Number of FTSE profit warnings hits lowest level in years

18 July 2024 Consultancy.uk

The number of profit warnings of UK-listed companies has dropped to its lowest level in three years, signalling a further recovery of the economy. This according to the latest Profit Warnings report from EY-Parthenon.

The report from the strategy consultancy found that profit warnings from listed companies in Q2 fell 26% compared with Q2 2023. The highest number of Q2 warnings recorded by EY-Parthenon was in 2020, when 166 were issued.

Leading factors behind many Q2 profit warnings included contract issues and spending delays. As companies contended with increasing labour and supply expenditure, cost pressures rose as a key factor in profit warnings for the first time in more than 12 months.

Number of FTSE profit warnings hits lowest level in years

While overall profit warnings fell in the second quarter of 2024, there were a number of sectors where warnings remained high, revealing persistent and developing challenges.

Companies within FTSE Industrial Support Services, which encompasses business service providers, industrial suppliers and recruitment companies, issued 10 warnings in Q2 2024, accounting for 20% of all UK profit warnings during the period. Of the 19 warnings issued by the sector in 2024, eight have come from business services providers, seven from recruitment and training companies and four from industrial suppliers.

“The Industrial Support Services sector is heavily reliant on business and public sector spending and is particularly vulnerable to economic fluctuations and cost-cutting measures. With 19 warnings so far in 2024, companies have cited decreased sales, challenging contract negotiations, and budgetary pressures as key concerns,” said Dan Hurd, partner at EY-Parthenon.

Number of FTSE profit warnings hits lowest level in years

Warnings were also seen across Software and Computer Services (5), Retailers (4), Household Goods and Home Construction (4) and Finance and Credit Services (3).

Financial challenges?

Jo Robinson, partner at EY-Parthenon, said that while the economy is expected to continue its recovery, the rebound will be uneven, with some companies to struggle in the current environment.

Illustrating this, in the last year, 35 companies have issued at least their third warning. Of these companies, 12% have already gone into administration or a debt restructuring process, while 9% have been sold or are in a sale process.

Number of FTSE profit warnings hits lowest level in years

“An unprecedented rollcall of global elections and geopolitical risks means that an element of uncertainty remains, potentially exerting further pressure on companies,” Robinson said.

“We have started to see more companies coming back to the restructuring table because they haven’t made the fundamental changes needed to adapt their operations and balance sheets to new demand, cost and competitive realities. Refinancing is a growing risk, with many companies surprised by the added levels of due diligence and time needed to refinance in this market.”

“So, all in all, the profit warning cycle may have turned, but we are at the start of the restructuring one.”