Profit warnings from mid-cap companies on the rise

Profit warnings this year from FTSE 250 companies - the mid-cap groups that are sometimes seen as a proxy for British industry - reached their highest first-quarter level for a decade.

The warnings came even though the groups in the index seem to have benefited from the expansion in the UK economy. It seems that even when economic conditions have been improving, trading is hard to predict because the outlook is still so uncertain.

Analysis by EY, the professional services firm, showed that in the three months to the end of March, there were 17 profit warnings from FTSE 250 companies - up by almost one-third from 2014. By contrast, FTSE 100 companies warned just five times this year, against 14 in the same period last year.

The firm said that the total number of warnings this year, at 77, was higher than it had expected, especially as there had been a number of warnings to reset expectations towards the end of last year.

It said that one cause was the collapse in oil prices - cited by almost one-third of companies in explaining why they had performed worse than expected. The oil price drop was second only to competition and pricing pressures as the reason for the warning. But the proportion referring to exchange rates had broadly halved to 14 per cent.

Bob Ward, a restructuring partner at EY, said: "What we're seeing out here is that it's very challenging for companies to forecast at the moment because there are so many uncertainties - even though as a business you might be starting to feel a bit better."

Mr Ward said that there were particular issues in both retailing and support services, two of the sectors that were hardest hit.

Retailers, he said, were finding that their margins were coming under pressure, and that pressure was flowing down into the supply chain. Support services companies faced structural challenges when they found that they had only limited ability to bring flexible management to bear on contracts that had suddenly started performing badly.

One of the more spectacular retail profit warnings came from AO World, the white goods seller. It warned that full-year profits would be almost one-fifth down on expectations after heavy discounting around "Black Friday" before Christmas had failed to turn into sales growth.

When Tullow Oil announced in February that it had slipped into its first pre-tax loss, it also warned that it might breach a banking covenant next year.

Meanwhile, outsourcing company Mitie said at the end of March that profit would be slightly below expectations because of market pressures in the homecare and social housing businesses.

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