Profit warnings for listed companies hit a 16 year high

294 profit warnings were issued by UK listed companies in 2023 with 77 profit warnings being issued in the last quarter of 2023 according to data published by EY-Parthenon. A third of those in the last quarter being companies with a reported annual revenue of over £1bn.

Profit warnings are official announcements made by listed companies and made when they expect their profit results to be materially lower than expected. At the height of the global financial crisis in 2008 there were 17.7% of companies that had issued profit warnings. The latest data from EY-Parthenon exceeds that percentage and represents 18.2% of listed companies issuing profit warnings.

Of those 294 warnings, over a quarter (26%) were attributed to delayed contracts or decisions, 19% referenced the impact of higher interest rates and 19% blamed increased costs. Whist the EY report suggests that cost pressures are starting to ease Jo Robinson, EY-Parthenon Partner and UK&I Turnaround and Restructuring Strategy Leader, said “Pervasive uncertainty in 2023 created major challenges for businesses around earnings and forecasting, and this is reflected in the number of profit warnings issued last year. While pressure around costs eased somewhat toward the year-end, the uptick in warnings caused by delays to business decisions and weak consumer confidence indicates an ongoing reluctance to commit to discretionary spending”.

Companies operating within the FTSE Consumer Discretionary sectors issued a high number of profit warnings accounting for 35% of all warnings in the last quarter of 2023. “While pressure around costs eased somewhat toward the year-end, the uptick in warnings caused by delays to business decisions and weak consumer confidence indicates an ongoing reluctance to commit to discretionary spending,” Jo Robinson, partner at EY-Parthenon said.

With the cost-of-living crisis, high interest rates and reluctance in consumer spending habits, the retail sector was one of the hardest hit in 2023. FTSE Retailers issued 24 warnings in 2023. Companies like Kingfisher, Dr Martens and Superdry, all issuing profit warnings.  Following its pre-Christmas profit warning Super Dry have reportedly called in PWC to advise on its finances and consider its debt-raising options.

“Consumer spending on staples has recovered, but an elevated level of warnings in FTSE Retailers highlights the persistent strain on discretionary spending,” George Mills, partner at EY said.

Mills went on to warn that “Traditional funders will be cautious about investing in sectors with high consumer discretionary exposure”, therefore, companies will need to “demonstrate strong historical performance as well as robust forecasts capable of withstanding a future downturn if they want to refinance on the best terms”.