North’s listed businesses issue far fewer profit warnings

Listed businesses in the North issued five profit warnings in the third quarter of 2021, down 44 per cent from the nine recorded in the third quarter last year, according to EY-Parthenon’s latest Profit Warnings report.
Tim Vance, EY Parthenon UK&I turnaround and restructuring leader in Yorkshire and the North EastTim Vance, EY Parthenon UK&I turnaround and restructuring leader in Yorkshire and the North East
Tim Vance, EY Parthenon UK&I turnaround and restructuring leader in Yorkshire and the North East

The number of warnings issued between July and September is the lowest of any quarter since 2014 with supply chain and cost-related issues cited in four out of five of the warnings.

Tim Vance, EY Parthenon UK&I turnaround and restructuring leader in Yorkshire and the North East, said: “Although profit warnings issued by listed companies in the North have fallen, it’s clear that businesses are facing significant challenges with their supply chain and cash stresses that have cascaded through the economy.

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“Over the last 18 months, Government support has mitigated the impact of massive changes in the UK economy. These measures have now come to an end and the remainder of the year will reveal those surviving on life support, as the Government removes most, but not all of its props.”

Firms in the FTSE Consumer Discretionary sectors – including retailers, travel and leisure – issued the most warnings in the North.

Whilst profit warnings in the North fell, the overall number issued by UK listed companies rose to 51 in the third quarter of the year, as threats to growth and profitability increased.

The report revealed that whilst a post-pandemic demand surge boosted sales for many businesses over the summer months, it has also exposed vulnerabilities in supply chains and energy and labour markets, with 43 per cent citing these pressures as the reason for their profits warning.

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Nearly two-fifths (39 per cent) of the companies warning were also affected by the fallout of Covid-19 – down from 72 per cent in the previous quarter.

The report said that whilst the direct impact of the pandemic is waning, the increase in supply and cost pressures and the end of Government furlough support will add to the challenge – especially for sectors where demand hasn’t yet returned to pre-Covid-19 levels.

The report revealed that profit warnings are rising in consumer-facing sectors as the impact of rising energy prices, supply bottlenecks and labour shortages spread across the economy.

Joanne Robinson, EY-Parthenon partner, turnaround and restructuring strategy, said: “Just as we’re seeing increased investor reaction to profit warnings in the wake of greater economic peril, we’re also seeing investors react to greater climate peril.

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"There’s no doubt that companies face a potentially difficult transition period where they’ll need to manage and time new investments, whilst also maintaining some legacy businesses.

“Companies need to strengthen their social licence to attract new customers and talent. The sustainability challenge will provide the impetus to innovate new products, services and business models that will be more valuable and resilient in the long-term. But the journey – as we can see in the UK energy market – won’t be easy.”