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  • Writer's pictureMark Watson-Mitchell

Investment Week reports that UK company profit warnings spike 50% in 2022 - 17.7% of firms

UK company profit warnings spike 50% in 2022 17.7% of firms Author Elliot Gulliver-Needham reported that out of the 305 profit warnings issued, half (152) were issued due to rising costs, double the share of 2021.

Profit warnings from UK-listed companies spiked by 50% last year, as surging inflation and falling consumer confidence ate into margins. 17.7% of the UK's 1,193 listed businesses issued a profit warning throughout 2022, equal to the proportion who did so during the 2008 global financial crisis, analysis by EY Parthenon has revealed.

According to EY-Parthenon's latest Profit Warnings report, consumer-facing sectors were particularly hard hit, with 36% of UK-listed companies in consumer sectors issuing a profit warning during the year, up from a fifth in the year before. Within consumer sectors, profit warnings came from 48% of FTSE retailers, 60% of FTSE personal care, drug and grocery stores companies and 30% of FTSE food producers, with the latter reaching a 16-year high.

FTSE retailers issued the highest number of warnings throughout the year at 36, followed by FTSE travel and leisure (25), FTSE software and computer services (18), FTSE industrial support services (17) and FTSE personal care, drug and grocery stores.

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The research also found that out of the 305 profit warnings issued, half (152) were issued due to rising costs, double the share of 2021. In the last quarter of the year, 83 profit warnings were issued, with 41% of citing rising costs, 24% delayed or cancelled contracts, and 20% weaker consumer confidence.

Meanwhile, 11% of profits warnings cited "credit tightening" as a factor, the highest level since the global financial crisis, indicating that rising interest rates are already starting to slow the economy.

EY also warned that throughout the year, 31 companies issued their third consecutive profit warning, compared to 23 in 2021. Of those warnings for a third time last year, 13% have already gone through a restructuring process, 19% have breached covenants, and 35% have changed CEO or CFO.

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Jo Robinson, EY-Parthenon partner and UK & I turnaround and restructuring strategy leader, said:

"2022 was a challenging year for UK companies with rising operational costs, changing consumer behaviour, and the cost-of-living crisis having an acute impact on consumer-facing sectors.

"We are now seeing stress deepen and spread into other areas of the economy, such as industrial sectors, which saw the biggest rise in warnings in Q4. Cost pressures are passing through supply chains, business confidence is weak, and credit markets are tightening."

Sam Woodward, turnaround and restructuring strategy partner at EY, added:

"The challenges for food producers don't look set to ease significantly in 2023. Although energy prices have fallen back from their 2022 peak, they remain historically high and ingredient prices and supply problems still affect the sector.

"Although food is one of the most resilient areas of consumer spending, it's not immune to corporate distress, especially in discretionary categories."

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