Nearly one-in-five UK-listed companies have issued a profit warning in the last 12 months

The number of UK-listed companies issuing a profit warning over the last 12 months grew to 18.7%, 1% higher than 2008, at the peak of the Global Financial Crisis, according to EY-Parthenon’s latest Profit Warnings report.

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.

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  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, FTSE Household Goods and Home Construction, FTSE Personal Goods and FTSE Pharmaceuticals, Biotechnology and Marijuana Producers.

Meg Wilson, EY Partner, Turnaround and Restructuring Strategy, said, “Some of the demand and supply chain pressures that prevailed during the pandemic haven’t entirely eased, whilst new stresses are starting to emerge.

“This is reflected in the number of new profit warnings we’ve seen this quarter, triggered by the impact of fresh trading pressures and by the cumulative impact of economic stresses catching up with larger companies and sectors that typically show higher resilience to economic shocks.

“Prolonged economic stress is also exposing internally driven challenges. In Q1 2024, a third of profit warnings cited internal failures, such as troubled contracts, accounting issues, and fraud. Taking pre-emptive and proactive steps to build resilience, alongside additional vigilance to spot issues and act quickly as they arise, remains the strongest defence in these market conditions.”