The number of profit warnings issued in Q1 2024 by UK-listed companies with a defined benefit (DB) pension scheme declined for the first time in a year, according to EY-Parthenon.
According to its latest Profit Warnings report, 18 warnings were given by listed businesses with DB pensions sponsors in Q1 2024, compared to 22 in Q4 2023. The 18 warnings issued in Q1 2024 indicate a 29 per cent rise year on year over the 14 warnings given in Q1 2023.
UK-listed companies with DB pension schemes issue profit warnings, citing credit tightening, rising expenses, and contract difficulties. For the first time since Q1 2022, lower consumer confidence was not cited.
EY-Parthenon UK Pensions Covenant Advisory Leader partner Karina Brookes says: “While the number of profit warnings from companies with DB-pension schemes has declined for the first time in the last 12 months, the number is still higher than this time last year.
“Macroeconomic pressures are continuing to challenge businesses, and many DB sponsors have moved into 2024 with earnings challenges due to the high costs and tightening credit conditions that characterised much of 2023
“Notably, consumer confidence wasn’t cited as a reason for any warnings from companies with a DB pension scheme for the first time in two years this quarter, suggesting consumer spending is returning as inflation falls.
“However, while there are signs that economic recovery may have begun, new pensions regulation, and ongoing election and geopolitical uncertainty, mean there are challenges facing sponsors in the short, medium and longer term. Depending on long-term goals, covenant over the entire horizon of all schemes – even those that are well-funded – must remain an important consideration.”
EY UK pensions consulting leader Paul Kitson says: “Credit tightening continues to challenge many corporate sponsors of UK DB pension schemes, so CFOs must consider whether run-on could provide a much-needed additional source of income in the future.
“While it is positive to see profit warnings from companies with DB pension schemes fall this quarter, the overall increase in warnings year-on-year mean covenant assessment remains essential. Critical to this consideration is identifying what third party capital may be required to make run-on feasible.”
