UK Companies Face Profit Warnings Despite Economic Recovery

Profit warnings from U.K. listed companies have hit their highest level in three years despite a brightening economy, as many firms struggle with stiff competition and currency headwinds, a study reveals.

The first half of 2014 saw 137 profit warnings issued, the highest first half total since 2011 and up 9 percent on the same period last year, according to EY’s latest Profit Warnings report.

However, since then, the second quarter has seen the number of profit warnings drop by 11 to 63 from the previous quarter.

Companies are not feeling the benefit of an economic recovery in Britain, EY said. Many sectors, particularly the consumer goods industry, are facing intense competition which is squeezing margins and hurting profits. The rise of the pound, which hit a five-year high last month, is also creating currency headwinds for companies, the report added.

“The pound’s rapid rise is one of the biggest pressures on earnings. Although, the problem highlighted in profit warnings isn’t one of sales but of currency translation,” Keith McGregor, EY’s capital transformation leader for Europe, Middle East, India and Africa, said in a press release.

“Price and competition pressures have also intensified. While the recovery has boosted demand, it hasn’t eradicated the austerity mind-set of businesses or consumers.”

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency
trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza