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One in five UK-listed companies sounded the alarm on profits in 2024, underlining the impact of rising costs and businesses’ reluctance to commit to optional spending.
A total of 19 per cent of London-listed companies issued profit warnings, the third highest proportion this century and exceeded only by the figures in 2001 and 2020 when the dotcom bust and pandemic hurt performance, according to a report published by EY-Parthenon on Monday.
The figures come after S&P Global survey data last week showed that UK businesses are cutting jobs at the fastest pace since the financial crisis, excluding the pandemic.
The bulk of the 2024 profit warnings stemmed from companies’ reluctance to spend money buying goods and services from other businesses, according to EY-Parthenon.
“We don’t expect a huge uptick in insolvency levels in 2025, but we are now seeing more distress, and more stakeholders viewing insolvency processes as a real option,” said Jo Robinson, head of turnaround and restructuring strategy for EY-Parthenon in the UK and Ireland.
The report found that 34 per cent of the warnings cited contract and order cancellations or delays as reasons for reduced profitability, up from about a quarter in 2023.
The companies worst hit included business service providers, industrial suppliers and recruitment companies — sectors vulnerable to corporate customers reducing their spending. Retailers and software and computer firms were also among the worst affected.
A series of high-profile companies warned investors about plummeting profits last year, underlining the growing pressure on businesses. Those to issue warnings included Frasers Group, owner of UK retailer Sports Direct, and housebuilder Vistry, both of which were relegated from the FTSE 100 in December.
Businesses had shied away from recruitment costs and optional investment in 2024 amid “global geopolitical uncertainty and policy upheaval”, causing stress at businesses reliant on that spend, said Robinson.
The proportion of companies warning on profits rose slightly from 18.2 per cent in 2023.
Kirsten Tompkins, director at EY-Parthenon and author of the report, said the prevalence of the profit warnings was linked to over-optimism by companies’ management.
Companies keep expecting their performance to improve by relying too heavily on past performance, even though “in some markets you’ve seen really drastic [permanent] changes”, she said.
This raised questions about whether companies were adjusting their mindset to account for the level of volatility in the economy, Tompkins added.
Increasing costs triggered nearly one in five of the warnings last year.
Despite the sustained pressure on their earnings in recent years, a ready supply of cheap, long-term debt and taxpayer-funded pandemic support had provided “breathing space” that helped many companies to avoid going bust, Robinson said.
But that could change with higher borrowing costs, particularly for companies that need to refinance over the next three years, she added. “More companies are now reaching a tipping point as cumulative pressures build.”
