UK consumer-facing companies make up third of profit warnings

Profit warnings flagged by UK companies in consumer-facing industries such as retail and grocery accounted for a third of all warnings in 2021, according EY-Parthenon’s latest Profit Warnings report.

The study said this was likely driven by supply chain disruption and rising costs impacting the economy in the second half of the year.

Overall, UK listed companies issued 70 warnings in the final quarter of 2021, up 19 from the 51 issued in the third part of the year, with a record 44 per cent blaming supply chain disruption - compared to just 2 per cent between 2009 and 2019 - and a further 27 per cent citing rising cost pressures.

The research found that in total, 203 profit warnings were issued in 2021 across all FTSE sectors, down from the record-breaking 583 warnings recorded in 2020.

EY explained that the lower total reflects a strong post-lockdown rebound and “exceptionally low levels” of profit warnings in the first half of the year, which ultimately 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 per cent of sector warnings in the second half of 2021 coming from online retailers.

Warnings issued by FTSE Personal Care, Drug and Grocery Stores also increased to 39 per cent of the sector warning in 2021 - 11 warnings in total - with most warnings coming from suppliers of consumer goods, including grocery producers.

“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,” said Silvia Rindone, EY UK&I retail lead. “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.”

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