Profit warnings on slide but deeper fears remain

THE number of profit warnings issued by listed firms in the West Midlands dropped by almost 80 per cent in 2021, according to new research.

EY-Parthenon’s latest Profit Warnings report found that eight profit warnings were issued in the region in 2021 – down 79 per cent from 38 in 2020.

But experts at the financial services firm believe businesses in the region will continue to face uncertainty in 2022 because of ongoing supply chain issues and potential skills shortages.

Dan Hurd, head of turnaround and restructuring at EY in the Midlands, said: “After a challenging time in 2020, there was a significant reduction in the number of profit warnings issued by listed businesses in the West Midlands during 2021.

“Despite this reduction, businesses operating in the West Midlands’ most prevalent sectors, such as manufacturing, have found the last two years particularly challenging thanks to operational disruptions caused by the global pandemic and Brexit.

“Retailers and the construction sector also struggled during this period and businesses will continue to face uncertainty, due to ongoing supply chain issues and potential skills shortages.”

Nationally, 203 profit warnings were issued in 2021 - down from the record-breaking 583 warnings witnessed in 2020 and the second lowest by number since 1999.

The most-affected sectors were aerospace and defence, personal care, drug and grocery stores and retailers, all of which were affected by supply chain headwinds in the second half of the year.

Mr Hurd added: “Nationally, the biggest driver of warnings in 2022 is likely to be the rise in inflationary pressures and its impact on disposable incomes and margins.

“We have already recorded profit warnings relating to rising energy prices.

“Labour shortages and wage increases are also beginning to feature more in company concerns, especially in logistics, hospitality and healthcare, including care homes.

“We expect to see more restructuring activity in 2022 as the last government support measures fall away and businesses feel the full force of not only economic and structural pressures but the increasing focus on environmental, social and governance metrics, as funders increase their focus on supporting sustainable businesses.

“The ability to demonstrate purpose and long-term value has never been so vital.”

Labour shortages and wage increases are also beginning to feature more in company concerns Dan Hurd, EY in the Midlands