UK-listed companies issued 305 profit warnings last year, a 50% hike over the previous year, as higher costs took their toll, according to a report by consultancy firm EY-Parthenon.
It notes that almost 18% of the UK’s 1,193 listed businesses published a profit warning, a similar proportion, as during the global financial crisis in 2008.
The pressure only worsened as the year progressed, with 82 profit warnings being announced in the last quarter. Rising costs were cited by 41% followed by delayed or cancelled contracts at 24%, and weaker consumer confidence from 20%,.
Meanwhile, 11% blamed “credit tightening” as a factor, the highest level since 2008, indicating that rising interest rates were already starting to slow the economy.
EY also said that throughout the year, 31 companies issued their third consecutive profit warning, compared to 23 in 2021.
Of those, 13% had already undergone a restructuring process, 19% had breached covenants, and 35% changed CEO or CFO.
Profit warnings can be disastrous for a company’s share price as they tend to trigger a sell off and volatility.
Jo Robinson, EY-Parthenon partner and UK & turnaround and restructuring strategy leader, said, “2022 was a challenging year for UK companies with rising operational costs, changing consumer behaviour, and the cost-of-living crisis having an acute impact on consumer-facing sectors.
She added that retailers and travel and leisure were the most impacted although “we are now seeing stress deepen and spread into other areas of the economy, such as industrial sectors, which saw the biggest rise in warnings in Q4. Cost pressures are passing through supply chains, business confidence is weak, and credit markets are tightening.”
Credit conditions could be squeezed further this week. Traders and analysts expect the Bank of England to raise its key rate a half point to 4% on Thursday, the highest since 2008, to curb inflation.
