- Economic uncertainty, contract delays to blame
- Highest first quarter number since the pandemic
- Tech and telecoms warnings at a three-year high
Seventy five profit warnings were issued by UK-listed companies in the first three months of 2023. This was the highest first quarter number since the start of the pandemic, according to the latest report by EY-Parthenon.
Source: EY-Parthenon
WHY ARE SO MANY WARNINGS BEING ISSUED?
Economic uncertainty - rising inflation and interest rates, geopolitical instability are all factors that have caused companies to issue profit warnings this year.
Other factors include contract delays or cancellations - 35% of businesses cite this.
WHICH COMPANIES ARE WORST AFFECTED?
FTSE Software and Computer Services companies issued nine profit warnings in total, the sector’s highest level of warnings since the second quarter of 2020, while warnings from the telecoms sector were the highest since 2018.
These sectors have been particularly vulnerable to cost-cutting and uncertain demand, with contract issues cited in over two-thirds (69%) of technology and telecommunication sector warnings.
Source: EY-Parthenon
Many technology companies have also faced difficulties in accessing capital, as increased interest rates, recent turbulence in the global banking markets and other external headwinds create a challenging fundraising environment according to the report.
Other sectors in the list of most first quarter warnings include FTSE Retailers, FTSE Travel & Leisure, and FTSE Electronic & Electrical Equipment, FTSE Pharmaceuticals & Biotechnology, and FTSE Media.
Almost a third of listed retailers (30%) have issued two or more profit warnings since the start of 2022, well above the 8% all-sector total.
Of the consumer sector companies that moved into the ‘three warning’ danger area since the start of 2022, 30% have gone into administration or have been put up for sale.
Logistics and supply chain company Wincanton (WIN) issued a profit warning on 7 March, and online consumer brands group THG (THG) issued a profit warning back in January. THG is now subject of a buyout proposal from US private equity giant Apollo.
NO LET UP IN SIGHT
Profit warnings for UK-listed companies remain above average for the fifth consecutive quarter. However, the highest number of first quarter profit warnings was in 2020, when 305 were issued.
Ninety-eight companies have issued at least two profit warnings since the start of 2022, while a significant cohort of UK companies have faced particularly challenging conditions after entering the three warning ‘danger zone’.
Of the 31 companies that have issued three warnings since the start of 2022, 29% have since delisted or are in the process of being sold.
Jo Robinson, EY-Parthenon partner and UK&I turnaround and restructuring strategy leader said: ‘We would normally expect to see insolvency activity peak nine to twelve months after a profit warning peak, so the coming year will be crucial.
‘While the UK economy appears to be turning a corner, recovery is not guaranteed. Businesses should continue scenario planning and building solid operational and financial foundations to withstand further shocks and capitalise on growth.’
