The number of profit warnings issued by UK-listed companies with a defined benefit (DB) pension scheme fell by 18 per cent in Q1 2024, marking the first fall in the past 12 months, EY-Parthenon’s latest profit warnings report has found.

Across all UK-listed companies, companies with DB pension schemes issued more than a quarter (26 per cent) of the 70 profit warnings issued in Q1 2024, with 18 warnings issued by companies with a DB scheme in Q1, down from 22 in Q4 2023.

However, EY pointed out that the 18 warnings issued in the first quarter of the year still mark a 29 per cent year-on-year increase from the 14 warnings previously issued in Q1 2023.

The analysis also showed that almost a quarter (24 per cent) of UK-listed companies with a DB pension scheme have issued a profit warning in the past 12 months.

The sector that issued the most warnings in Q1 was companies with DB sponsors in the household goods and home construction sector, followed closely by industrial support services and banks.

According to the analysis, the main reasons for warnings from UK-listed companies with a DB sponsor were rising costs, tightening credit and contract issues.

For the first time since Q1 2022, however, weaker consumer confidence was not cited as a reason for any warnings from companies with a DB scheme.

Commenting on the report, EY-Parthenon partner and UK pensions covenant advisory leader, Karina Brookes, said: “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, Brookes stated that 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,” she said.

EY UK pensions consulting leader, Paul Kitson, added: “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.”

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