‘Profits Warnings’ are announcements by public companies that their performance is going to be below forecast and public companies have to release this information to alert shareholders to a weaker performance than expected. It’s a fair bet that trading difficulties amongst listed companies are likely to be replicated amongst private companies - just that private companies don’t need to issue public profits warnings. EY Consulting recently reported a “high number” of profits warnings in the 3 months to June, with 45 profits warnings being issued. 20% of these warnings were blamed on international factors and 20% of contract delays or cancellations. It’s not only public companies that face “international factors” or “contract delays and cancellations” every company faces these or similar challenges.
From a credit risk perspective, it gives an idea of how the risk is constantly changing. The highest number of profits warnings came from general retailers which reinforces fears that UK consumer spending is being squeezed by inflation rising faster than wages. Fathom Consulting recently reported a “greater than evens chance of a technical recession in the UK over the next year”.
The general direction of all of this information is that companies across the board are going to face more challenging trading conditions. When we talk to credit risk managers, some are factoring this into their processes around managing trade credit risk, others are relying on the same processes that they have used historically. Most agree that if the level of risk is increasing, then it would be good to react to the change of risk. The most usual actions are:
Credit insurers are alert to all of this which is one reason why The Channel Partnership finds credit insurance is such a popular way of managing trade credit risk. Contact us on 01275 817320 for more information on how we can help protect your business.