Profit warnings issued by listed companies in the Midlands dropped to six in the second quarter of 2024, down from nine in the same period last year, according to a new report from EY. However, the total for the first half of the year remained nearly unchanged, with 19 warnings compared to 18 in the first half of 2023.
Decline in Warnings but Caution Remains
The construction and property sectors accounted for the largest share of warnings, reflecting continued pressure on these industries. The EY report highlighted that 80% of all warnings during the first half were attributed to an “inability to control cost increases,” underscoring the persistent challenge of rising expenses for businesses.
Dan Hurd, EY’s restructuring partner in the Midlands, said companies are facing a “tough economic backdrop” with high costs, slowing demand, and ongoing uncertainty. He noted that while the number of warnings in Q2 eased, the underlying issues remain, particularly for firms in sectors most exposed to inflation and interest rate hikes.
Construction and Property Dominate Warnings
The construction and property sectors issued the highest number of profit warnings in the first half of 2024, reflecting a challenging environment for housebuilders and developers. Higher borrowing costs and subdued consumer confidence have weighed on the housing market, while supply chain disruptions and labor shortages have added to cost pressures.
Several companies in these sectors have already announced restructuring plans, including job cuts and asset sales, to shore up their balance sheets. According to the report, the Midlands has seen a significant proportion of warnings from these industries, which are particularly sensitive to interest rate changes and economic cycles.
Cost Pressures a Key Factor
The EY report explicitly cited the difficulty of controlling cost increases as the primary driver of profit warnings. Businesses across all sectors have struggled with rising energy bills, raw material costs, and wage inflation. Many have been unable to pass these costs on to customers due to competitive pressures or weaker demand.
“Companies are finding it increasingly difficult to maintain margins as input costs continue to rise,” said Hurd. “The inability to control these cost increases is a significant factor behind many of the warnings we’ve seen this year.” This issue has been exacerbated by the lingering impact of the pandemic, Brexit-related trade frictions, and geopolitical tensions.
Tough Market Conditions Ahead
Looking ahead, Hurd warned that the outlook remains uncertain. “Businesses are navigating a complex environment with multiple headwinds, including high inflation, rising interest rates, and subdued economic growth. We expect the level of profit warnings to remain elevated in the second half of the year, particularly in sectors such as construction, retail, and manufacturing.”
The report also noted that the number of warnings in the first half of 2024 was in line with the historical average, suggesting that while the market is not in crisis, it remains under significant strain. Companies are advised to focus on cash management, cost efficiencies, and scenario planning to mitigate risks.
In summary, while the quarterly drop in profit warnings offers some relief, the underlying challenges persist. The Midlands’ corporate landscape remains cautious, with many firms bracing for further volatility in the months ahead.
