UK-listed companies with defined benefit (DB) pension schemes issued 81 profit warnings in 2024, the highest annual volume since 2020, EY-Parthenon has revealed.

Its Profit Warnings report showed that nearly one in four (24 per cent) UK-listed firms with DB sponsors issued a profit warning last year, making up almost a third (30 per cent) of the 274 total from all UK-listed companies – the highest annual proportion since 2020 (43 per cent).

In the final quarter of 2024, 28 profit warnings were issued by UK-listed companies with a DB scheme, an increase of six warnings year on year and the highest quarterly total since Q4 2020.

The main drivers of warnings from UK-listed companies with a DB scheme were rising costs (28 per cent), contract issues (26 per cent) and credit tightening (11 per cent)

Companies with a DB scheme in the FTSE Household Goods and Home Construction sector issued the highest number of warnings (15) during 2024, followed by FTSE Industrial Support Services (12) and FTSE Retailers (seven).

Commenting on the findings, EY-Parthenon partner and UK pensions covenant advisory leader, Karina Brookes, said: “The latest profit warnings data demonstrates the ongoing impact of external challenges such as global geopolitical uncertainty and policy upheaval on companies’ forecasting abilities.

"In this environment, strategies for companies with a DB sponsor must respond to short-term policy changes and deeper structural issues whilst being mindful of the changing pensions regulation, including the new DB Funding Code.

“All valuations from September 2024 will now fall under the new code, which emphasises the importance of covenant and the requirement to fund the scheme as soon as cash flows allow.

"For companies issuing a profit warning, there is a delicate balance between investing cash back into the business to improve longer-term prospects and, if needed, using the cash available to fund the scheme per the guidance.

“At the same time, companies issuing profit warnings that have well-funded schemes may consider whether they can use scheme surpluses as a source of cash support, provided there is the right support structure and agreement with the trustees to extract the surplus.”

EY UK pensions consulting leader, Paul Kitson, added: “While average DB funding remained robust throughout 2024, the high number of profit warnings from listed UK firms with a DB pension scheme suggests not all schemes are out of the woods yet.

"At the same time, many trustees and companies are still digesting the government’s recent surplus return proposals, so balancing the funding level, covenant strength, and potential use of surplus will be a delicate matter.

"As ever, it is critical for both trustees and companies to work together to understand their scheme, its employer covenant, and their best path forward – whether that be aiming to run-on with additional contributions, run-on with surplus release, or buyout.”

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