By Kristy Dorsey
Dozens of UK listed companies look to be at risk of going bust in the coming year, according to a new analysis which predicts many will face a financial cliff edge when the government’s Covid support programmes come to an end in September.
Research by accountancy group EY found that between March 2020 and March 2021, 63 companies listed on the London Stock Exchange had issued at least their third profit warning within a 12-month period. That was almost double the 2019 total of 32.
EY said that historically, up to one in five companies that have issued three profit warnings within a 12-month period entered administration within a year of the third warning.
READ MORE: Scottish company failures tumble on back of state help
Furthermore, more than half (35) had claimed furlough support from the government in December, and 21 also claimed at least one other form of support such as a CBIL loan or the deferral of business rates and VAT.
“The extent to which some of the UK’s largest firms have had to claim government support through the pandemic is evidence of the challenging environment in which many businesses have found themselves,” said Alan Hudson, restructuring strategy leader at EY-Parthenon, the group’s global strategy consulting arm.
“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 firms could be tested to their ultimate limit.”
READ MORE: Grim business distress figures only 'the tip of a very large iceberg'
In total, 174 UK listed companies issued at least their second profit warning during the 12 months to March, with 42 per cent claiming furlough support in December. The FTSE travel and leisure sector featured in this group more than any other sector (23), followed by 15 retailers and 8 companies in industrial support services.
Twelve travel and leisure firms claimed more than £1 million in December to pay their staff, with five of those claims from companies within the high-risk bracket for likely insolvency, having issued three or more profit warnings.
Mr Hudson said the transition away from government support won’t be straight-forward, and could require a wholesale shake-up of firms’ operations, along with recapitalisation.
“Within six months, the stabilising effect of government support will be removed, and we will very quickly see which companies took best advantage of the time to recalibrate and reposition themselves to secure future growth,” he added.
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