Listed companies in the Midlands issued nine profit warnings in Q1 2024, an increase of 80% on the same period in 2023 – and the highest number of warnings since Q4 2022, according to the latest EY-Parthenon Profit Warnings Report.
Nationally, in Q1 2024, the number of profit warnings issued by UK listed companies fell 7% year-on-year to 70 and dropped slightly from Q4 2023, when 77 warnings were issued. Despite the quarterly fall in warnings, the number of companies warning for the first time in 12 months reached its highest level since Q1 2022, with 61% of companies in Q1 2024 issuing a ‘new’ warning.
By the end of the first quarter of 2024, 39 companies had issued three or more warnings over the last 12 months, with just over a fifth of these companies delisting – or in the process of doing so – due to insolvency or acquisition.
Contract cancellations and delays were cited as the main reason for warnings by 29% of companies, whilst higher costs and weaker consumer confidence each accounted for 17% of warnings in Q1 2024.
Companies within the Midlands operating in Consumer Discretionary FTSE sectors continued to issue the highest number of warnings (five), making up 56% of the region’s total warnings. This is an increase of two (66%) on the final quarter (October – December) of 2023.
Dan Hurd, Turnaround and Restructuring Strategy Partner at EY-Parthenon in the Midlands, said: “While the UK economy is predicted to see a subdued level of growth in 2024, high interest rates, energy, supply chain and labour costs in addition to persistent inflation, continue to impact businesses in the region.
“As a result of these pressures, many consumer facing companies within the Midlands continued to experience weaker performance in Q1 2024 as the prolonged cost-of-living crisis further impacted consumer spending in many areas.
“While inflation is forecast to fall as the year progresses, growth for many companies may remain slow and steady, so it’s critical that boards look at ways to stimulate demand whilst remaining focused on costs and working capital to build resilience and safeguard against any future economic or geopolitical shocks.”
Jo Robinson, EY-Parthenon Partner and UK&I Turnaround and Restructuring Strategy Leader, said: “Macro-economic pressures, while less intense, have not relented in 2024 and the full impact of interest rate increases is yet to be felt by many businesses. Larger companies and sectors such as luxury goods, which typically show resilience in economic downturns, are now starting to feel these pressures build.
“The data in EY’s latest Profit Warnings report underlines how integral swift action is to preserve value. Whilst the green shoots of recovery can be seen, companies cannot afford to ignore the warning signs and rely on economic resurgence, particularly as we continue to navigate through an unprecedented period of uncertainty with forthcoming global elections and geopolitical risks still high on the agenda.
“Although this looks like an economically easier year on paper, companies still need to be scenario planning as the macro-economic pressures we have seen over recent years are far from over.”
FTSE Consumer Discretionary sector accounted for a third of all warnings in Q1 2024
Companies within FTSE Consumer Discretionary sectors continued to issue the most profit warnings (24) in Q1 2024, accounting for 34% of all warnings during the period. The biggest growth in warnings has come in the FTSE Personal Goods sector, where over 50% of the sector warned in Q1 2024 alone, as earnings pressure spread further into the luxury goods sector.
The FTSE Industrial Support Services sector, which encompasses business service providers, industrial suppliers, and recruitment companies, issued nine warnings in Q1 2024 and 18 warnings in the last six months, more than the whole of 2022, with the sector significantly impacted by falling business spending and recruitment, rising costs, and cancelled or amended contracts.
Companies in financial services sectors reported 11 warnings in Q1, which is the highest number since the pandemic, and before that, the Global Financial Crisis in 2008. The increase in warnings indicates challenges facing pockets of the financial industry, namely certain lenders exposed to auto finance and some parts of the wealth and asset management industry.
A high level of warnings was also seen across FTSE Retailers (7), FTSE Household Goods and Home Construction (5), FTSE Personal Goods (5) and FTSE Pharmaceuticals, Biotechnology and Marijuana Producers (5).
