Profit warnings issued by listed companies in the North West nearly double quarter-on-quarter in Q1 2023

• Nine profit warnings were issued in Q1 2023 in the North West, up from five in Q4 2022
• Second-highest number of warnings in the North West since Q2 2020
• However, North West warnings down 40% year-on-year, from fifteen in Q1 2022
• Highest volume of North West profit warnings were issued by companies in FTSE Software and Computer Services sector

NORTH WEST, MONDAY 24th APRIL 2023: Profit warnings issued by UK-listed companies in the North West of England in Q1 2023 almost doubled quarter-on-quarter, according to EY-Parthenon’s latest Profit Warnings report.

Nine warnings were issued throughout the region in the first quarter of the year — the region’s second-highest total since Q2 2020 — up from five in Q4 2022.

However, despite the quarter-on-quarter increase, the region saw a 40% year-on-year decrease in warnings, down from the fifteen issued in Q1 2022.

The FTSE Software and Computer Services sector saw the highest volume of warnings issued in Q1 2023 (three), as pressures on the region’s technology industry intensified – in line with national trends.

Sam Woodward, EY-Parthenon UK&I Turnaround and Restructuring Partner in the North West, said: “After falling back again in Q4 2022, profit warnings from listed companies in the

North West increased in the opening months of 2023, with persistent economic headwinds continuing to weigh on businesses in the region.

“It’s been a challenging period for technology companies in particular, as businesses have cut costs and delayed purchasing decisions, creating uncertainty and volatility around demand.

“Only London and the South East saw more profit warnings issued in Q1 than the North West, which emphasises the extent to which businesses across the region are feeling the effects of ongoing economic challenges.

“Despite the economic outlook improving relative to what it looked like at the start of the year, scenario planning and stress testing will be key for businesses going forward.”

National profit warning figures

UK-listed companies issued 75 profit warnings between January and March 2023, the highest first quarter total since the early stages of the pandemic in 2020,

EY-Parthenon’s latest Profit Warnings report reveals that the number of warnings issued in the first quarter of 2023 exceeded the 72 issued in Q1 2022 and that quarterly profit warnings have remained above the 10-year quarterly average, excluding 2020, for five consecutive quarters. The highest number of Q1 warnings was in 2020, when 305 were issued.

Persistent economic uncertainty has played a significant role in many of these profit warnings. More than a third (35%) of profit warnings cited delayed, reviewed, or cancelled contracts, up from 21% in the same period in 2022, as customers paused or cut spending amid volatile and unreliable demand.

The report found that since the start of 2022, 98 companies have issued at least two profit warnings, while a significant cohort of UK companies have faced particularly challenging conditions after entering the three warning ‘danger zone’. Of the 31 companies that have issued three warnings since the start of 2022, 29% have since delisted or are in the process of being sold. This marks a greater-than-average market dropout rate, as typically just one-in-five companies delist within a year of their third warning, most due to insolvency.

Technology and Telecoms warnings at a three-year high as sector faces volatility

One-in-five (22%) of Q1 profit warnings were issued by UK-listed companies in the technology and telecommunications sectors with warnings almost tripling year-on-year to 16 in total.

FTSE Software and Computer Services companies issued nine profit warnings in total, the sector’s highest level of warnings since Q2 2020, while warnings from telecoms sectors were the highest since 2018. These sectors have been particularly vulnerable to cost-cutting and uncertain demand, with contract issues cited in over two-thirds (69%) of technology and telecommunications sector warnings.

Many technology companies have also faced difficulties in accessing capital, as increased interest rates, recent turbulence in the global banking markets and other external headwinds create a challenging fundraising environment.

Will Fisher, EY UK Strategy and Transactions TMT Leader, comments: “Significant disruption and uncertainty, particularly in consumer facing markets, is having a knock-on effect on the TMT sector as businesses revaluate their cost bases and delay purchasing decisions. The result is short-term revenue growth challenges for TMT companies, many of which are also trying to prioritise profitability and cash flow as they face a tighter and more expensive lending environment.

He continued: “To navigate these revenue growth and profitability challenges, TMT companies need to look at how they can manage costs and pricing, reduce supply chain vulnerabilities, focus on talent retention and recruitment, and continue to adapt to their customers’ needs – including those on sustainability. Given the uncertain timetable, they may need to take tough decisions about whether they cut costs to protect their funding position, potentially at the expense of their ability to quickly capitalise on the return of revenue growth opportunities.”

A reprieve for retail but challenging times ahead

Remaining sectors with the most warnings in Q1 2023 were FTSE Retailers (5), FTSE Travel & Leisure, and FTSE Electronic & Electrical Equipment, FTSE Pharmaceuticals & Biotechnology, and FTSE Media (all with 4).

The five warnings from FTSE Retailers marks a decrease from the nine issued in both Q4 2022 and Q1 2022, representing the sector’s lowest quarterly total since Q4 2020. However, persistent inflation, high interest rates and tightening consumer spending will challenge an already delicate sector.

Almost a third of listed retailers (30%) have issued two or more profit warnings since the start of 2022, well above the 8% all-sector total. Of the consumer sector companies that moved into the ‘three warning’ danger area since the start of 2022, 30% have gone into administration or have been put up for sale.