Record number of UK-listed companies cite supply chain and rising costs in profit warnings in 2021

Record number of UK-listed companies cite supply chain and rising costs in profit warnings in 2021

u  One-in-five companies in consumer-facing sectors issued a profit warning in 2021

u  In total, UK-listed companies issued 203 profit warnings in 2021

u  Retailers and Personal Care, Drug and Grocery Stores were amongst the most affected FTSE sectors as supply chain disruption and rising costs hit the economy

London, 24 January 2022: Profit warnings issued by UK listed companies in consumer-facing sectors, including retail and grocery producers, accounted for a third of all warnings in 2021 as supply chain disruption and rising costs affected the economy in the second half of the year, according to EY-Parthenon’s latest Profit Warnings report.

In total, 203 profit warnings were issued in 2021 across all FTSE sectors, down from the record-breaking 583 warnings witnessed in 2020. The low total is due to the strong post-lockdown rebound and exceptionally low levels of profit warnings in the first half of the year, which gave way to extensive supply chain disruption and rising costs in the second, with consumer-facing companies amongst the hardest hit. 

Thirty-four per cent of FTSE Retailers issued a warning over the year (21 warnings in total) with over 70% of sector warnings in H2 2021 coming from online retailers. Warnings issued by FTSE Personal Care, Drug and Grocery Stores also increased to 39% of the sector warning in 2021 (11 warnings in total), with most warnings coming from suppliers of consumer goods, including grocery producers. 

Retail rebound but challenges ahead

The reopening of the economy post-lockdown led to a rebound in sales for FTSE Retailers but also created significant cost and supply chain issues in the run up to Christmas. In what is traditionally known as the ‘golden quarter’, all seven FTSE Retailers’ warnings cited these pressures.

Despite this, most retailers still experienced a successful Christmas trading period – data from the British Retail Consortium shows that non-food sales in December 2021 were 2.2% higher than 2019. However, the predicted consumer income squeeze in 2022, the rebalancing of spending from goods back to services, and the constant need to adapt to changing consumer behaviour will pose new challenges. 

Silvia Rindone, EY UK&I Retail Lead, comments: “Whilst supply chain issues are likely to continue this year, the biggest unknown for the retail sector in 2022 is how much consumers will spend and what they’ll spend it on. EY’s latest Future Consumer Index, which has been tracking consumer behaviour since the start of the pandemic, revealed the increasing desire of consumers to find a balance between sustainability and affordability. Consumers now rank planet and cost equally in terms of priority. These factors combined will make 2022 a tough year to navigate. To be successful, retailers will need clear strategic direction paired with strong operational and financial agility.”

Silvia added: “We have yet to see any major wave of retail restructurings, but there are certainly retailers that would have failed in the last two years without government assistance – even in the absence of COVID-19. The end of the rent moratorium in March removes the final layer of government support and it will be interesting to see how the arbitration process plays out – and how other stakeholders react to any increase in sector distress.”

Supply chain issues hit listed companies in Q4

Overall, UK listed companies issued 70 warnings in Q4 2021, up 19 from the 51 issued in Q3, with a record 44% blaming supply chain disruption (compared to just 2% between 2009 and 2019),and a further 27% citing rising cost pressures.

Alan Hudson, EY-Parthenon Partner and UK&I Turnaround and Restructuring Strategy Leader, said: “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.” 

He added: “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 (ESG) metrics, as funders increase their focus on supporting ‘sustainable’ businesses. The ability to demonstrate purpose and long-term value has never been so vital.” 


We’d love to keep you updated with our latest news Reports Interviews and Analysis😎

Subscribe to International supermarket news Free

Related post