Proactive Investors - UK-listed companies issued 294 profit warnings in 2023, representing 18.2% of all companies listed on the London Stock Exchange, surpassing the 17.7% rate seen during the 2008 financial crisis peak.
Data published by EY-Parthenon on Monday showed that over a quarter of these warnings were attributed to delayed contracts or decisions, while 19% were due to increased costs. A further 19% cited the impact of higher interest rates.
A profit warning is an official announcement made by a publicly listed company to inform shareholders and the market that its profit results will be significantly below expectations.
Margin-sensitive smaller companies bore the brunt of the profit warnings at the start of 2023, but larger companies steadily grew in prominence as the year progressed.
By the fourth quarter, one third of profit warnings originated from companies valued at £1 billion or more.
Half of all leisure goods companies were forced to issue a profit warning, underscoring the financial stress of companies in the discretionary sectors.
Two in five retailers issued profit warnings, while household goods, home construction, chemicals, software, industrial support services and media were also prominent in the data.
George Mills, partner and special situations debt advisory Lead at EY, commented: “At the end of 2023 we saw a rising number of warnings from sectors at the foundation of supply chains, like chemicals, and those reliant on business confidence, such as recruitment.
“Consumer spending on staples has recovered, but an elevated level of warnings in FTSE retailers highlights the persistent strain on discretionary spending.
Mills contended that traditional funders will be cautious about investing in sectors with high consumer discretionary exposure.
He said: “Businesses will need to demonstrate strong historical performance as well as robust forecasts capable of withstanding a future downturn if they want to refinance on the best terms.
“If not, they risk encountering challenges when refinancing and may have to explore other avenues for capital, such as turning to alternative lenders or seeking equity injections.”