North-west profit warnings fell 46% in 2021

The number of profit warnings recorded by North-west listed firms fell 46% in 2021, compared with 2020 figures, according to the latest EY-Parthenon report.

Just 26 profit warnings were issued by publicly listed companies in the region throughout 2021, compared with 48 in 2020; however, warnings were concentrated in the final quarter of the year with 15 were issued in Q4. The spike in profit warnings at the end of the year has been put down to supply chain disruption and rising prices.

Sam Woodward, EY-Parthenon Turnaround and Restructuring Strategy Partner in the North West said:

“In 2021, the majority of North West businesses issuing profit warnings did so in the fourth quarter, with warnings up 12 from the fourth quarter of 2020. In line with the rest of the UK, one of the most affected sectors has been retail, with five retailer warnings in Q4 2021 alone.

“Companies bounced back well from the pandemic in the first half of 2021 with healthy headline growth, but during the second half an increasing number of companies were issuing profit warnings as forecasting and earnings challenges evolved and multiplied.”

The picture in the North-west was repeated throughout the UK, with the total number of profit warnings falling from a record 583 in 2020 to just 203 in 2021. The FTSE Aerospace & Defense (57%), FTSE Personal Care, Drug & Grocery Stores (39%) and FTSE Retailers (34%) were the most affected sectors, and have all faced supply chain challenges in the latter half of 2021.

Sam Woodward continued:

“The biggest driver of warnings in 2022 is likely to be the rise in inflationary pressures and its impact on disposable incomes and margins. We have already recorded profit warnings relating to rising energy prices. Labour shortages and wage increases are also beginning to feature more in company concerns, especially in logistics, hospitality and healthcare – including care homes.

“We expect to see more restructuring activity in 2022 as the last government support measures fall away and businesses feel the full force of, not only economic and structural pressures, but the increasing focus on Environmental, Social, and Governance (ESG) metrics, as funders increase their focus on supporting ‘sustainable’ businesses. The ability to demonstrate purpose and long-term value has never been so vital.”