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'Restructuring among firms likely in 2022'

EY-Parthenon makes prediction in report as prices warning sounded

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Andrew Dolliver

Andrew Dolliver

Andrew Dolliver

More restructuring activity is likely among companies in Northern Ireland this year as Covid-19 government support measures fall away, a report has said.

EY-Parthenon, the global strategy consulting arm of business advisory firm EY, made the prediction in its latest profits warnings report.

It said that profit warnings from UK listed companies had grown by 19% year on year in the last quarter of 2021, as supply chain disruption and rising costs took their toll.

On Monday, banknote printer De La Rue wa s the latest FTSE-100 company to issue a profit warning after the business was hit by Covid-19- related costs such as staff absences.

Andrew Dolliver, EY-Parthenon partner in Belfast, warned that prices would continue to be a bugbear for both listed firms and Northern Irish businesses alike during 2022.

“The biggest driver of stress for both local Northern Irish businesses and listed companies in 2022 is likely to be the rise in inflationary pressures and its impact on disposable incomes and margins.

"We are already seeing local businesses impacted by rising energy prices and raw material price increases and shortages.

"Labour shortages and wage increases are also beginning to feature more in company concerns, especially in logistics, hospitality and healthcare – including care homes.”

And as government support measures are withdrawn over the next months, such as lower VAT for hospitality and rates relief, that will mean that more companies will have to restructure to stay in business.

And pressure will also come from the expectation of sustainability, Mr Dolliver added.

“We expect to see more restructuring activity in 2022 as the last government support measures fall away and businesses feel the full force of, not only economic and structural pressures, but the increasing focus on environmental, social, and governance (ESG) metrics, as funders increase their focus on supporting ‘sustainable’ businesses.

"The ability to demonstrate purpose and long-term value has never been so vital.”

EY-Parthenon said that in the last three months of 2021, UK listed companies issued 70 warnings – up from 51 in the third quarter.

And four in 10 were blaming supply chain disruption – compared to just 2% between 2009 and 2019.

And for 27%, rising cost pressures were the reason for a profit warning.

However, the total number of warnings of 203 for 2021 was down from the record level of 583 in 2020 and the second-lowest number in over 20 years.

EY-Parthenon said the economy’s strong post-lockdown bounce back had initially kept profit warnings low until supply chain disruption and rising costs had set in later in the year.

One in five listed consumer-facing companies had issued a warning during 2021, EY-Parthenon said.

The worst-hit section of the FTSE-100 was aerospace and defence, with 57% of companies issuing a warning.

Personal care, drug and gr ocery store firms were next-worst hit, by 39%, while just over a third of retailers had to give warnings in the second half. Both sectors were hit by supply chain challenges.

And at 70%, online retailers accounted for 70% of warnings from retail. Nonetheless, retailers enjoyed a successful Christmas season.

However, the squeeze on customer incomes and the threat of changing consumer behaviour were all likely to exert continued pressure on retailers in 2022. Yvonne Kiely, head of customer and growth at EY Ireland, said there were retailers which would have failed without government assistance in the last two years, even without Covid-19.



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