Supply chain disruption led to increase in profit warnings

Profit warnings issued by UK listed companies – including a number of 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 report, 34% of FTSE retailers issued a warning over the year (21 warnings in total), with over 70% of sector warnings in the last six months coming from online retailers.

Warnings issued by FTSE personal care, drug and grocery stores accounted for 39% of the sector warnings in 2021 (11 warnings in total), with most coming from suppliers of consumer goods, including grocery producers.

Despite a rebound in sales for FTSE retailers, the reopening of the economy created “significant” cost and supply chain issues in the run-up to Christmas. UK listed companies issued 70 warnings in Q4 2021 (up 19 from the 51 issued in the three-months prior), with a record 44% of those blaming supply chain disruption and a further 27% citing rising cost pressures.

READ MORE: Asda & Co-op bosses made CBEs for food supply chain efforts

Overall, 203 profit warnings were issued in 2021 across all FTSE sectors. This was down from 583 warnings in 2020 due to “strong” post-lockdown rebounds and “exceptionally low” levels of profit warnings in the first half of the year.

“While 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 EY UK&I retail lead Silvia Rindone.

“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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