Profit warnings from UK-listed companies with defined benefit (DB) pension schemes rose by 18 per cent year-on-year in the third quarter of 2023, EY-Parthenon’s latest Profit Warnings report has revealed.

Firms with a DB scheme issued 20 warnings in Q3, the highest quarterly total since the fourth quarter of 2021 (22) and the third highest since Q3 2020 (32).

Across all UK-listed companies, 76 profit warnings were issued in the third quarter of this year, with 26 per cent therefore coming from DB scheme sponsors.

Firms in the industrial sector and consumer-facing sector accounted for 70 per cent of the profit warnings from DB pension sponsors last quarter with seven warnings each.

Over the past 12 months, 20 per cent of UK firms with a DB pension scheme have issued a profit warning.

Four in 10 (40 per cent) profit warnings in Q3 cited rising costs and overheads, up from 33 per cent in Q1 and Q2 2023.

EY-Parthenon also found that persistent pressure generated by high interest rates and economic uncertainty among consumers continued to play a role in profit warnings, with 35 per cent of DB sponsors citing tightening credit conditions and 20 per cent highlighting weaker consumer confidence.

“Most UK companies have experienced persistent economic pressure over the last year and recent stresses mean DB sponsors have been particularly exposed,” explained EY-Parthenon partner and UK pensions covenant advisory leader, Karina Brookes.

“Industrial and consumer-facing sectors have higher concentrations of DB sponsors and these businesses have had to contend with tightening credit conditions driven by rising interest rates and prolonged economic uncertainty, which is causing consumers to reduce or delay spending.

“Corporates that are transitioning to a higher interest rate environment will find the refinancing experience more challenging than previously and those that are successful will need to contend with higher servicing costs.

“Trustees should carefully monitor how market turbulence is affecting their scheme sponsor and consider what distress triggers they need to look out for, as well as their options for additional protection.

“These options will need to be examined in the context of the scheme’s progression on its journey plan, which may have changed significantly following the movement in gilts.

"Sponsors will need to manage creditors equitably when considering cost reduction programmes and refinancing activity however striking a balance may prove challenging.”

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