Profit Warnings: The UK’s Corporate Comedy of Errors
Picture this: a bunch of UK-listed companies putting up a big “Profit Warning” banner in 2023—almost a third of them. According to EY‑Parthenon’s newest Profit Warnings report, 18.2% of public firms cried out for help, beating the 17.7% peak from the 2008 financial crash.
Numbers in a Nutshell
- 294 profit warnings thrown in 2023 (down 11 from 305 in 2022)
- 18.2% of all companies issued a warning—a figure that feels more like a fever than a minor hiccup
- In Q4, 77 warnings were released, just one more than the previous quarter
- Cost worries shrank to 10% of Q4 warnings, compared to 41% the year before
- However, 24% of warnings in the second half of 2023 blamed high interest rates, up from 14% in the first half
What’s Fueling the Frenzied Forecasts?
Here’s the breakdown of the real culprits:
- 26% stemmed from delayed contracts or decision scandals
- 19% were cost‑increasing catastrophes
- 19% blamed the dreaded higher interest rates
Small Companies, Big Gloom
Early in 2023, the “small” players—those vulnerable to market whims—were the first to clutch the warning sign. But by Q4, the panic had spread to the big guns: a surprising 33% of companies with revenues above £1 billion sent out profit alerts.
Repeat Offenders & Their Downfall
In a twist that feels like a bad sequel, 39 listed firms issued a third or more consecutive profit warning within 12 months. That number makes up 18% of all warnings last year. Shockingly, 13% of those repeat offenders ended up delisting—a reminder that the financial world isn’t forgiving.
Insights from the Prof (Jo Robinson)
“The year was riddled with uncertainty that turned forecasting into a guessing game,” says EY‑Parthenon partner Jo Robinson, UK&I Turnaround and Restructuring Strategy Leader.
She added: “While cost pressures eased toward the year’s end, the rise in warnings due to decision delays and weak consumer confidence paints a picture of cautious spending. Businesses are holding their tongues, waiting for the market’s next move.”
Looking ahead, Robinson anticipates a “soft landing” for many but warns: “Inflation and interest rates should drop faster than expected, but the pieces must align before we’re sure. We’ll see a growing divide between firms ready to grow and those stuck in a lingering earnings slump.”
Bottom Line
UK companies are juggling a mix of delayed decisions, rising costs, and higher rates. While some dragged their feet, big players got pulled into the chaos. The takeaway? The corporate climate remains wobbly, and only those with a solid footing will thrive in 2024.
In short, if you think profit warnings are just numbers on a sheet, think again—they’re the latest signboard for the business market’s roller‑coaster ride. Stay tuned!
Industrial and consumer sectors lead profit warnings
2023’s Profit‑Warning Blow‑Up: Which Sectors Took the Sting
Industrials lead the charge with a whopping 25 warnings – the most ever since the Great Lockdown.
- Retailers followed closely, cussing out with 24 warnings.
<li Software & Computer Services spilled the beans with 21 warnings.
<li Media knocked the needle at 17 warnings.
<li Construction & Materials had 16 warnings.
Quarter‑finals: The Selling EPIC Showdown
In Q4 2023, the Consumer Discretionary arm was the headline act, dropping 35 % of all profit warnings in that quarter. Followed by Industrials, taking the stage with 31 % – a boost from the last quarter’s 26 %.
Leisure Gids’ Quarter‑Quarter Disaster
Half of the Leisure Goods crowd – that’s a solid 50 % – jammed a warning into the 2023 ledger.
Other High‑Alarm Sectors
- Household Goods & Home Construction steered 45 % of their companies into warning territory.
- In the Chemicals arena, a record 41 % of firms issued warnings, with a flurry of 11 companies jumping to the culprit list.
So, if you’re watching the market’s pulse, it’s a good time to pay heed to these sectors – the warning lights are buzzing louder than a karaoke night in 2023!
FTSE Retailers under increasing pressure
Retailers: Profit Warnings on a Permanent Parade
Retail’s not-so-quiet performances have had a rough finish last year. In 2023, the FTSE Retailers sent out 24 profit warnings, down from 36 in 2022, but that’s still a staggering number—almost a warning for every two shops.
Why People’re Grabbing Their Wallets With a Lock
- Discretionary spending feels like it’s on a roller coaster: it dipped, but the downward trend is still strong.
- Non‑food items—think denim, sneakers, and luxury accessories—are the biggest hit.
- Consumers are being extra careful after the last year’s economic jitters.
Insights from EY’s George Mills
George Mills, Partner and Special Situations Debt Advisory Lead at EY, said:
“At the end of 2023 we saw a rising number of warnings from sectors at the foundation of supply chains, like chemicals, and those reliant on business confidence, such as recruitment.”
“Consumer spending on staples has recovered, but an elevated level of warnings in FTSE Retailers highlights the persistent strain on discretionary spending.”
“Traditional funders will be cautious about investing in sectors with high consumer discretionary exposure. Businesses will need to demonstrate strong historical performance as well as robust forecasts capable of withstanding a future downturn if they want to refinance on the best terms.”
“If not, they risk encountering challenges when refinancing and may have to explore other avenues for capital, such as turning to alternative lenders or seeking equity injections.”
What It Means for Retailers
If a store can’t show solid past sales and a solid repayment plan, banks will look wary. That could squeeze the shop’s hands on credit‑tight times, pushing them to look elsewhere—think alternative lenders or even private equity.
Bottom Line: Keep Your Numbers Tight
Retailers, if you want to keep the lights on and avoid a major profit warning, it’s all about proof of performance and solid future forecasting. If you slack, you’ll likely need to turn to softer credit options.
