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Gloucestershire Business News

Profit warnings issued by South West-listed companies doubles

The number of profit warnings issued by listed companies in the South West doubled to six in Q2 2022 - up from three in Q1.

Half of all warnings were due to rising costs or supply chain issues, according to EY-Parthenon's latest Profit Warnings report.

Nationally, the report reveals that in the first six months of 2022 136 profit warnings were issued by UK-listed companies, up from 82 in the first six months of 2021 with a record number of companies citing rising costs as the reason behind their warning.

Despite the increase in profit warnings from listed companies in Q2, the South West bucked the national trend as the number of warnings issued in the first six months of 2022 overall fell from 11 in H1 2021 to nine in H1 2022.

Of the warnings issued in Q2 2022, a record 58 per cent of companies cited rising costs as one of the main reasons behind the warning, up from 43 per cent in Q1, while 19 per cent noted labour market issues.

In total, of the 1,222 UK-listed companies, 70 have issued at least two consecutive warnings in the last 12 months. On average, one-in-five companies delist within a year of their third warning, most due to insolvency.

The FTSE sectors with the highest number of warnings in Q2 2022 were Travel and Leisure (eight), Retailers (seven), and Personal Care, Drug and Grocery Stores (seven) - all of which have been significantly affected by rising costs, supply chain issues and staff shortages.

Despite also contending with an increase in cost, labour, and supply chain stresses, FTSE Construction and Material companies issued just three profit warnings in H1 2022, with many larger companies able to absorb or pass on price increases and leverage their buying power to avoid material shortages.

Lucy Winterborne, partner, turnaround & restructuring strategy at EY-Parthenon in the South West and Wales, said: "Companies are facing a myriad of headwinds that will challenge even experienced management teams. In Q2 2022 we moved into yet more uncharted territory as inflation and interest rates reached multi-year highs while consumer confidence fell to record lows - all against a backdrop of geopolitical tension.

"Over the first half of this year, we have seen profit warnings prompted primarily by cost and supply chain issues, but as we start to see a fall in consumer demand and confidence, it is likely that other underlying stresses will become exposed.

"The majority of profit warnings issued by South West-listed businesses in H1 2022 came from FTSE Aerospace and Defense companies, a key sector for the region. While certain parts of this sector, such as commercial aerospace, should benefit from pent-up consumer spending on travel, rising fuel costs and difficulties employing and retaining staff across the whole air travel ecosystem have disrupted the recovery. The difficulty for many will now be forecasting demand given the expected slowdown in consumer spending in the autumn.

"Businesses will need to prepare for lower growth, tighter capital and significant market volatility in the coming months. As profit warnings and stress levels rise, we're starting to see more companies issue multiple profit warnings and a return of companies approaching the 'three warning rule'."

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