Doubling in UK listed companies facing insolvency risk

The number of UK listed companies at risk of insolvency has doubled in the last 12 months, with a surge in those issuing three or more profit warnings

According to analysis by EY, 62 UK listed companies issued their third consecutive profit warning in 2020, almost double the 2019 total (32) and more than double the 31 recorded in 2018.

The firm says that typically up to one in five companies enter administration within 12 months of the third warning.

A total of 583 profit warnings were issued by UK listed companies in 2020, the highest annual total in 21 years of EY research, and 15% higher than the previous record of 506 in 2001. This historic high contrasts with very low levels of corporate insolvency.

Alan Hudson, EY-Parthenon partner and UK&I turnaround and restructuring strategy leader, said: ‘The record-breaking levels of profit warnings, particularly from the first half of the year, are at odds with the significantly low number of corporate insolvencies. Insolvencies in the UK haven’t been dodged, they’ve been deferred and we’re likely to see an influx of these from spring onwards.

‘Many UK businesses have been treading on thin ice for months with government support propping them up.

‘While there is speculation these measures could be extended until the summer, the countdown has started, and in weeks or months we’ll find out how many companies can keep their head above water.’

Of the total 583 profit warnings issued by UK listed companies in 2020, 86% (499) were attributed to Covid-19, with the sectors with the highest percentages of companies issuing profit warnings those most affected by the implications of lockdown restrictions on consumer behaviour.

In 2020, 19% of FTSE retailers issued their third or more profit warning, while the equivalent figure for FTSE travel and leisure was 16%.

The final quarter of 2020 concluded with FTSE retailers surpassing the highest annual total of profit warnings for the sector by reaching 53 – two more than the previous high set in 2008.

EY Profit Warnings Report

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