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Monday, January 30, 2023 6:00 AM
Profit warnings issued by companies in London’s £4 trillion stock market surged last year, driven by ballooning costs that squeezed margins, according to a new report released today.
Against the backdrop of soaring energy prices and slowing demand amid the cost of living crisis, companies had to tell their shareholders to prepare for earnings to fall short of projections in 2021, according to EY-Parthenon. .
The company has scrutinized the London Stock Exchange, which has more than 1,190 companies worth around £3.8 trillion, seeking profit warnings.
In 2022, nearly one-fifth of all London stock markets have warned investors of shortfalls in profits, the same proportion as during the 2008 financial crisis.
Nearly half of last year’s profit warnings, 152, were due to ballooning costs.
Global energy prices hit an all-time high in 2022, accelerating inflation in rich countries and the UK suffering the worst price pressures. Inflation hit her 11.1% peak, the highest in 41 years, plaguing both households and businesses. These price increases are forcing Brits to cut back on spending, further squeezing business profit margins.
Large consumer-centric companies are among the sectors with the highest profit warning tallies. Last year, more than a third of London-listed retailers issued a warning, up from one-fifth. This comes as nearly half of FTSE’s retailers issued profit warnings.
Earlier this month, cult bookmaker Dr. Martens issued a profit warning, sending its stock price down by a quarter.
Earnings warnings can be disastrous for a company’s stock price, as they tend to induce selling as investors try to limit losses.
When a company says earnings will be lower than earlier forecasts, it means that dividends or share buybacks that put cash back in investors’ pockets may be cut, usually putting downward pressure on its stocks. takes.
Intensifying cost pressures have also been exacerbated by the Bank of England’s nine consecutive rate hikes to curb rampant inflation.
Raising borrowing costs will be necessary to counter price pressures, which will hit businesses that depend on credit for their daily spending.
Higher interest rates could cut off critical sources of funding for businesses and increase the risk of a surge in bankruptcies. Also, repayment of existing debt will be expensive.
Experts have warned executives to start planning now to survive the credit crisis.
EY-Parthenon partner Jo Robinson, leader of UK&I’s turnaround and restructuring strategy, said.
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