WM profit warning figures revealed
Listed companies in the West Midlands issued four profit warnings in Q2 2023, one more than Q1 2023, according to the latest EY-Parthenon Profit Warnings report.
Nationally, profit warnings issued by UK-listed companies between April and June 2023 marked the highest second quarter total in three years, with 66 warnings issued.
The report found that warnings from UK-listed companies have risen year-on-year for the seventh consecutive quarter, the longest run of consecutive quarterly increases since 2008. The highest number of Q2 warnings recorded by EY-Parthenon was in 2020, when 166 were issued.
Persistent inflation and rising interest rates have played a significant role in Q2’s warnings, driving a tighter and more expensive lending environment. Changing credit conditions were cited in one-in-five (20%) profit warnings during the quarter, the highest proportion since Q2 2008 and up from one-in-ten (9%) in Q1 2022.
Warnings in the West Midlands
While Q2 2023 saw an increase in the number of profit warnings from Q1, the total for the first half of 2023 is down by three warnings when compared to the same period in 2022. The region’s industrial sectors reported the most warnings this quarter as it continues to be impacted by the uncertain economic environment. The remaining warnings were consumer and real estate sectors.
Dan Hurd, a partner at EY-Parthenon in the Midlands, said: “Although there is some optimism around the falling costs of energy and other raw materials with Production Inflation (PPI) in May having dropped from 25% to 0.5% in less than 12 months, many businesses continue to feel under pressure experiencing both their own specific higher inflation rates and from rising interest rates. Manufacturing, a key sector for the region, is experiencing a sustained period of contraction, as indicated by June’s 6 month low Purchasing Managers Index (PMI) of 46.5.
“The West Midlands may have seen a rise in the number of profit warnings this quarter, however it is significantly fewer than the same period in 2022. Conditions in the region will remain challenging for some time, and whilst the overall outlook may be more positive than 12 months ago on the cost inflation side, there are signs of demand softening and the cost of servicing debt is becoming a real burden for many businesses”.
Construction sector suffers following housing market slowdown
Companies within the FTSE Construction and Materials sector recorded six profit warnings during Q2 2023, representing 10% of Q2’s total profit warnings. This is the highest level of warnings from this sector since Q2 2020, with more than a quarter (28%) of FTSE Construction and Materials companies issuing a profit warning in the last 12 months.
Five of the six warnings issued by FTSE Construction and Materials companies in Q2 2023 cited a slowdown in house building as a key trigger.
Retail pressures ease but sector remains vulnerable
The sectors with the most warnings in Q2 2023 were FTSE Industrial Support Services (seven), FTSE Construction and Materials (six), followed by FTSE Retailers (five) and FTSE Pharmaceuticals & Biotechnology (five).
Warnings from industrial FTSE sectors rose by 40% year-on-year as wavering business confidence has led to spending delays and cost cutting. Six of the seven profit warnings from the FTSE Industrial Support Services sector cited lower demand from business customers, including falling recruitment.
FTSE Retailers issued 10 warnings in the first half of 2023, representing a fall from the 16 warnings issued in the first half of 2022. However, more than a fifth of companies (six) remaining in the ‘three warning danger zone’ came from either FTSE Retailers or FTSE Personal Care, Drug and Grocery Store sectors, and these businesses may find themselves vulnerable if cost-of-living concerns continue to squeeze consumer incomes and spending.
