British listed companies issued the fewest number of profit warnings in over two decades in the second quarter of this year, according to new figures released today.
Research by EY shows UK listed businesses issued 32 profit warnings in the second quarter of 2021, the lowest quarterly total the firm has recorded.
The low levels of warnings can be partly attributed to a combination of the UK economy recovering quicker than expected and government support schemes protecting companies’ bottom lines, EY said.
Over the last year, listed companies have issued both the highest and lowest number of quarterly profit warnings since the EY-Parthenon Profit Warnings report started 22 years ago. In the first quarter of 2020, listed firms issued 301 profit warnings.
Companies may struggle to capitalise on the sharp global economic rebound due to supply chain bottlenecks and surging commodity and raw materials price rises eating into margins, EY noted.
lan Hudson, EY-Parthenon UK&I turnaround and restructuring strategy leader, said: “Two of the most immediate challenges stem in part from the strength of the recovery.”
“Rapid increases in global demand have triggered sharp increases in raw material prices, shipping delays, supply bottlenecks and labour shortages — exacerbated in some cases by the impact of Brexit and ongoing pandemic restrictions. This may be a temporary headwind, but it will put pressure on working capital and limit some companies’ ability to fully capitalise on the recovery.”
Hudson highlighted that some firms are likely to struggle with increased costs after government support schemes are wound down.
“Companies reliant on Government support could face a significant cash squeeze — especially where costs are high, and demand remains uncertain or constrained.”
Falling levels of support and rising costs will sharpen scrutiny on companies’ cash flow management.
Hudson said: “There is an artificiality about the current situation, and we won’t know how deeply companies are affected until all the props fall away and they feel the full extent of the changes in their markets.”
Industrials posted the greatest number of profit warnings of all sectors, issuing 11 warnings in the second quarter.
Disruption to supply chains and limited quantities of raw materials were cited as the main reasons for issuing the warnings.