Profit warnings issued decreased by 79% in 2021
The number of profit warnings issued by West Midlands-based companies decreased by 79% in 2021 compared to 2020 in a report by EY.
Supply chain disruptions and rising costs are set to continue, however, according to EY-Parthenon’s Profit Warnings report.
West Midlands listed businesses issued eight profit warnings in 2021 compared to 38 in 2020 and Q4 saw a 25% decrease in the number of profit warnings issued when compared to the same quarter in 2020.
Dan Hurd, EY Parthenon UK & I turnaround and restructuring for the Midlands, said: “Sporadic growth made it a difficult year for many companies to navigate, despite healthy headline figures. By the second half of the year, an increasing number of companies nationwide were issuing profit warnings as forecasting and earnings challenges evolved and multiplied.
“Despite this reduction, businesses operating in the West Midlands’ most prevalent sectors, such as manufacturing, have found the last two years particularly challenging thanks to operational disruptions caused by the global pandemic and Brexit.
“Retailers and the construction sector also struggled during this period and businesses will continue to face uncertainty, due to ongoing supply chain issues and potential skills shortages.”
In the final quarter of 2021, UK listed companies issued 70 warnings with a record 44% blaming supply chain disruption (compared to just 2% between 2009 and 2019), and a further 27% citing rising cost pressures.
In total, 203 profit warnings were issued in 2021, down from the record-breaking 583 warnings witnessed in 2020 and the second-lowest by number since EY began tracking warnings in 1999.
EY says the low total is due to a post-lockdown rebound, which then gave way to extensive supply chain disruptions and rising costs in the second half of the year.
The report said that one-in-five listed consumer-facing companies issued a warning over the last year. The most affected sectors were FTSE aerospace and defence with 57% of companies issuing a warning in 2021, followed by FTSE personal care, drug and grocery stores (39%) and FTSE retailers (34%), all of which were all affected by supply chain headwinds in the second half of the year.
Hurd said: “Nationally, the biggest driver of warnings in 2022 is likely to be the rise in inflationary pressures and its impact on disposable incomes and margins. We have already recorded profit warnings relating to rising energy prices.
“Labour shortages and wage increases are also beginning to feature more in company concerns, especially in logistics, hospitality and healthcare – including care homes.”
