UK company profit warnings up 50% last year

The number of profit warnings from UK-listed companies rose 50 per cent in 2022 to a total of 305, as a combination of rising costs and falling consumer confidence hit British business.

During the year, close to 18 per cent of the UK’s 1,193 listed businesses issued a profit warning, according to analysis by EY Parthenon, equal to the figure during the global financial crisis.

Companies are expected to continue to be under pressure this year as the UK faces recession, high inflation and disruption from strikes.

“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,” said Jo Robinson, EY-Parthenon partner.

At the height of the pandemic in 2020, 35 per cent of listed UK businesses gave profit warnings.

Increasing costs were cited as the biggest factor behind company difficulties last year.

More than a third of UK-listed companies in consumer sectors issued a profit warning during the year. On Friday, Superdry became the latest retailer to warn over its profit forecast for the year, sending its shares down 17 per cent.

But while consumer-facing sectors continued to be most affected, EY said that stress was “deepening” across all sectors.

Half of the warnings issued in 2022 were because of rising costs — double 2021’s figure.

The slowdown in the economy became apparent in the performance of many British companies in the last months of 2022.

A quarter of the 83 profit warnings in the last three months of 2022 related to delayed or cancelled contracts, with another quarter blamed on weaker consumer confidence and two-fifths citing rising costs.

In a sign that rising interest rates are already having an impact, about 11 per cent of profit warnings cited “credit tightening” as a factor, the highest proportion since the depths of the credit crunch at the start of 2009.

Robinson said: “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 the fourth quarter. Cost pressures are passing through supply chains, business confidence is weak, and credit markets are tightening.”

In the second half of 2022, 169 warnings were issued, the highest second-half total since 2015.

FTSE-listed retailers issued the highest number of warnings in 2022 followed by companies in the travel and leisure sectors, then those in software and computer services; industrial support services; and personal care, drug and grocery stores.

The research also shows that companies already in distress have tended to continue to struggle. In 2022, 31 listed companies issued their third consecutive profit warning in 12 months, EY said, compared with 23 in 2021.

Of those warning for a third time in 2022, about 13 per cent have already gone through a restructuring process, 19 per cent have breached covenants, and a third had changed chief executive or chief financial officer.