Midlands firms buck national trend on profit warnings

Listed companies in the Midlands issued 64% fewer profit warnings in Q1 2023 compared to the previous quarter, new research indicates.

Just five profit warnings were issued in Q1 according to the latest EY-Parthenon Profit Warnings report – the lowest number since Q2 2021 – as compared to the 14 recorded by Midlands firms in Q4 2022.

The figures stand in stark contrast to the national picture, which saw profit warnings issued by UK listed companies reach their highest first quarter total since the early stages of the pandemic.

75 such warnings were issued by national firms during the quarter.

Since the start of 2022, 98 UK companies have issued at least two profit warnings, while a “significant cohort” of UK firms have faced particularly challenging conditions after entering the three warning “danger zone.”

Of the 31 companies that have issued three warnings since the start of 2022, 29% have since delisted or are in the process of being sold.

Dan Hurd, partner at EY-Parthenon in the Midlands, said: “While the Midlands has seen a fall in the number of profit warnings this quarter, uncertainty remains across industries. Inflationary pressures in energy, labour and other input costs continue to have an impact across the supply chain. Businesses that took on increased borrowing during the pandemic may now find themselves particularly vulnerable to higher interest rates.”

Jo Robinson, EY-Parthenon partner and UK&I Turnaround and Restructuring Strategy leader, said: “Economic forecasts may have seen some improvement in recent months, however the extraordinary strength of headwinds over the last two years has left some businesses facing recession-like conditions. This has taken its toll on business confidence and, as pressures move through the supply chain, we’ve seen a higher number of companies warning of delayed or cancelled contracts in comparison to the last quarter.

“This economic uncertainty risks prolonging recovery, even as forecasts improve. Many companies may struggle to build momentum as they contend with increased working capital demands and finance costs.

“We would normally expect to see insolvency activity peak nine to twelve months after a profit warning peak, so the coming year will be crucial. While the UK economy appears to be turning a corner, recovery is not guaranteed. Businesses should continue scenario planning and building solid operational and financial foundations to withstand further shocks and capitalise on growth.”