NEWS30 January 2023

UK profit warnings rise by 50%

FMCG News Trends UK

UK – The number of profit warnings issued by UK-listed companies increased by 50% year-on-year in 2022, according to research from EY-Parthenon, the strategy consulting arm of Ernst & Young.

Profit warning alert business_crop

Last year, there were 305 profit warnings issued, according to the company’s ‘Profit Warnings’ report – up from 203 in 2021.

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

Half ( 152 ) of the warnings issued in 2022 were due to rising costs – double the share in 2021, according to the report.

The report found that the percentage of the UK’s listed businesses issuing a profit warning in 2022 ( 17.7%) was equal to the proportion of companies that issued warnings in 2008 – the year that the global financial crisis began.

The fourth quarter saw the biggest rise in warnings, with 83 issued during the last three months of the year. Of these, 41% cited rising costs, while 24% were due to delayed or cancelled contracts and 20% were a result of weaker consumer confidence.

Over a third ( 36%) of UK-listed companies in consumer-facing sectors issued a profit warning in 2022, up from a fifth in 2021, and this included almost half ( 48%) of FTSE retailers, 60% of FTSE personal care, drug and grocery store companies and 30% of FTSE food producers.

Increasing costs featured in 63% of consumer sector warnings, with 33% citing falling consumer confidence, 22% citing supply chain problems, and 20% referencing labour market issues. 

Jo Robinson, EY-Parthenon partner and UK&I turnaround and restructuring strategy leader, said: “2022 was a challenging year for UK companies with rising operational costs, changing consumer behaviour, and the cost-of-living crisis having an acute impact on consumer-facing sectors.

“We are now seeing stress deepen and spread into other areas of the economy, such as industrial sectors, which saw the biggest rise in warnings in Q4. Cost pressures are passing through supply chains, business confidence is weak, and credit markets are tightening. The latter factor prompted more profit warnings in Q4 2022 than in any period since 2009.”

“Forecasting and planning will remain challenging in 2023. Companies need to ensure they are scenario planning and have a clear understanding of how their business will adapt under different conditions, particularly as accessing capital to plug funding gaps is becoming harder.”