UK profit warnings rise for seventh quarter as high rates bite

LONDON – The number of profit warnings issued by British-listed companies has risen for the seventh consecutive quarter in the April-June period, marking the longest streak since the global financial crisis. 

Companies listed on British exchanges have issued 66 profit warnings in the second quarter as they contend with “slow-rolling economic uncertainty” and rising interest rates, according to a report by Ernst & Young’s strategy consulting arm EY-Parthenon. The warnings cited factors including falling sales, contractual issues and changing credit conditions, the report said. 

For the past year or so,

the British economy has been grappling with surging inflation

and rising interest rates as the Bank of England tried to rein in the increase in prices, so far without much success. The report, published on Wednesday, raises more questions about Britain’s economic outlook, especially as companies face rising debt costs. 

“Insolvency activity typically peaks nine to 12 months after a profit warning peak,” said Ms Jo Robinson, a partner at EY-Parthenon and head of UK and Ireland Turnaround and Restructuring.

“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.”

In the last year, around 18 per cent of British-listed companies have issued a profit warning, the highest level since 2008, not counting the extraordinary circumstances during the Covid-19 pandemic.

Widespread pain

The pain is beginning to spread across the whole economy; while consumer-facing sectors were leading the charge in terms of profit warnings in earlier periods, the industries with the most warnings in the second quarter were industrials and construction and materials, according to EY-Parthenon. 

Between April and June, 29 per cent of the companies issuing a profit warning were doing so for at least the third time in 12 months.

Among companies with three profit warnings in a year, 22 per cent have delisted or are in the process of doing so, mostly through administration or a distressed sale.

The rest are dealing with nearing debt maturities in a challenging credit environment. 

“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,” Ms Robinson said.

“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,” she added. BLOOMBERG