UK-listed company profit warnings rise for seventh consecutive quarter

Receive free Corporate earnings and results updates

We’ll send you a myFT Daily Digest email rounding up the latest Corporate earnings and results news every morning.

Higher costs and tightening credit conditions combined with a housing market slowdown to drive the seventh consecutive increase in the number of quarterly profit warnings by UK-listed companies.

A total of 66 UK listed companies issued profit warnings between April and June, the highest second-quarter total since the early months of the Covid-19 pandemic in 2020, according to a report by EY-Parthenon.

It was the seventh consecutive quarter in which the number of profit warnings increased year on year — the longest run since 2008 — underlining the growing pressure on businesses facing rampant inflation and rising borrowing costs. Almost one in five listed companies issued a profit warning in the past year.

“The sustained rise in profit warnings over the past two years reflects the extraordinary mix of challenges faced by UK businesses over that timeframe,” said Jo Robinson, head of EY-Parthenon’s UK turnaround and restructuring practice.

“It’s now clear that the effects of these low-growth conditions are spreading to nearly all corners of the UK economy, and this quarter we’ve seen earnings pressure extend up the value chain into the mid-market.”

Changing conditions in credit markets were cited in 20 per cent of profit warnings over the three-month period, the highest proportion since 15 years ago as the global financial crisis took hold.

The Bank of England’s base rate has reached 5 per cent with economists and chief financial officers preparing for further rises in the coming months as inflation remains high.

A survey of chief financial officers published by Deloitte this week found that more finance heads are gloomy about the future, with tight monetary policy overtaking concerns about geopolitics and energy prices as the top perceived threat to their businesses.

Companies are also facing demand-side challenges with three in five earnings downgrades referring to falling sales, EY-Parthenon found.

The construction sector was hit particularly hard in the past three months, issuing its highest number of warnings since 2020. Five of the six warnings from construction groups cited housing market slowdown as a main trigger for their problems.

“Most of this quarter’s warnings have been issued by a squeezed middle of subcontractors and suppliers, which have seen material cost and labour headwinds combine with a slowdown in the housing market prompted by rising interest rates,” said Amanda Blackhall O’Sullivan, EY-Parthenon partner.

While the buoyant infrastructure sector had helped shield the biggest construction companies from hardship, this could change if the current slowdown continued, she added.

The report, which examines companies listed on the London Stock Exchange’s main market and Aim, found that almost one-third of the companies publishing a profit warning in the second quarter were doing so for at least the third time in 12 months.

Eight of the 36 companies that have issued a third profit warning in the past 12 months had delisted or were in the process of doing so, mostly through distressed sales or by going into administration, the report found. The remaining 28 companies to have made three profit warnings each in the past year face further challenges as they have a total of £2.8bn of debt falling due in 2024 and 2025.