Company profit warnings rise for seventh consecutive quarter

Based on its latest Profit Warnings report, it found that warnings from UK-listed companies have risen year-on-year for the seventh consecutive quarter – marking the longest run of consecutive quarterly increases since 2008.  

Additionally, in the last 12 months 17.9% of UK-listed companies have issued a profit warning, the highest level outside the Covid-19 pandemic since the 2008 global financial crisis.  

The main drivers for the rises in this quarter include persistent inflation and rising interest rates, creating a tighter and more expensive lending environment. Changing credit conditions were cited in one-in-five profit warnings during the quarter, the highest proportion since the second quarter of 2008.  

Elsewhere, falling sales were cited in 59% of profit warnings, while contractual issues or delayed payments were highlighted in 23% of warnings, as were rising costs and overheads. 

The report also revealed a rise in the number of companies issuing multiple warnings, with 29% of firms issuing a profit warning doing so for at least the third time in 12 months, up from 10% in the first quarter of 2023 

Consequently, the number of companies in the ‘three-warning danger zone’ has risen from 31 to 36.  
Of these, eight have delisted or are in the process of delisting, mostly through administration or distressed sales. 

Jo Robinson, EY-Parthenon partner and UK and Ireland turnaround and restructuring strategy leader, said: “The sustained rise in profit warnings over the last two years reflects the extraordinary mix of challenges faced by UK businesses over that timeframe.  

“It’s now clear that the effects of these low-growth conditions are spreading to nearly all corners of the UK economy, and this quarter we’ve seen earnings pressure extend up the value chain into the mid-market. 
“Rising interest rates have significantly changed credit conditions for companies that need to refinance, and businesses have started to feel the effect of a more expensive borrowing environment, especially in sectors where credit availability has been a key driver of activity.  

“The number of businesses that had previously locked in low interest rates has postponed some of the challenges, but not indefinitely. We’ll likely see credit cost and availability play an increasingly significant role in restructuring activity as more businesses encounter a markedly different refinancing landscape. 

“Insolvency activity typically peaks nine to twelve months after a profit warning peak. Conditions are likely to remain challenging and those businesses best placed to persevere will be those that can reshape their operations to withstand further shocks and capitalise on growth.”