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The number of UK listed companies at risk of insolvency has doubled – EY Profit Warnings Report

In 2020, 62 UK listed companies issued their third consecutive profit warning A record 35% of UK quoted companies issued profit warnings last year, with a total of 583 warnings Fourth quarter profit warnings fell to a decade low in 2020, camouflaging hidden stresses

Tuesday 23 February 2021

The number of UK listed companies at risk of insolvency has doubled – EY Profit Warnings Report
  • In 2020, 62 UK listed companies issued their third consecutive profit warning
  • A record 35% of UK quoted companies issued profit warnings last year, with a total of 583 warnings
  • Fourth quarter profit warnings fell to a decade low in 2020, camouflaging hidden stresses

 

The number of UK listed companies at risk of insolvency has doubled in the last 12 months, according to data from the latest EY Profit Warnings Report.

 

In 2020, there was an increase in the number of UK listed companies issuing three or more profit warnings in a 12-month period – typically up to one in five of these companies enter Administration within 12 months of the third warning.

 

Sixty-two UK listed companies issued at least their third profit warning in 2020. These companies represent 5% of all UK listed companies, and 10% of the FTSE 350. The 2020 total (62) is almost double that of 2019 when there were 32 and is more than double the 31 recorded in 2018.

 

Andrew Dolliver, EY Strategy and Transactions Partner in Belfast said: “Many businesses in Northern Ireland and across the UK have been facing huge challenges for months with government support propping them up. While there is speculation these measures could be extended until the summer, we know the support can’t continue indefinitely.”

 

A total of 583 profit warnings were issued by UK listed companies in 2020, this is the highest annual total in 21 years of EY research. This historic high contrasts with very low levels of corporate insolvency.

 

Mr Dolliver added: “The increased level of profit warnings, particularly from the first half of the year, are at odds with the significantly low number of corporate insolvencies.  This would suggest that insolvencies have been deferred rather than avoided.  We are likely to see them once support measures are tapered off.

 

“The mission ahead for businesses is tough, but not insurmountable. Balance sheets and capital are a top priority. While many businesses have sustained or built cash reserves, they have done so by deferring significant outgoings and accessing government and bank support. When this support ceases, cash reserves may deplete rapidly to fund working capital, the return of staff, pay rent and rates, as well as service much higher levels of debt.”

 

Of the total 583 profit warnings issued by UK listed companies in 2020, 86% (499) were attributed to COVID-19. The sectors with the highest percentages of companies issuing profit warnings last year, were those most affected by the implications of lockdown restrictions on consumer behaviour – for example retail, travel and leisure. In 2020, 19% of FTSE Retailers issued their third or more profit warning, while the equivalent figure for FTSE Travel and Leisure was 16%.

 

Reshaping retail

 

Lockdown restrictions have significantly impacted traditional bricks-and-mortar retailers but new opportunities are opening-up as a result of evolving consumer trends, the rapid scaling-up of online operations and establishing a presence in new markets. Those with a good mix of digital, across multiple channels, and the capability to adapt quickly to customer demands have outperformed. For example, the shift away from formal and work wear to ‘athleisure’ has been a pocket of success within fashion.

 

Yvonne Kiely, Head of EY-Seren Ireland, commented: “While many retailers have traditionally  operated online in a very transactional way, customers now more than ever want to dial up the immersion, joy, and reward of their online experience, and they are willing to spend on it. Throughout 2020 we have seen consumer appetite for buying local increase and there has also been a huge uptick in demand for more from brands on both purpose and sustainability – these are no longer optional extras but should be considered intrinsic to retail. Understanding these changes and ruthlessly prioritising customer facing, revenue generating, and cost reducing activities and truthfully measuring these within retail organisations will be key to future success.”

 

Read the report in full here.

 

Tuesday 23 February 2021

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