By Jonathan Davies
Falling oil prices has caused an increase in the number of FTSE companies issuing profit warnings, according to EY.
EY analysis showed that 77 listed businesses issued a profit warning in the first quarter, three more than during the same period last year.
In total, despite an improving economic picture, 5.54% of all FTSE firms issued a profit warning – the highest percentage since 2009.
Oil prices have plummeted since the summer of 2014, when a barrel of Brent crude oil would have cost $115. In January, prices fell to around $50. And despite prices recovering slightly to $65 during the quarter, some of the UK’s biggest companies were forced to issue a profit warning.
Oil and gas firms, and support services businesses, were the worst affected, issuing eight profit warnings during the first quarter.
“Cheap oil is bolstering demand and giving central banks inflation breathing space. However, this recovery is double-edged and unpredictable,” EY said.
“As hedging contracts run out we may see further waves of profit warnings if prices remain at around $60 a barrel,” it added.
Alan Hudson, EY’s UK head of restructuring, said low inflation was keeping costs low but make it hard to raise prices.
He said: “The recovery hasn’t increased predictability and companies still have little room for manoeuvre when things go wrong, such as a lost contract, adverse currency movement or price drop.
“New entrants and technologies add to the competitive tension — as does the accumulated pressure to invest, but also cut prices.
“There are clear advantages for businesses that can take the initiative and demonstrate that they have market understanding and the business resilience necessary to match this unpredictable recovery.”