8:48 AM 13th November 2023
Profit warnings issued by listed companies in the North West fell by a quarter year-on-year in Q3 2023
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Six profit warnings were issued by UK-listed companies in the North West in Q3 2023, down from eight in the same period last year, according to EY-Parthenon’s latest Profit Warnings report.
Half of the profit warnings issued by listed businesses in the North West during Q3 2023 were from companies operating in industrial sectors. Similarly, industrial companies issued the second-highest number of warnings across the UK (20), with only consumer discretionary companies (21) issuing more.
The number of profit warnings issued by listed companies based in the North West during Q3 2023 represented a quarter-on-quarter increase, with five warnings issued by companies in the region in Q2 2023. However, the number of warnings issued over the first three quarters of 2023 in the North West (20) is 31% down on last year, when there were 29 warnings issued between Q1 and Q3.
Nationally, UK-listed companies issued 76 profit warnings between July and September 2023, marking the first time the quarterly total has fallen year-on-year since 2021.
Profit warnings from industrial FTSE sectors rose across the UK during Q3 2023, so it’s unsurprising to see that reflected in the North West, where companies in this sector are particularly prevalent.
National profit warning figures
While it is positive to see the total number of warnings issued in the North West and nationally has fallen compared to this time last year, the levels for both remain higher than normal. Going forward, the lagged effect of high interest rates will likely have a significant bearing on how businesses perform, and consequently the level of warnings we expect to see going forward. Scenario planning and stress testing should therefore continue to be a priority for businesses in the North West amid a challenging economic backdrop.
Sam Woodward, EY-Parthenon UK&I Turnaround and Restructuring Partner in the North West.
Prior to Q3 2023, warnings issued by UK-listed companies had risen year-on-year for seven consecutive quarters, the longest run of consecutive quarterly increases since 2008. UK-listed companies issued 86 warnings in Q3 2022 and 51 in Q3 2021. Despite the year-on-year fall, the number of Q3 2023 profit warnings remains 18% higher than the post-Global Financial Crisis quarterly average.
The report reveals that persistent inflation and rising interest rates continue to put significant pressure on UK businesses. A third (33%) of the warnings in Q3 2023 cited tougher credit conditions as a factor — the highest level recorded by EY-Parthenon since 2008.
Broader economic uncertainty also played a role across many of this quarter’s warnings, with 21% citing delayed or cancelled contracts and 18% citing weaker consumer confidence. One-in-five (20%) of Q3 warnings cited the slowing housing market as a factor, while the same number (20%) referenced cost pressures.
In the last 12 months, 18% of UK-listed companies have issued a profit warning.
Jo Robinson, EY-Parthenon Partner and UK&I Turnaround and Restructuring Strategy Leader, commented:
“While it’s encouraging to see UK profit warnings fall for the first time in two years, the growth of credit-related warnings indicates that pressure on businesses is unlikely to ease for the foreseeable future. In fact, we’re seeing economic stresses extend up the value chain, spreading to mid-market companies.
“It’s clear from this data that the steepest rise in interest rates in 40 years continues to take its toll, with a high proportion of warnings due to an increasingly expensive borrowing environment. This poses a risk for companies that are due to refinance and we’re already seeing this affect sectors where credit is a key activity driver, such as in the housing market.
“Unlike 2008’s Global Financial Crisis, today’s companies, banks and consumers all have stronger balance sheets and extended debt maturities, which will continue to stagger the effect of base rate rises. This adds a layer of resilience but shouldn’t create overconfidence. Businesses that are at risk should act immediately to reshape operations to withstand future shocks. Delaying action risks damaging business value, particularly in this fast-moving market.”