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Fever-Tree was one of the many food producers to issue a profits warning in 2022

Profit warnings by UK-listed companies soared 50% higher in 2022 as rising costs put retailers and food companies under significant pressure, according to a new report.

FTSE retailers issued the highest number of warnings (36) last year in all sectors, while warnings from food producers reached a 16-year high in 2022, most caused by the increasing challenge of passing on price increases, the report by EY-Parthenon found.

Over a third (36%) of UK-listed companies in consumer-facing sectors issued a profit warning in 2022, up from a fifth of companies warning in 2021. This included 48% of listed retailers, 60% of businesses in personal care, drug and grocery stores and 30% of food producers.

Increasing costs featured in 63% of consumer sector warnings, with 33% citing falling consumer confidence, 22% supply chain problems and 20% labour market issues.

“The challenges for food producers don’t look set to ease significantly in 2023,” said Sam Woodward, turnaround and restructuring strategy partner at EY.

“Although energy prices have fallen back from their 2022 peak, they remain historically high and ingredient prices and supply problems still affect the sector.

“Although food is one of the most resilient areas of consumer spending, it’s not immune to corporate distress, especially in discretionary categories. It is vital that companies focus their efforts on products that match consumers’ new priorities and look at holistic cost reduction to address input and labour cost issues.”

In total, 305 profit warnings were issued in 2022, an increase of 102 from 2021.

Half of the warnings (152) issued were due to rising costs – double the share in 2021.

During the year, 17.7% of the UK’s 1,193 listed businesses issued a profit warning, equal to the proportion of companies that warned on profits during the global financial crisis in 2008.

In the second half of 2022, 169 warnings were issued, which is the highest second-half total since 2015.

In the fourth quarter, 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.

“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,” Woodward added.

“The ‘golden quarter’, a vital period for consumer companies, included a winter World Cup along with the disruption from train and postal strikes. 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.

“Supermarkets appear to have been the main winners of Christmas 2022, while many omnichannel retailers managed to flex their offering to adapt to the impact of industrial action and performed well. 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.”