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One in five publicly listed companies in the UK issued a profit warning last year – the level remaining at the third-highest of any point in the previous 75 years. The only times those levels have been eclipsed beforehand were during the 2020 Covid pandemic and following the aftermath of the dot-com bust and 9/11 in 2001.
Research from EY shows that 19 per cent of businesses sounded the alarm during the course of the year, for a total of 274 warnings, continuing the theme from 2023 when 294 profit warnings were sent out.
A profit warning is much as it sounds – it’s the term given to an announcement made companies listed on the stock market that their anticipated profits are likely to be lower than the guidance they previously gave out. Listed companies are obligated to inform shareholders over the income they expect to generate over the coming quarters or years.
This can be as a result of a range of factors, from changing consumer habits or increased costs in raw materials, to wider geopolitical or economic conditions.
The biggest reasons given this time around by companies after lowered profit guidance included contract and order cancellations or delays, with 34 per cent of companies citing this as a key driver of changed expectations.
In terms of industries most affected, industrial support suppliers and business service providers were top of the list, with recruitment companies also hardest hit.
FTSE Retailers issued 20 profit warnings across the year, EY’s data shows, which although is a small decrease from last year, still represents 38 per cent of companies in that sector.
Retail is expected to be one area particularly hard-hit from April, when new labour costs will come into force as a result of changes to National Insurance contributions and wages.
Several high-street retailers have already indicated they plan to pass on increased bills by way of price hikes, of varying amounts.
“It’s clear that companies have faced an extraordinary succession of forecasting challenges since the pandemic, contending with interconnected disruptions to supply chains, material and energy costs, and the labour market, as well as higher interest rates,” said Jo Robinson, EY-Parthenon Partner and Restructuring Strategy Leader.
“2024 was also an exceptional year for global geopolitical uncertainty and policy upheaval, with a record level of profit warnings linked to contract and spending delays as businesses held back from recruitment and investment. As a result, companies’ forecasting strategies need to respond to both short-term policy changes and deeper structural issues.
“Ordinarily, a sustained increase in company earnings pressures would be followed by a significant rise in insolvencies. But this cycle has been different. The availability of cheap, long-term debt and pandemic support provided breathing space for both businesses and stakeholders to explore consensual solutions and new restructuring options. However, more companies are now reaching a tipping point as cumulative pressures build.
“We don’t expect a huge uptick in insolvency levels in 2025, but we are now seeing more distress, and more stakeholders viewing insolvency processes as a real option in finding the best path forward.”
