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Profit Warning Finance Marketing

UK profit warnings at highest level since start of pandemic

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By John McCarthy, Opinion editor

October 24, 2022 | 4 min read

EY-Parthenon’s report finds that warnings in Q3 from UK-listed companies were up 69% year-on-year.

Cliff

Travel and leisure were also hurt by the climate

86 UK-listed businesses issued profit warnings in the third quarter of 2022 – the highest Q3 performance since the 2008 recession. Consumer-facing companies were predominantly impacted and a majority blamed rising costs, largely driven by a sharp inflation surge.

According to EY-Parthenon’s latest Profit Warnings report, the poor performance was often focused on consumer-facing companies, whose warnings rose almost three-fold year-on-year.

Furthermore, 57% of warnings during Q3 cited rising costs, while 23% were prompted by labor market issues. 28 of the 86 businesses have issued their third consecutive profit warning, indicating a longer-term issue. The report claims that, on average, one in five companies delist within a year of their third warning, most due to insolvency.

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For agencies, there’s the risk that clients will be unable to operate. And if they do, profit warnings indicate shrinking marketing budgets – and that’s not counting the already inflating price of media. With talk of recession in the air, it’s worth pointing out that this is the highest third-quarter total for profit warnings since 2008.

In total, 86 profit warnings were issued between July and September 2022 compared to 51 in the same period of 2021 – an increase of 69% on Q3 2021 and a 34% increase from Q2 2022 when 64 warnings were issued. The highest number of Q3 warnings was in 2001 when 133 warnings were issued.

Jo Robinson, EY-Parthenon partner and UK&I turnaround and restructuring strategy leader, said: “Businesses are facing an unprecedented combination of headwinds including rising costs, slowing demand and excess supply, making it increasingly difficult to balance competing priorities.

“With so many uncertainties in the outlook, it’s vital that companies develop resilience and demonstrate a clear understanding of how their business will adapt under different geopolitical and economic scenarios. Increasing uncertainty means that events could move quickly for companies that show signs of stress – turning the situation around requires a swift response, sustainable and defendable forecasts and the building of stakeholder trust in management.”

More than 40% of FTSE retailers and over 60% of the FTSE Personal Care, Drug and Grocery Stores sector issued a profit warning in the last 12 months. These spaces – hurt by spiraling costs, supply chain and labor challenges – are now also contending with falling consumer confidence. As a result of the cost of living crisis, brands will have to fight to ensure shoppers stick with them rather than move to budget alternatives. Travel and leisure were also sectors hurt by the climate.

Read the full report here.

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