EY: Q4 brings surge in profit warnings from Scotland’s listed companies

EY: Q4 brings surge in profit warnings from Scotland’s listed companies

Kris Aspin

Scotland’s listed companies experienced a notable increase in profit warnings during Q4 2023, surpassing the combined warnings of the entire preceding year, as revealed by EY-Parthenon’s latest Profit Warnings report.

Ten profit warnings were issued in 2023, with six in Q4 alone. The number of Q4 warnings also marks the largest quarterly issuance from Scottish-based companies since the start of the pandemic (Q1 2020 reporting 10 and Q2 2020 reporting 6).

The consumer discretionary sector issued the highest number of warnings with four recorded throughout the year.

Kris Aspin, EY-Parthenon partner and head of restructuring, Scotland, said: “Profit warnings data provides close to real time insight into the pressures facing firms across the economy.

“It’s no surprise that the consumer discretionary sector suffered in the high inflationary and elevated interest rates environment we endured last year. The pressure on disposable incomes, whilst easing, remains high, meaning discretionary spending in areas such as fashion and retail, continues to be impacted.”

Total UK warnings in 2023 were 294, with 18.2% of all UK-listed companies issuing a warning; higher than at the height of the 2008 financial crisis. Smaller companies, which are more vulnerable to demand and margin pressures, dominated warnings at the start of the 2023, however, by Q4 pressure had broadened as a third of the companies warning (33%) had annual revenues of over £1 billion, more than double the average number of warnings given by businesses of this size.

Additional data from the Insolvency Service shows company insolvencies across the UK last year reached their highest annual total in 30 years, reflecting the difficult business environment that companies have faced over the last 12 months.

Mr Aspin added: “In 2024, businesses will hope for a quicker-than-expected fall in inflation and interest rates, but many moving parts need to slot into place before we can be sure of an economic ‘soft landing’.

“We expect to see increasing disparity between businesses that are positioned to capitalise on still limited growth and those that are hampered by the impact of recent earnings pressures or their access to and the cost of capital. It is shaping up to be an easier year for many, but not all UK companies.”

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