Friday, December 8, 2023

Profit warnings issued by listed companies in the Midlands at highest level since Q4 2022

Nine profit warnings were issued by UK-listed companies in the Midlands in Q3 2023, up from eight in Q2 2023, according to EY-Parthenon’s latest Profit Warnings report.

The nine profit warnings issued by companies based in the Midlands region between July and September 2023 was the highest quarterly total since Q4 2022, when 14 warnings were issued.

Across all UK-listed companies, the total volume of profit warnings issued during the third quarter (76 warnings in total) was down 12% year-on-year.

The number of warnings issued over the first three quarters of 2023 across the Midlands region (22) is marginally down on the same period last year, when 25 warnings were issued between Q1-Q3 2022.

Midlands companies operating in industrial and consumer discretionary FTSE sectors issued the highest number of profit warnings (seven) in Q3 2023.

Dan Hurd, a partner at EY-Parthenon in the Midlands, said: “Listed companies across the Midlands have issued a consistently high volume of profit warnings throughout 2023. Conditions are set to remain challenging into 2024 as tightening credit conditions, rising interest rates and disruptions to supply chains continue to affect businesses across all UK.

“The manufacturing sector, once again, experienced a challenging quarter as high borrowing costs took their toll on profitability. As we enter the final quarter of the year, contingency planning will remain vital as geopolitical and macroeconomic headwinds continue to impact the UK economy.”

National profit warning figures

Prior to Q3 2023, warnings issued by UK-listed companies had risen year-on-year for seven consecutive quarters, the longest run of consecutive quarterly increases since 2008. UK-listed companies issued 86 warnings in Q3 2022 and 51 in Q3 2021. Despite the year-on-year fall, the number of Q3 2023 profit warnings remains 18% higher than the post-credit crisis quarterly average.

The report reveals that persistent inflation and rising interest rates continue to put significant pressure on UK businesses. A third (33%) of the warnings in Q3 2023 cited tougher credit conditions as a factor — the highest level recorded by EY-Parthenon since 2008.

Broader economic uncertainty also played a role across many of this quarter’s warnings, with 21% citing delayed or cancelled contracts and 18% citing weaker consumer confidence. One-in-five (20%) of Q3 warnings cited the slowing housing market as a factor, while the same number (20%) referenced cost pressures. In the last 12 months, 17.8% of UK-listed companies have issued a profit warning.

Jo Robinson, EY-Parthenon partner and UK&I turnaround and restructuring strategy leader, 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.

“Unlike 2008’s global credit crisis, today’s companies, banks and consumers all have stronger balance sheets and extended debt maturities, which will continue to stagger the effect of base rate rises. This adds a layer of resilience but shouldn’t create overconfidence. Businesses that are at risk should act immediately to reshape operations to withstand future shocks. Delaying action risks damaging business value, particularly in this fast-moving market.”

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