” said Lucy.
“Companies could find that previously healthy parts of their business are no longer profitable. This is a pivotal moment for UK plc.”
