FTSE [Financial Times Stock Exchange] retailers have issued a total of five profit warnings during the second quarter of 2023, bringing the total warnings for the first six months of the year to ten, as stated in EY-Parthenon’s latest report.
This figure represents a decrease from the 16 warnings issued by FTSE retailers during the same period in 2022.
Six out of the ten companies in the “three warning danger zone” are either from FTSE retailers or the FTSE personal care, drug and grocery sectors. These businesses might face vulnerability if cost-of-living concerns persist and continue to impact consumer incomes and spending.
Companies within FTSE sectors such as consumer staples, including supermarkets and fast-moving consumer goods companies, have experienced a substantial decline in the number of profit warnings.
Only six warnings were reported in the first half of 2023, compared to the 19 recorded in H1 2022.
National profit warnings reach three-year high
But the number of profit warnings issued by UK-listed companies between April and June 2023 reached the highest second-quarter total in three years, with 66 warnings issued nationwide.
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EY-Parthenon’s report reveals that UK-listed companies have experienced a year-on-year increase in profit warnings for seven consecutive quarters, the longest streak since 2008.
The highest number of second-quarter warnings on record was in 2020, with 166 warnings issued.
Persistent inflation and rising interest rates have played a significant role in the increase of profit warnings during Q2. These factors have created a tighter and more expensive lending environment.
Changing credit conditions were mentioned in 20% of profit warnings during the quarter, the highest proportion since Q2 2008 and an increase from 9% in Q1 2022.
Challenges for UK businesses and the refinancing landscape
Jo Robinson, EY-Parthenon partner and United Kingdom and Ireland turnaround and restructuring strategy leader, highlights the challenges faced by UK businesses since 2021. Rising interest rates have altered credit conditions, impacting companies that need to refinance.
The effects of a more expensive borrowing environment are being felt, particularly in sectors heavily reliant on credit availability. While some businesses have postponed challenges by locking in low interest rates, credit costs and availability are expected to play an increasingly significant role in restructuring activity.
Insolvency activity is likely to peak in the next nine to twelve months following a profit warning peak.
The report emphasises the importance of businesses reshaping their operations to endure future shocks and seizing growth opportunities in this challenging economic landscape.