business

Profit Warnings Issued By Listed Companies In Yorkshire See Year-On-year Increase

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Ten profit warnings were issued by UK-listed companies in Yorkshire in Q3 2023, up from nine in the same period last year, according to EY-Parthenon’s latest Profit Warnings report.

The ten profit warnings issued by companies based in the region between July and September 2023 was the highest quarterly total since Q1 2020 and represented a quarter-on-quarter increase from the nine warnings issued in Q2 2023.

The number of warnings issued over the first three quarters of 2023 in Yorkshire (27) is also almost a third higher than the same period last year, when there were 21 warnings issued between Q1-Q3.

The total volume of profit warnings issued across the UK by listed companies during the third quarter (76) was down 12% year-on-year.

Similar to the broader national trend, Yorkshire companies operating in industrial FTSE sectors issued the region’s highest number of profit warnings (three) in Q3 2023.

Tim Vance

The third quarter of 2023 was a challenging period for listed businesses in Yorkshire, with volumes of profit warnings high by historical standards. Companies operating in industrial FTSE sectors in the region faced particularly marked challenges as the effect of high borrowing costs continued to weigh on business and consumer confidence.

We are seeing pressure in certain areas of construction where housebuilders are seeing fluctuations in demand as high mortgage costs, the cost of living and inflationary pressures are deterring buyers. Retailers selling ‘big ticket’ home improvement products are also under pressure, with some well-publicised recent insolvencies in the region being driven by softening consumer demand and a post-pandemic market retraction.

The volume of profit warnings issued across the region has remained consistently high over the last year, and Yorkshire once again recorded one of the highest volume of warnings across all UK regions in the third quarter. With the lagged effect of high interest rates likely to continue having a significant impact on the UK economy going forward, stress testing and scenario planning will continue to be crucially important for Yorkshire’s businesses.
Tim Vance, EY-Parthenon UK&I Turnaround and Restructuring Partner in Yorkshire.

National profit warning figures

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 Crisisquarterly 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, 17.8% 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.”