Profit warnings in the North West by UK-listed companies fell by 21% in the first six months of 2024. This noticeable decline signals a possible improvement in the region’s business environment. However, challenges remain across different sectors. Companies need to stay vigilant as global uncertainties and local factors continue to impact their operations.
Despite the overall decline, some sectors still face significant issues. Factors such as labour and supply costs, coupled with geopolitical risks, continue to pose challenges. Therefore, companies should prioritise scenario planning and optimise their cash flow to navigate these uncertain times.
Decrease in Profit Warnings
Profit warnings in the North West by UK-listed companies fell by 21% in the first six months of 2024. In total, 11 profit warnings were issued during this period, down from 14 in the same period last year. This reduction indicates a possible improvement in the business environment.
“The steady decline in profit warnings issued by listed companies in the North West during the first half of the year is encouraging and reflects the strength of businesses in the region,” stated Sam Woodward, EY-Parthenon UK&I Turnaround and Restructuring Partner in the North West.
Sector Analysis
Profit warnings covered various sectors. Three warnings were from consumer-facing businesses, highlighting recent challenges in consumer confidence. Meanwhile, the FTSE Industrials sector also faced three warnings. This variety shows that the decline in warnings is not limited to a single sector.
In the second quarter, only four profit warnings were issued in the North West, down from five in Q2 2023. This marks the region’s lowest quarterly total in three years, indicating a positive trend.
Similarly, a total of 49 profit warnings were issued across the UK in Q2 2024, marking the smallest number of quarterly warnings since Q2 2021. Despite this decrease, the proportion of companies issuing warnings remains high at 18.4%.
Key Factors Behind Warnings
Contract issues were highlighted as a significant factor, cited in 29% of company warnings. Companies are struggling with labour and supply expenditure, contributing to rising cost pressures. These pressures were mentioned in 27% of Q2 warnings.
During Q1 2024, 61% of profit warnings came from companies that had not issued one in the previous 12 months. This figure was 50% in Q2 2024, showing that many new companies are now issuing warnings.
“An unprecedented rollcall of global elections and geopolitical risks means that an element of uncertainty remains, potentially exerting further pressure on spending and growth,” said Jo Robinson, EY-Parthenon Partner and UK&I Turnaround and Restructuring Strategy Leader.
Economic Outlook
Economic growth remains modest, even though the UK seems to have turned a corner following the mild technical recession in late 2023. Companies in the North West demonstrate resilience. With lower inflation and expected interest rate reductions later in the year, there is hope for increased momentum and stability.
However, fiscal policy remains uncertain due to the recent election of a new government. External, volatile factors continue to affect economies. Companies should prioritise scenario planning and optimise cash flow to ensure a stable foundation, according to experts.
Future of Restructuring
The restructuring cycle is just beginning, even though the profit warning cycle may have turned. More companies are returning to the restructuring table. This is because many have not adapted their operations and balance sheets to new demand, cost, and competitive realities.
Refinancing is becoming a growing risk. Companies are often surprised by the added levels of due diligence and time needed to refinance in this market. According to Jo Robinson, the economic recovery is expected to be slow and uneven.
Sector-Specific Insights
FTSE Industrial Support Services accounted for more than a fifth of all warnings in Q2 2024. This sector includes business service providers, industrial suppliers, and recruitment companies. Of the 19 warnings issued by this sector in 2024, eight came from business services providers, seven from recruitment and training companies, and four from industrial suppliers.
Warnings were also prominent in FTSE Software and Computer Services, Retailers, Household Goods and Home Construction, and Finance and Credit Services. These sectors face persistent and developing challenges.
Despite the overall reduction in profit warnings, certain sectors continue to grapple with significant issues. Therefore, a sector-specific approach to address these challenges is necessary.
Restructuring Trends
The expectation is for a slow uptick in restructuring activities. This may not lead to a significant increase in administration appointments, as more companies will likely address their issues through restructuring plans and agreements with creditors.
Experts believe careful restructuring will help companies adapt better to evolving market conditions. Therefore, organisations should focus on long-term sustainability strategies.
Outlook for North West Businesses
Businesses in the North West show resilience despite broader economic pressures. The decline in profit warnings is a positive sign. However, companies must remain vigilant and prepared for potential challenges ahead.
The decline in profit warnings in the North West is indeed a positive sign, showcasing the resilience and strength of businesses in the region. However, companies must remain agile and continue prioritising financial planning to navigate the uncertain economic landscape. As global uncertainties persist, strategic scenario planning and effective cash flow management will be crucial for sustaining growth and stability for businesses in the North West.