Profit warnings fall across North West’s listed companies

The number of listed companies in the North West issuing profit warnings during the second quarter of 2023 fell by nearly half on the previous quarter, according to EY-Parthenon’s latest profit warning report.

Just five listed businesses in the region issued profit warnings between April and June 2023, down from nine in the first three months of the year. The figure was also down compared against the same period in the previous year.

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

“Profit warnings from listed companies in the North West have fallen year-on-year and it’s pleasing to see businesses in the region displaying resilience against what continues to be a persistently challenging economic backdrop.

“However, the full economic effects of recent interest rate rises are still to come, and although inflation is expected to fall later this year, it remains persistent. Businesses in the region should therefore continue to place a strong emphasis on scenario and contingency planning amid an uncertain and volatile economic landscape.”

Despite the fall in profit warnings issued in the North West, that national picture saw UK listed companies at the highest second quarter level since the height of the coronavirus pandemic in 2020, with 66 warnings issued to shareholders.

Businesses highlighted persistent inflation and rising interest rates as the main reasons for issuing profit warnings, with changing credit conditions cited in one in five profit warnings, the highest level seen since the 2008 financial crisis.

Jo Robinson, EY-Parthenon Partner and UK&I Turnaround and Restructuring Strategy Leader, commented:

“The sustained rise in profit warnings over the last two years reflects the extraordinary mix of challenges faced by UK businesses over that timeframe. It’s now clear that the effects of these low-growth conditions are spreading to nearly all corners of the UK economy, and this quarter we’ve seen earnings pressure extend up the value chain into the mid-market.

“Rising interest rates have significantly changed credit conditions for companies that need to refinance, and 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. The number of businesses that had previously locked in low interest rates has postponed some of the challenges, but not indefinitely. 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.

“Insolvency activity typically peaks nine to twelve months after a profit warning peak. 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.”