Midlands firms issued seven Q1 profit warnings - EY

Midlands companies issued seven profit warnings in Q1 2022, one more than in the previous quarter, according to new figures.

However, the latest EY-Parthenon report says this is still the lowest number of warnings in a first quarter since 2018.

Nationally, the number of profit warnings issued by UK-listed companies in the first quarter of 2022 increased 44 per cent year-on-year with a record number of warnings citing rising costs as increased commodity and energy prices fuel inflation.

More than half of the profit warnings issued by Midlands-listed business involved companies in consumer-facing sectors, a trend mirrored nationally.

The report reveals that UK-listed companies issued 72 warnings in Q1 2022, the highest quarterly figure since the start of the pandemic in the second quarter of 2020.

A record-breaking 43 per cent of warnings were due to rising costs, up from 27 per cent in Q4 2021 and well above the 2011-2021 average of 10 per cent.

Eleven per-cent (11 per cent) of warnings cited the impact of the war in Ukraine, with most referencing the impact of sanctions and withdrawal from Russian markets.

Meanwhile, supply chain challenges eased slightly in Q1 2022 with 22 per cent of listed companies issuing a warning referencing this as the main reason for doing so.

Warnings from consumer-facing sectors reached their highest level since the second quarter of 2020, with 36 per cent of warnings from this sector citing supply chain disruption and 69 per cent blaming rising costs.

Dan Hurd (pictured), a partner at EY-Parthenon in the Midlands said: “The general downward trend in profit warnings across the region is perhaps a welcome sign that many businesses are beginning to see the results of careful navigation during the pandemic.

“However, the region 's manufacturers are likely to continue to be affected by supply chain issues and all sectors will feel the effect of higher energy prices.

“Businesses in consumer-facing sectors, such as retail and food services, have some difficult decisions to make, choosing to pass additional costs on to customers, at a time when they have little room for further manoeuvre.

“2022 was always going to be a difficult year for companies, particularly overcoming the challenges of inflation, with many having already dealt with the pressures on company margins and consumer real incomes and restructured their businesses accordingly.

“However, the war in Ukraine has contributed to greater supply-side pressure and raised questions about confidence and demand in 2022. We are now looking at a year with ongoing Covid-19 disruption alongside higher inflation, greater uncertainty, and faster monetary tightening than we expected just a few months ago.

“The post-pandemic recovery should continue in 2022 but will be slower than expected with greater downside risks.

“Volatility and uncertainty have become the standard backdrop to operations, and companies need to ask themselves when 'crisis as usual ' becomes the norm for which they plan.

“Businesses will need to start thinking about how their operations and wider ecosystem will fare in sustained headwinds, and how they can reshape in response to long-term change. ”