Record number of businesses at risk

THE NUMBER of stock market-listed companies that are at risk of collapsing into administration has almost doubled, according to accountancy giant EY.

It said that last year the number of profit warnings issued by companies listed on the London Stock Exchange hit a record high of 583, due to the economic pain inflicted by the coronavirus outbreak. That compares to 313 in 2019 and the previous record of 506 in 2001.

When companies issue three or more warnings during a 12-month period, on average one in five of them ends up in administration. EY said that last year the number of companies issuing three or more earnings downgrades nearly doubled, up from 32 to 62. Those companies included groups in the FTSE 350.

Despite the devastating effect Covid-19 has had on the economy, the number of corporate insolvencies fell 27.1 per cent last year to 12,557.

Many distressed companies have been “treading on thin ice for months” and are only being kept alive by government support measures, EY partner Alan Hudson said. As a result, it is just a matter of time before insolvency levels start to spike.

He said: “The record-breaking levels of profit warnings are at odds with the significantly low number of corporate insolvencies.

“Insolvencies in the UK haven’t been dodged, they’ve been deferred and we’re likely to see an influx of these from spring onwards.

“Many UK businesses have government support propping them up. While there is speculation these measures could be extended until the summer, the countdown has started, and in weeks or months we’ll find out how many companies can keep their head above water.”

The sectors with the highest percentage of profit warnings were those most affected by the outbreak and lockdowns, such as retail, travel and leisure.

On Thursday the Bank of England’s monetary policy committee is expected to keep its base rate at 0.1 per cent, despite speculation that it could go negative in a bid to stimulate the economy.