Majority of at-risk listed firms claimed government Covid support even as some neared collapse
More than half of UK listed companies most at risk of insolvency made a claim for government support in December, according to new EY research into profit warnings.
Between March 2020 and March 2021, 63 firms issued at least its third profit warning within a 12-month period, almost doubling last year’s total of 32.
Statistically, one of in five of these companies is likely to enter administration within a year of the third warning.
More than half of these firms claimed furlough support in December, while a third claimed at least one other form of government support.
Firms must avoid “financial cliff edge”
In total, 174 UK listed companies issued at least their second profit warning during the Covid crisis.
Alan Hudson, leader of EY, said the claims reflect the challenging environment which businesses have found themselves in during the pandemic.
Hudson believes the transition away from government support measures will be complicated and could require firms to shake-up their strategies to “avoid hitting a financial cliff edge”.
“Firms’ dedication to securing their future and continuing to provide for their customers, clients and employees is clear but, as government support comes to an end, many could be tested to their ultimate limit.”
Travel and leisure hit hardest
According to EY’s research, the pandemic has hit the FTSE Travel and Leisure sector the hardest.
Between March 2020 and March 2021, 40 per cent of firms in the sector issued at least two consecutive profit warnings, with 12 firms claiming more than £1m to pay staff in December.
Amanda Blackhall O’Sullivan, EY partner, believes there is “light at the end of the lockdown tunnel” for FTSE Travel and Leisure companies.
“The pace and shape of recovery for FTSE Travel and Leisure companies will of course depend on their area of focus, but with light at the end of the lockdown tunnel, consumer demand for eating out and booking a UK holiday is likely to help drive a recovery.
“Covid-19 has had a serious impact on the sector, but many companies had underlying issues before March 2020 which, if ignored, could prevent their successful turnaround.”
All eyes on the future
While market uncertainty makes decision-making difficult, the extension of government support measures will give firms time to reflate balance sheets and prepare employees for the restart in business.
Within six months, the stabilising effect of government support will be removed, and it will become clear which companies took advantage of the time to reposition themselves for future growth.
“To ensure long-term success, the more agile and forward-thinking a business can be, the better chance they have at remaining resilient and ahead of their competitors,” Blackhall O’Sullivan added.