Profit warnings soared in 2022 – EY
Profit warnings from limited companies soared in 2022 as businesses faced spiralling costs and a decline in demand for goods and services.
In the South West, profit warnings were up by 15 per cent, while in the South East – which includes Oxfordshire and the Thames Valley – the rate of increase was a staggering 89 per cent, according to Big Four accounting firm EY.
Nationally, the number of profit warnings issued by UK-listed companies in 2022 increased by 50 per cent year-on-year, with record levels of warnings citing rising costs. In total, 305 profit warnings were issued in 2022, an increase of 102 from 2021 when 203 warnings were issued.
Half (152) of the warnings issued in 2022 were due to rising costs – double the share in 2021. During the year, 17.7 per cent of the UK’s 1,193 listed businesses issued a profit warning, equal to the proportion of companies that did so in 2008 during the global financial crisis.
In the second half of 2022, 169 warnings were issued across the UK which is the highest second-half total since 2015. In Q4 2022, 83 profit warnings were issued, 41 per cent of which cited rising costs, while 24 per cent were due to delayed or cancelled contracts, and 20 per cent due to weaker consumer confidence.
FTSE Retailers issued the highest number of warnings (36) in 2022 followed by FTSE Travel and Leisure (25), FTSE Software and Computer Services (18), FTSE Industrial Support Services (17) and FTSE Personal Care, Drug and Grocery Stores (16).
In 2022, 31 listed companies issued their third consecutive profit warning in 12 months, compared to 23 in 2021. Of those warning for a third time in 2022, 13 per cent have already gone through a restructuring process, 19 per cent have breached covenants, and 35 per cent have changed CEO or CFO as of mid-January 2023, said EY.
Lucy Winterborne (pictured) a Bristol-based EY-Parthenon partner in turnaround and restructuring strategy said: “As we enter 2023, rising operational costs, interruptions in the supply chain and the cost-of-living crisis continue to put businesses’ resilience to the test.
“While forecasting will be challenging as energy and fuel prices continue to fluctuate, it is a crucial activity that must be undertaken to ensure a business’ long-term survival. Careful planning combined with a swift response could reveal new opportunities that may not have been considered before. It is the exploration of these opportunities that will see new market leaders rise above their competition.”
Caroline Macaskill, a partner at EY in Reading, said: “Rising energy bills and interruptions to supply chains continue to create challenges for businesses. When combined with changes to consumer spending habits due to reduced disposable income, these stresses are now affecting new sectors and industries.
“Forecasting and planning will be vital for businesses, but will be challenging as energy and fuel costs continue to fluctuate. Resilience will be put to the test this year, however as businesses evolve to meet the new challenges head-on, new opportunities may present themselves, allowing those who can grasp them to rise above the competition.”
Jo Robinson, EY-Parthenon Partner and UK&I turnaround and restructuring strategy leader, said: “Although festive trading was better than expected for many businesses, the bar was set low by exceptional levels of consumer sector profit warnings in 2022.
"The ‘golden quarter’, a vital period for consumer companies, included a winter World Cup along with the disruption from train and postal strikes. This backdrop created a further complex layer of challenges and opportunities in addition to ongoing cost, labour, inventory, and confidence issues for consumer-facing companies.
“Supermarkets appear to have been the main winners of Christmas 2022, while many omnichannel retailers managed to flex their offering to adapt to the impact of industrial action and performed well.
"However, as EY’s latest Future Consumer Index underlines, it will be critical for companies to keep adapting and reflecting customer priorities, which for most consumers in the short-term, will be a compelling price proposition.”
