North West profit warnings rose 31% in 2022

31% more listed companies in the North West issued profit warnings in 2022 compared to the previous year, according to a report by big four accountancy firm EY.

The EY-Parthenon Profit Warnings report reveals that 34 warnings were issued in 2022. The number is the highest seen since 2020 when the Covid-19 pandemic hit, and were above the level seen in 2008 at the peak of the financial crisis.

Retail was the most affected sector in the North West, with 10 businesses issuing profit warnings throughout the year, reflecting the national performance of the sector, which has been hardest hit by both inflation and a slowdown in consumer spending. Nationally, consumer-facing industries were the hardest hit, with over a third of UK-listed businesses in these sectors issuing a profit warning.

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

“2022 has been a challenging year for businesses across the UK, including here in the North West, with economic headwinds significantly affecting costs, consumer spending habits, supply chains and more.

“The impact of the cost-of-living crisis left the retail sector and consumer-facing companies facing an array of challenges throughout 2022, which is reflected in the North West’s profit warning figures.

“Ongoing headwinds for consumer-focused businesses continue to create an uncertain outlook, particularly given the EY ITEM Club Winter Forecast’s expectation that a deeper recession than first anticipated appears likely. Furthermore, as stresses begin to intensify in other sectors throughout the UK, scenario planning will become increasingly important going forward.”

Q1 2022 saw the highest volume of profit warnings in the North West last year, with 15 issued in total. Nationally, however, the second-half of these saw, at 169 profit warnings, the highest second-half total since 2015; this figure comes despite a strong festive trading period for many businesses.

Sam Woodward continued:

“Although festive trading was better than expected for many businesses, the bar was set low by exceptional levels of consumer sector profit warnings in 2022. The ‘golden quarter’, a vital period for consumer companies, included a winter World Cup along with the disruption from train and postal strikes. This backdrop created a further complex layer of challenges and opportunities in addition to ongoing cost, labour, inventory, and confidence issues for consumer-facing companies.  

“Supermarkets appear to have been the main winners of Christmas 2022, while many omnichannel retailers managed to flex their offering to adapt to the impact of industrial action and performed well. However, as EY’s latest Future Consumer Index underlines, it will be critical for companies to keep adapting and reflecting customer priorities, which for most consumers in the short-term, will be a compelling price proposition.”