Pensions - Articles - Consecutive profit warnings by 1 in 10 FTSE firms in 2020


Nearly two-thirds (62%) of listed defined benefit (DB) pension scheme sponsors issued 249 profit warnings in 2020, constituting 43% of the total 583 UK profit warnings issued during the period, according to the latest EY quarterly analysis of profit warnings. Ten per cent of the firms warning issued their third consecutive profit warning in 2020, which is often a precursor to insolvency.

 The number of profit warnings issued by all UK quoted companies in 2020 reached a new annual high[1](583), with more expected due to continued market uncertainty and lockdown restrictions. Of the total number of UK-registered listed companies (1,198), 23% (280) have a DB scheme, and most are concentrated in more traditional industries that are particularly vulnerable to the economic impact of the pandemic. Thirty-five per cent of all listed companies warned in the first three quarters of 2020, versus 62% of the total of listed companies that have a pension scheme. Ninety per cent of profit warnings issued by listed DB sponsors in 2020 were COVID-19 related. 

 10% of FTSE firms with DB schemes issued three warnings in a row over 12 months
 There was a surge in 2020 in the number of UK listed companies issuing three or more profit warnings within a 12-month period. According to EY analysis, typically up to one in five companies that issue three warnings within 12 months will enter Administration within the following year.

 Twenty-seven UK listed companies with DB schemes issued at least their third profit warning last year, representing 10% of all such listed UK companies, including 15 companies in the FTSE 350. When comparing this to the entire FTSE (including those without a pension scheme attached), it is double: 62 out of 1,198 UK listed companies issued their third warning in a 12-month period in 2020, representing 5% of all listed firms.

 Sectors under pressure include large number of firms with DB schemes
 Profit warnings issued by DB sponsors in 2020 were concentrated in industrial and consumer discretionary sectors, which reflects increased pressure on sponsors in these industries. The five FTSE sectors with the highest number of warnings were: Travel and Leisure (30), Industrial Support Services (23), Construction and Materials (19), Retailers (18) and Household Goods and Home Construction (14).

 Listed companies with a pension scheme can be found in all but six of the FTSE sectors; 57% sit within Industrial and Consumer Discretionary FTSE sectors (those listed above), which account for 36% of all warnings across the total listed market. These sectors tend to issue the most profit warnings, which has been acutely the case during COVID-19.

 Gareth Mee, UK Actuarial Leader at EY, comments: “The market pressures of 2020 were no small feat to overcome, and given how 2021 has started, the outlook isn’t likely to improve in the short term. All businesses have been challenged by the pandemic, but those with defined benefit pension obligations sit disproportionately in the sectors which are struggling most. Corporates and trustees alike are working hard to maintain business as usual, while ensuring pension obligations to members are fulfilled. But with volatility persisting, and the pressures across many schemes’ investment portfolios increasing, the outlook is concerning, making the case for an urgent relook at pension scheme de-risking and strategic planning for an increasingly uncertain future.”

 Karina Brookes, UK Pensions Covenant Advisory Leader at EY, comments: “Scheme sponsors continue to face significant market challenges, with cash conservation and re-financing efforts remaining high on the agenda. For companies with DB schemes attached, the current pressures on cash flows are exacerbated by the additional need to fulfil pension promises. Many sponsors need flexibility to manage the longer-term consequences of disruption and extended economic uncertainty. Trustees faced with weakened sponsors need to ensure that the security of members’ benefits is protected during restructuring, refinancing and reshaping, and that the scheme is treated equitably with other stakeholders through the subsequent recovery period. Evaluating financial resilience and employer covenant longevity will be particularly critical here. Developing solutions with the right balance requires collaboration and transparency, but ultimately will ensure that pensions remain rightly high on the list of Board priorities.”
  

Back to Index


Similar News to this Story

Wish list for the occupational pensions industry in 2025
As one year closes and another begins, it's an opportune moment to set our sights on the future. The UK occupational pensions industry faces nume
PSIG announces outcome of Consultation
The Pensions Scams Industry Group (PSIG), which was established in 2014 to help protect pension scheme members from scams, today announced the feedbac
Transfer values fell to a 12 month low during November
XPS Group’s Transfer Value Index reached a 12-month low, dropping to £151,000 during November 2024 before then recovering to its previous month-end po

Site Search

Exact   Any  

Latest Actuarial Jobs

Actuarial Login

Email
Password
 Jobseeker    Client
Reminder Logon

APA Sponsors

Actuarial Jobs & News Feeds

Jobs RSS News RSS

WikiActuary

Be the first to contribute to our definitive actuarial reference forum. Built by actuaries for actuaries.