NEWS31 October 2023

UK profit warnings decrease for first time in two years

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UK – The number of profit warnings issued by UK-listed companies decreased year-on-year in the third quarter of 2023, according to figures from EY-Parthenon, the strategy consulting arm of Ernst & Young.

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Companies listed in the UK issued 76 profit warnings between July and September 2023, compared with 86 warnings in the third quarter of 2022, marking the first decrease since 2021.

Prior to the third quarter of this year, warnings by UK companies rose year-on-year for seven consecutive quarters – the longest run of consecutive increases since 2008.

However, despite the 12% year-on-year fall, the number of profit warnings remains 18% higher than the quarterly average recorded after the 2008 financial crisis.

A profit warning is a statement from a publicly listed company that says that it will report full-year profits materially below management or market expectations.

A third ( 33%) of the warnings in the third quarter this year cited tougher credit conditions – the highest level recorded by EY-Parthenon since 2008. A fifth of companies ( 21%) referenced delayed or cancelled contracts, and 18% mentioned weaker consumer confidence. Another fifth ( 20%) of third-quarter warnings cited the slowing housing market, while the same proportion ( 20%) referenced cost pressures.

EY-Parthenon’s analysis tracks UK-registered companies listed on the UK’s main market or alternative investment market.

Jo Robinson, partner and UK & Ireland turnaround and restructuring strategy leader, EY-Parthenon, said: “While it’s encouraging to see UK profit warnings fall for the first time in two years, the growth of credit-related warnings indicates that pressure on businesses is unlikely to ease for the foreseeable future. In fact, we’re seeing economic stresses extend up the value chain, spreading to mid-market companies.

“It’s clear from this data that the steepest rise in interest rates in 40 years continues to take its toll, with a high proportion of warnings due to an increasingly expensive borrowing environment. This poses a risk for companies that are due to refinance and we’re already seeing this affect sectors where credit is a key activity driver, such as in the housing market.”