Over a third of FTSE UK-listed food companies are facing profit warnings due to rising costs, a new report has revealed.
According to consultancy company EY-Parthenon’s latest ‘Profit Warnings’ report, the number of profit warnings issued by UK-listed companies in 2022 increased by 50% year-on-year.
In total, 305 (36%) business profit warnings were issued last year across a variety of consumer-facing sectors, an increase from 2021 when 203 warnings were issued. Half of the warnings (152) issued in 2022 were due to rising costs – double that of 2021.
As a result, warnings from FTSE Food Producers reached a 16-year high in 2022, most caused by the increasing challenge of passing on price increases.
The sector, which has faced unprecedented supply chain and inflationary pressures, is now dealing with mounting financial pressure.
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During the year, 17.7% of the UK’s 1,193 listed businesses issued a profit warning, equal to the proportion of companies that issued warnings during the global financial crisis in 2008.
In Q4 2022, 83 profit warnings were issued, 41% of which cited rising costs, while 24% were due to delayed or cancelled contracts, and 20% due to weaker consumer confidence.
31 of those listed UK companies issued their third consecutive profit warning in 12 months, compared to 23 in 2021. This included 48% of FTSE retailers, 60% of FTSE personal care, drug and grocery stores companies, and 30% of FTSE food producers.
“Although festive trading was better than expected for many businesses, the bar was set low by exceptional levels of consumer sector profit warnings in 2022,” turnaround and restructuring strategy partner at EY, Sam Woodward said.
“The ‘golden quarter’, a vital period for consumer companies, included a winter World Cup along with the disruption from train and postal strikes.
He added that this backdrop created a further “complex layer of challenges and opportunities in addition to ongoing cost, labour, inventory, and confidence issues for consumer-facing companies.”
“However, as EY’s latest Future Consumer Index underlines, it will be critical for companies to keep adapting and reflecting customer priorities, which for most consumers in the short-term, will be a compelling price proposition.”
EY-Parthenon partner and UK&I turnaround and restructuring strategy leader, Jo Robinson said: “2022 was a challenging year for UK companies with rising operational costs, changing consumer behaviour, and the cost-of-living crisis having an acute impact on consumer-facing sectors.
“Cost pressures are passing through supply chains, business confidence is weak, and credit markets are tightening. The latter factor prompted more profit warnings in Q4 2022 than in any period since 2009.
“Companies need to ensure they are scenario planning and have a clear understanding of how their business will adapt under different conditions, particularly as accessing capital to plug funding gaps is becoming harder.”
