Listed companies in the East of England issued five profit warnings in Q4 2023, the highest quarterly total since the Covid-19 pandemic in 2020 according to the latest EY-Parthenon Profit Warnings report.
- EY-Parthenon report reveals that 294 warnings were issued by businesses in 2023 - 18.2% of all UK-listed companies
- In the East of England, five profit warnings were issued by listed businesses in the final quarter of 2023 – the highest quarterly total since 2020
- High interest rates and wavering consumer and business confidence were among the key drivers behind warnings last year
- A third of warnings issued nationally in Q4 2023 were from large listed businesses, double the average rate
The number of warnings issued in Q4 is up by three on the previous quarter and an increase of one on the same period (October - December) in 2022. In total, 11 warnings were issued in the region in 2023, one fewer than the previous year.
Companies within the East of England operating in consumer discretionary FTSE sectors continued to issue the highest number of profit warnings, making up 64% (7) of all warnings in Q4 2023. This is comparable to the broader national trend, with companies within consumer discretionary FTSE sectors issuing the most profit warnings in the UK during Q4, accounting for 293% of all warnings during this period.
Stuart Wilkinson, EY’s Managing Partner for the East of England, said: “Q4 2023 saw the highest number of profit warnings issued in the East of England since the height of the Covid-19 pandemic. While it has been four years since the pandemic its effects are still being felt across the supply chain, as low consumer confidence and persistent economic uncertainty continue to have an impact on business performance.
“Whilst economic growth is predicted in 2024, it will remain slow, causing additional challenges for businesses looking to refinance. Like many of the UK’s other regions, companies within the consumer discretionary sectors in the East of England were hit the hardest, issuing the highest volume of profit warnings. Businesses with high consumer discretionary exposure may find it more challenging to find investment in 2024 as traditional funders remain cautious in investing in exposed sectors. Businesses may need to source alternative lenders or equity injections to secure further finance.”
National profit warning figures exceed those issued at height of 2008 financial crisis
Nationally, the percentage of UK-listed companies issuing profit warnings last year exceeded the levels seen at the peak of the financial crisis in 2008 as 18.2% of public firms issued warnings.
In total, 294 profit warnings were issued in 2023, a small decrease of 11 from 2022 when 305 warnings were given. But 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 the 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.”
Image: Stuart Wilkinson, EY’s Managing Partner for the East of England
