22 firms in South West issued profit warnings last year

Listed companies in the South West of England issued 22 profit warnings in 2023 – the same number as 2022, according to the latest survey.

In the fourth quarter 2023, four warnings were issued by companies in the region, one more than the previous quarter. The number of warnings issued in the fourth is down by half on the same period (October – December) in 2022.

According to the EY-Parthenon Profit Warnings report companies within the South West operating in consumer discretionary FTSE sectors continued to issue the highest number of profit warnings, making up 50 per cent of all warnings in quarter four 2023.

This is comparable to the broader national trend, with companies in consumer discretionary FTSE sectors issuing the most profit warnings in the UK during the fourth quarter, accounting for 29 per cent of all warnings during this period.

Lucy Winterborne, EY-Parthenon Partner in Turnaround and Restructuring Strategy in the South West, said: “Low consumer confidence and persistent economic uncertainty continued to effect businesses in the South West throughout 2023. While economic growth is predicted in 2024 as inflation eases, it will remain slow, causing further challenges for businesses looking to refinance.

“Businesses that did not reshape and restructure in 2023 may find it more challenging to do so now as some traditional funders become increasingly cautious of investing in sectors with high consumer discretionary exposure. New avenues for capital, such as sourcing alternative lenders or seeking equity injections may need to be explored.”

National profit warning figures exceed those issued at height of 2008 financial crisis

Nationally, the percentage of UK-listed companies issuing profit warnings last year exceeded the levels seen at the peak of the financial crisis in 2008 as 18.2 per cent of public firms issued warnings.

In total, 294 profit warnings were issued in 2023, a small decrease of 11 from 2022 when 305 warnings were given. But the percentage of companies warning was still exceptionally high at 18.2 per cent, higher than 17.7 per cent at the peak of the global financial crisis in 2008.  Last year, over a quarter of warnings (26 per cent) were attributed to delayed contracts or decisions, 19 per cent were due to increased costs and a further 19 per cent cited the impact of higher interest rates.

In quarter four 2023, 77 warnings were issued versus 76 in the prior quarter. Cost pressures appeared to ease towards the end of 2023, causing just ten per cent of warnings in quarter compared to 41 per cent in the same period the year before. However, corporate spending delays and higher interest rates became an increasing issue in 2023, with the latter prompting 24 per cent of profit warnings in the second half of 2023, compared with 14 per cent in the first half of the year.

Smaller companies, which are more vulnerable to demand and margin pressures, dominated warnings at the start of the 2023. However, by quarter four pressure had broadened as a third of the companies warning (33 per cent) had annual revenues of over £1bn, more than double the average number of warnings given by businesses of this size.

In 2023, 39 listed companies issued their third or more consecutive profit warning in 12 months, representing 18 per cent of all companies that issued a warning last year. This compares to 31 companies that issued their third or more consecutive profit warning over a 12-month period in 2022. To date, 13 per cent of companies that warned over profits for a third or more time in 2023 have gone on to de-list.

Jo Robinson, EY-Parthenon Partner and UK&I Turnaround and Restructuring Strategy Leader, said: “Pervasive uncertainty in 2023 created major challenges for businesses around earnings and forecasting, and this is reflected in the number of profit warnings issued last year. While pressure around costs eased somewhat toward the year-end, the uptick in warnings caused by delays to business decisions and weak consumer confidence indicates an ongoing reluctance to commit to discretionary spending.

“In 2024, businesses will hope for a quicker-than-expected fall in inflation and interest rates, but many moving parts need to slot into place before we can be sure of an economic ‘soft landing’. We expect to see increasing disparity between businesses that are positioned to capitalise on still limited growth and those that are hampered by the impact of recent earnings pressures or their access to and the cost of capital. It is shaping up to be an easier year for many, but not all UK companies.”