UK profit warnings spur fears of insolvency wave as state support ‘cliff edge’ nears

The number of UK listed companies issuing their third profit warning within a 12-month period has nearly doubled in the last year, stoking fears of a wave of insolvencies on the horizon.

The figures from accountancy firm EY show 63 listed companies issued at least their third profit warning between March 2020 and March 2021 — almost double the 2019 total of 32.

EY said that companies were at a greater risk of going into administration in the 12 months following their third profit warning.

EY UK’s restructuring head Alan Hudson said: “As government support comes to an end, many firms could be tested to their ultimate limit.

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“Even stronger firms could face issues, and so supply chain resilience has never been more important. Disruption to even the smallest supplier could create significant challenges that ripple through the economy.”

The transition from government support “could require a wholesale shake-up of firms’ strategies, recapitalisation models and operations if they are to avoid hitting a financial cliff edge.”

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A third of the companies that have made three profit warnings in the last year have made a claim for two or more Covid-19 government support measures, the EY analysis said.

More than half (35) of these companies used the government’s furlough scheme in December 2020 and one third (21) are also using at least one other form of government support, including government-backed loans and/or the deferral of business rates and VAT.

In the same 12-month period 174 UK listed companies issued at least their second profit warning, with 42% (77) of those companies using the furlough scheme in December.

The travel and leisure sector was the most heavily represented with 23 companies, followed by retailers with 15 companies and industrial support services with eight firms.

The chaos of Covid-19 has also made forecasting difficult for companies, with 42% of FTSE 350 firms withdrawing their earnings guidance in the first half of 2020.

“We will very quickly see which companies took best advantage of the time to recalibrate and reposition themselves to secure future growth,” Hudson added.

To contact the author of this story with feedback or news, email James Booth

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