Three Profit Warnings Often Sign of Imminent Collapse, EY Says
Three Profit Warnings Often Sign of Imminent Collapse, EY Says
(Bloomberg) --
A run of three profit warnings is frequently followed by boardroom firings and the arrival of administrators at U.K. firms, according to a 20-year study by EY.
Within a year of issuing three or more profit warnings, 18% of U.K. companies will face a restructuring event such as insolvency proceedings, EY said. It also found that by the morning of a third warning, a quarter of chief executive officers have left the firm.
“The third profit warning is very often a bruising or even a knock-out blow,” the consultancy said in the analysis that’s based on a study of 6,000 warnings by 2,000 companies since 1999.
U.K. firms are also calling in the administrators and entering talks with creditors quicker after a run of warnings.
The median time period between a third profit warning and a restructuring event, such as a company voluntary arrangement or debt restructuring, has shrunk to 91 days since 2016, compared to 156 days previously, according to the report.
The study, covering a period which saw major market shocks such as the dot-com crash, the Sept. 11 attacks and the 2008 to 2009 financial crisis, also warns Brexit may have a similar impact on British corporations.
“A further economic shock could cause profit warnings to spike higher later this year, with warning levels already elevated by rising uncertainty,” said Alan Hudson, Head of Restructuring at EY, UK & Ireland.
To contact the reporter on this story: Irene García Pérez in London at igarciaperez@bloomberg.net
To contact the editors responsible for this story: Vivianne Rodrigues at vrodrigues3@bloomberg.net, Chris Vellacott
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