Profit warnings spike in Q4 – but annual figure falls

Listed companies in the East Midlands issued 14 profit warnings in 2022, a decrease of 17% on the previous year, according to the latest EY-Parthenon Profit Warnings report.

In Q4 2022, seven profit warnings were issued, the highest quarterly total of warnings that year.

Nationally, the number of profit warnings issued by UK-listed companies in 2022 increased by 50% year-on-year, with record levels of warnings citing rising costs. In total, 305 profit warnings were issued in 2022, an increase of 102 from 2021 when 203 warnings were issued. Half (152) of the warnings issued in 2022 were due to rising costs – double the share in 2021. During the year, 17.7% of the UK’s 1,193 listed businesses issued a profit warning, equal to the proportion of companies that issued warnings during the global financial crisis in 2008.

In the second half of 2022, 169 warnings were issued across the UK which is the highest second-half total since 2015. In Q4 2022, 83 profit warnings were issued, 41% of which cited rising costs, while 24% were due to delayed or cancelled contracts, and 20% due to weaker consumer confidence.

FTSE Retailers issued the highest number of warnings (36) in 2022 followed by FTSE Travel and Leisure (25), FTSE Software and Computer Services (18), FTSE Industrial Support Services (17) and FTSE Personal Care, Drug and Grocery Stores (16).

In 2022, 31 listed companies issued their third consecutive profit warning in 12 months, compared to 23 in 2021. Of those warning for a third time in 2022, 13% have already gone through a restructuring process, 19% have breached covenants, and 35% have changed CEO or CFO as of mid-January 2023.

Dan Hurd, a partner at EY-Parthenon in the Midlands said: “As we enter 2023, rising operational costs and interruptions to supply chains continue to put businesses’ resilience to the test. This stress is now deepening as the cost-of-living crisis and changes in consumer spending habits affect other sectors and industries.

“In the Midlands, automotive, household goods and construction sectors reported the most profit warnings as the cost pressures experienced last year now pass further down the supply chain, lowering business confidence.

“Forecasting and planning will remain challenging this year but will be critical to ensure a business’ long-term survival. While difficult times lie ahead, out of adversity comes the potential for new opportunities, as businesses continue to adapt to meet rising pressures.”