Profit warnings issued by listed companies in the North West fell by more than 20% in 2023

1st February 2024, 1:55 pm

A total of 27 profit warnings were issued by UK-listed companies in the North West in 2023, down by more than 20% from 34 in 2022, according to EY-Parthenon’s latest Profit Warnings report.

Despite the overall decrease in 2023, seven profit warnings were issued in the region during Q4, up from the five issued in Q4 2022. Warnings in the region were also up quarter-on-quarter compared to the six issued in Q3 2023, marking a challenging end to last year for listed businesses in the North West.

Companies operating in consumer discretionary FTSE sectors in the North West issued the region’s highest volume of warnings across 2023 with a total of eight warnings, while industrial and technology companies in the region issued the joint-second highest volumes of warnings, with five each.

Sam Woodward, EY-Parthenon UK&I Turnaround and Restructuring Partner in the North West, said: “Companies in the North West displayed resilience in 2023 so it was positive to see a year-on-year fall in total profit warnings in the region. However, the challenges facing the economy certainly haven’t subsided, particularly the lagged effect of high interest rates which was highlighted by the region’s uptick in warnings in Q4 2023.

“It’s unsurprising that companies operating in consumer discretionary sectors issued the highest volume of warnings in the North West in 2023 – in line with the national trend – with household disposable income challenged by high inflation and borrowing costs. Meanwhile, companies operating in industrial sectors continued to weather persistent headwinds. Listed companies within the technology sector also faced challenges in 2023, however the sector’s potential growth, driven by heightened interest in Generative Artificial Intelligence (GenAI), suggests a more optimistic outlook for the year ahead.

“There are further reasons for positivity looking ahead to 2024, with GDP growth expected to be boosted by falling inflation and cuts to the base rate, along with prospective tax cuts that are expected to be announced in the Chancellor’s Spring Budget. However, the North West’s Q4 profit warning figures are an apt reminder that, although prospects may be improving, scenario planning and stress testing will continue to be crucial as businesses look to safeguard their future.”

18.2% of UK companies issued profit warnings in 2023

Across the UK, the percentage of listed companies issuing profit warnings last year exceeded the levels seen at the peak of the financial crisis in 2008 with 18.2% of firms issuing warnings.

In total, 294 profit warnings were issued in 2023, a small decrease of 11 from 2022 when 305 warnings were issued. However, the percentage of companies warning was still exceptionally high at 18.2%, higher than 17.7% at the peak of the global financial crisis in 2008. Last year, over a quarter of warnings (26%) were attributed to delayed contracts or decisions, 19% were due to increased costs and a further 19% cited the impact of higher interest rates.

In Q4 2023, 77 warnings were issued versus 76 in the prior quarter. Cost pressures appeared to ease towards the end of 2023, causing just 10% of warnings in Q4 compared to 41% in the same period the year before. However, corporate spending delays and higher interest rates became an increasing issue in 2023, with the latter prompting 24% of profit warnings in H2 2023, compared with 14% in the first half of the year.

Smaller companies, which are more vulnerable to demand and margin pressures, dominated warnings at the start of 2023. However, by Q4 pressure had broadened as a third of the companies warning (33%) had annual revenues of over £1 billion, more than double the average number of warnings given by businesses of this size.

In 2023, 39 listed companies issued their third or more consecutive profit warning in 12 months, representing 18% of all companies that issued a warning last year. This compares to 31 companies that issued their third or more consecutive profit warning over a 12-month period in 2022. To date, 13% of companies that warned over profits for a third or more time in 2023 have gone on to de-list.

Jo Robinson, EY-Parthenon Partner and UK&I Turnaround and Restructuring Strategy Leader, said: “Pervasive uncertainty in 2023 created major challenges for businesses around earnings and forecasting, and this is reflected in the number of profit warnings issued last year. While pressure around costs eased somewhat toward the year-end, the uptick in warnings caused by delays to business decisions and weak consumer confidence indicates an ongoing reluctance to commit to discretionary spending.

“In 2024, businesses will hope for a quicker-than-expected fall in inflation and interest rates, but many moving parts need to slot into place before we can be sure of an economic ‘soft landing’. We expect to see increasing disparity between businesses that are positioned to capitalise on still limited growth and those that are hampered by the impact of recent earnings pressures or their access to and the cost of capital. It is shaping up to be an easier year for many, but not all UK companies.”

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