UK profit warnings hit highest yearly level since 2008, outside of pandemic

The proportion of UK-listed companies that issued profit warnings in the past year was higher than any year since 2008, outside of the pandemic, according to new analysis.

It comes as higher borrowing costs and a tougher sales environment have weighed heavily on businesses.

Companies listed on the London Stock Exchange issued 66 profit warnings between April and June, EY-Parthenon revealed in its latest report.

It refers to official statements from companies whose shares are listed on the stock exchange that full-year profits will be materially below expectations.

The figure marks the highest second-quarter total in three years, when warnings soared to 166 in the aftermath of the Covid pandemic in 2020.

Furthermore, 17.9% of all UK-listed firms have lowered their profit expectations in the past year, the highest proportion outside the pandemic since the 2008 financial crisis, the report revealed.

Businesses are coming up against high levels of inflation and rising interest rates, which has made it more expensive to borrow.

Changing credit conditions accounted for a fifth of profit warnings during the quarter.

Falling sales were cited in a substantial 59% of total warnings, as struggling businesses faced waning demand among consumers and customers experiencing higher living costs.

There was also an uplift in listed companies issuing multiple profit warnings, with 36 companies entering the three-warning “danger zone” in the last year, EY-Parthenon said.

The analysis found that, of those companies which have not already been forced to de-list after issuing three profit warnings, a combined debt level of £2.8 billion is due in the next two years.

The combined debt of companies that have issued two warnings over the past year hit £7.8 billion, it revealed.

Jo Robinson, a partner at EY-Parthenon, 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.

“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.”

Companies across different sectors have cautioned investors over their financial results in recent months.

AIM-listed Hotel Chocolat issued its second profit warning in two months last month after seeing lower sales than it expected during the crucial Easter period.

Recruitment firm Robert Walters also warned over its full-year profits in June, after downgrading its previous year’s results in January, having faced a weakening jobs market and lower candidate confidence.

Meanwhile, fashion retailer Superdry said it has been in talks over an equity raise in a bid to shore up its balance sheet in the face of rough trading, on top of efforts to slash costs across the business.

The firm issued a profit warning for the second time this year as a result of worse-than-expected sales.