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UK firms issue more profit warnings amid ‘recession-like’ climate

Companies listed on UK stock markets issued 75 profit alerts between January and March, according to a report by EY-Parthenon.

Anna Wise
Monday 24 April 2023 11:55 BST
The number of profit warnings issued by UK-listed companies has grown this year as businesses battle against ‘recession-like’ conditions, new figures show (John Walton/PA)
The number of profit warnings issued by UK-listed companies has grown this year as businesses battle against ‘recession-like’ conditions, new figures show (John Walton/PA) (PA Wire)

The number of profit warnings issued by UK-listed companies has grown this year as businesses battle against “recession-like” conditions, new figures show.

Firms listed on UK stock markets issued 75 alerts over profits between January and March – meaning they told investors to expect lower full-year earnings than initially thought.

It marked the highest first-quarter total since the early pandemic in 2020, when 305 were issued, according to the report by consultants EY-Parthenon.

Of the 31 companies that have issued three warnings since the start of 2022, around nine have since delisted from their stock exchange or are in the process of being sold, typically having become insolvent.

This was greater than the average market drop-out rate, EY-Parthenon said.

Economic forecasts may have seen some improvement in recent months; however, the extraordinary strength of headwinds over the last two years has left some businesses facing recession-like conditions

Jo Robinson, EY-Parthenon

Moreover, more than a third of the profit warnings cited delayed, reviewed or cancelled contracts, up from a fifth in the same period last year.

It suggests economic uncertainty has had a bigger impact on firms’ ability to spend and invest for the future, as they faced a reduction in demand and consumer spending.

Jo Robinson, a partner at EY-Parthenon, said: “Economic forecasts may have seen some improvement in recent months; however, the extraordinary strength of headwinds over the last two years has left some businesses facing recession-like conditions.

“This economic uncertainty risks prolonging recovery, even as forecasts improve.

“Many companies may struggle to build momentum as they contend with increased working capital demands and finance costs.”

Ms Robinson added that the coming year will be “crucial” because insolvencies normally peak nine to 12 months after a spike in profit warnings.

Nevertheless, the report flagged signs of improvement for the retail sector, with profit warnings from UK-listed retailers falling to the lowest quarterly total since 2020.

Just five firms in the sector sounded the alarm over their profits in the first quarter.

It came as large retailers like Next and Sainsbury’s shared better-than-expected sales and earnings figures after Christmas, despite pressure on shoppers from the rising cost of living and inflation hitting costs.

However, the high street remains “delicate”, with nearly a third of retailers having issued two or more profit warnings since the start of 2022, well above the all-sector total.

And of the companies in the consumer sector which issued three profit warnings, known as the “danger” area, 30% have gone into administration or been put up for sale, the report found.

Stationery retailer Paperchase fell into administration earlier this year, leading to a sale of its brand to the UK’s biggest supermarket, Tesco.

Meanwhile, Next snapped up the brand, websites and intellectual property of furniture retailer Made.com after it collapsed into insolvency, as well as buying rival fashion chain Joules in a rescue deal.

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