Nearly one-in-five UK-listed companies have issued a profit warning in the last 12 months
Contract delays and cancellations were cited as the main driver behind warnings in Q1 2024
Contract delays and cancellations were cited as the main driver behind warnings in Q1 2024
The UK’s corporate landscape has faced heightened economic strain over the past year, as evidenced by the growing number of UK-listed companies issuing profit warnings.
According to EY-Parthenon’s latest Profit Warnings report, 18.7% of UK-listed companies issued profit warnings in the last 12 months, a figure that surpasses the 2008 Global Financial Crisis peak by 1%. This uptick underscores the ongoing economic challenges companies are grappling with.
In the first quarter of 2024, the number of profit warnings issued by these companies showed a 7% year-on-year decrease, totaling 70, slightly down from 77 in the last quarter of 2023. Despite this decline, the frequency of companies issuing their first warning in a year reached the highest level since the first quarter of 2022, with 61% of warnings in Q1 2024 classified as ‘new.’
The report highlighted that by the end of Q1 2024, 39 companies had issued three or more warnings within a year, with approximately 20% of these companies either being delisted or in the process due to insolvency or acquisition.
The predominant reasons cited for these warnings included contract cancellations and delays, which accounted for 29% of the total, while higher costs and weaker consumer confidence each contributed to 17%.
Jo Robinson, EY-Parthenon Partner and leader of UK & Ireland Turnaround and Restructuring Strategy, emphasized the lingering macro-economic pressures.
“Although the intensity has lessened, the full impact of recent interest rate hikes is still unfolding, affecting even the traditionally resilient sectors like luxury goods,” Robinson said. She stressed the need for companies to remain vigilant and proactive, particularly in light of the uncertain global political and economic landscape.
The sector most affected in this period was the FTSE Consumer Discretionary sector, which saw a third of the total warnings. Notably, the FTSE Personal Goods sector, which includes luxury goods, experienced a significant rise in warnings, with more than 50% of the sector affected in the first quarter alone.
The FTSE Industrial Support Services sector also faced challenges, issuing nine warnings in Q1 and a total of 18 in the last six months—surpassing its total for the entire year of 2022. This sector has been particularly impacted by reduced business spending and recruitment, alongside rising costs and contract issues.
Financial services have not been immune to these pressures, with companies in this sector issuing 11 warnings in the first quarter, the highest since the pandemic and comparable to levels seen during the 2008 financial crisis. The increase reflects specific challenges within the industry, particularly for lenders in auto finance and segments of the wealth and asset management sectors.
Meg Wilson, another EY Partner specializing in Turnaround and Restructuring Strategy, noted the continued presence of both demand and supply chain pressures from the pandemic era, compounded by new economic stresses.
“In Q1 2024, a third of profit warnings cited internal failures, such as troubled contracts, accounting issues, and fraud. Taking preemptive and proactive steps to build resilience, alongside additional vigilance to spot issues and act quickly as they arise, remains the strongest defence in these market conditions,” Wilson explained.
As UK companies navigate through these turbulent times, the EY report serves as a crucial barometer of the health of the corporate sector and highlights the importance of agility and foresight in corporate strategy.