Revenue warnings soar as UK firms battle with prices

Extra FTSE-listed firms have been compelled to problem revenue warnings this quarter than at any time for the reason that world monetary disaster greater than a decade in the past as the prices of doing enterprise within the UK has soared.

Corporations have confronted a poisonous mixture of hovering inflation — specifically vitality prices — concurrently demand comes underneath strain from worsening financial circumstances and rising rates of interest.

Evaluation by EY-Parthenon discovered that firms issued 86 revenue warnings within the third quarter of 2022, up from 51 in the identical quarter final yr and the best in that three-month interval since 2008. A revenue warning is an announcement to the inventory change that claims full-year income will likely be under market expectations.

Greater than half of the revenue warnings issued within the quarter had been brought on by rising prices, whereas 1 / 4 associated to labour shortages.

Client-facing sectors akin to retail and hospitality have been among the many hardest hit, accounting for over half of all warnings within the third quarter, whereas the autumn in valuations for know-how firms and people as soon as seen as “pandemic winners” has added to the concerns.

Price points featured in 70 per cent of consumer-facing sector warnings, with many firms saying they’re struggling to cross on worth will increase to prospects. Falling shopper confidence and altering shopping for behaviour had been flagged in half of them.

Many firms entered this yr with confidence because the worst results of the coronavirus pandemic had been ending, spurring hopes for a surge in demand amongst individuals who had been compelled to remain house. Nonetheless, the squeeze on incomes for the reason that summer time has hit these plans.

EY mentioned that there was now a “hazard zone” of 28 listed firms which have issued three consecutive revenue warnings previously yr, in contrast with 18 on the finish of the second quarter. It mentioned that on common, one in 5 firms delist inside a yr of their third warning, largely attributable to insolvency.

Corporations to have issued revenue warnings in latest weeks embody Royal Mail, Saga, Shell, Boohoo, Subsequent and Character Group.

Jo Robinson, EY-Parthenon companion, mentioned companies had been dealing with an “unprecedented mixture of headwinds together with rising prices, slowing demand and extra provide, making it more and more tough to steadiness competing priorities”.

The best variety of warnings within the third quarter was in 2001 when 133 had been issued.

Greater than 40 per cent of FTSE-listed retailers and greater than 60 per cent within the FTSE private care, drug and grocery shops sector issued a revenue warning previously 12 months, which EY attributed to spiralling value, provide chain and labour challenges, in addition to to falling shopper confidence.

Corporations within the FTSE journey and leisure sector issued 22 revenue warnings within the first three quarters of 2022, double the quantity issued in the identical interval in 2021.

Observers have additionally warned over the earnings outlook for subsequent yr. Analysts at Berenberg mentioned final week that the S&P 500, Stoxx 600 and FTSE 350 had been in net-downgrade territory for the primary time since 2020. However the financial institution added that it was “nonetheless early within the earnings downturn and [we] anticipate the load of downgrades to develop in coming months”.

“The price of debt for companies and households has risen amid a weakening demand image,” it mentioned. “On the similar time, enter prices stay elevated, labour markets are traditionally tight and geopolitical dynamics are growing the prices of doing enterprise.”