Profit companies

Number of companies issuing profit warnings doubles as inflation soars

The number of profit warnings issued by companies in the South West has doubled in the past three months as they continue to be hit by rising prices, supply problems and falling spending on consumption. Six profit warnings were issued by publicly traded West Country companies in the second quarter of 2022, up from three in the first quarter of 2022, with half of all warnings due to rising costs or chain issues supply according to EY-Parthenon’s latest earnings warning report.

The companies were not named, but PlymouthLive reported last week that the city’s CMO Group Plc saw its shares fall dramatically after issuing a profit warning. Shares of the AIM-listed company continued to fall and hit an all-time low of 34.5p at the time of writing.

EY-Parthenon said companies in the South West involved in defense and aerospace were hardest hit. In early 2022, Babcock International Group Plc warned that the amount of cash at its disposal this year is expected to be “significantly negative” due to rising costs and expenses and that its share price is still down this quarter and from 9.7% compared to last month.

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Nationally, the report reveals that in the first six months of 2022, 136 profit warnings were issued by UK-listed companies, compared to 82 in the first six months of 2021, a record number companies citing rising costs as a reason for their attention. Despite the increase in profit warnings from listed companies in the second quarter, the Southwest bucked the national trend, with the number of warnings issued in the first six months of 2022 overall falling from 11 in the first half of 2021 to nine in the first half of 2022.

Among warnings issued in Q2 2022, a record 58% of businesses cited rising costs as a top reason for the warning, up from 43% in Q1, while 19% cited issues to the labor market. In total, of the 1,222 companies listed in the UK, 70 have issued at least two consecutive warnings in the last twelve months. On average, one in five companies withdraw from the list within a year of their third warning, most of them due to insolvency.

Lucy Winterborne, Partner, Turnaround and Restructuring Strategy at EY-Parthenon in South West & Wales, said: “Businesses face a myriad of headwinds that will challenge even experienced management teams. . In the second quarter of 2022, we entered even more uncharted territory as inflation and interest rates hit multi-year highs while consumer confidence fell to record lows – all against a backdrop of stress. geopolitics. In the first half of this year, we saw earnings warnings driven primarily by cost and supply chain issues, but as we begin to see a drop in demand and consumer confidence, it is likely that other underlying tensions will be exposed.

“The majority of profit warnings issued by listed companies in the South West in the first half of 2022 came from FTSE aerospace and defense companies, a key sector for the region. While parts of this sector, such as commercial aerospace, stand to benefit from pent-up consumer spending on travel, rising fuel costs, and difficulties in employing and retaining staff across the ecosystem air transport disrupted the recovery. The difficulty for many will now be predicting demand given the expected slowdown in consumer spending in the fall.

“Companies will need to prepare for lower growth, tighter capital and significant market volatility over the coming months. As earnings warnings and stress levels rise, we are starting to see more and more companies issuing multiple earnings warnings and a return of companies approaching the “three warning rule”.

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