Profit warnings from listed businesses in the North West fall year-on-year

Profit warnings issued by UK-listed companies in the North West of England in Q2 2023 almost halved quarter-on-quarter, according to EY-Parthenon’s latest Profit Warnings report.

Five warnings were issued throughout the region in the second quarter of the year, falling from nine in Q1 2023.

The region also saw a marginal year-on-year decrease in profit warnings, down from six in Q2 2022.

Nationally, profit warnings issued by UK-listed companies between April and June 2023 marked the highest second quarter total in three years, with 66 warnings issued.

While most national profit warnings were issued by industrial sectors, warnings in the North West were spread across a range of industries including consumer, healthcare and technology.

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.”

National profit warning figures

Warnings from all UK-listed companies rose year-on-year for the seventh consecutive quarter, the longest run of consecutive quarterly increases since 2008. The highest number of Q2 warnings recorded by EY-Parthenon was in 2020, when 166 were issued.

Changing credit conditions were cited in one-in-five (20%) profit warnings during the quarter, the highest proportion since Q2 2008 and up from one-in-ten (9%) in Q1 2022.

Jo Robinson, EY-Parthenon Partner and UK&I Turnaround and Restructuring Strategy Leader, comments: “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.”

The sectors with the most warnings in Q2 2023 were FTSE Industrial Support Services (seven), FTSE Construction and Materials (six), followed by FTSE Retailers (five) and FTSE Pharmaceuticals & Biotechnology (five).

Warnings from industrial FTSE sectors rose by 40% year-on-year as wavering business confidence has led to spending delays and cost cutting. Six of the seven profit warnings from the FTSE Industrial Support Services sector cited lower demand from business customers, including falling recruitment.