- Profit warnings from UK listed companies with a DB scheme almost doubled between Q2 and Q3 2021, but the total remains significantly below the 2020 peak
- In the last 12 months, 15% of UK listed companies supporting a DB scheme have issued a profit warning, compared with 62% in 2020.
- In 2021 the number of UK listed companies supporting DB schemes has fallen by 13 (5%), reflecting high levels of UK M&A and private equity activity, raising questions for DB pension scheme members
The number of listed UK companies with Defined Benefit (DB) pension schemes issuing profit warnings almost doubled, from 7 to 13, in the third quarter of the year, according to EY-Parthenon’s latest Profit Warnings analysis.
Of the total 1,228 listed companies in the UK, 267 (22%) have a UK DB scheme – of which 13 (5%) issued a profit warning in Q3 2021 and 15% have warned in the last 12 months. Warnings from companies with a DB scheme are still well below the numbers documented in 2020, when almost 62% issued a profit warning.
In the last 12 months, most companies issuing profit warnings with a DB pension scheme were from industrial or consumer-facing sectors that were challenged by COVID-19 lockdowns, and more recently by supply chain risks, energy prices and labour shortages. Two-thirds of UK listed companies sponsoring DB schemes sit within these sectors.
The total number of profit warnings issued by UK listed companies rose to 51 in the third quarter of 2021, up 19 in Q2, with 43% citing vulnerabilities in supply chains and energy and labour markets as the reason, despite many companies enjoying a post-pandemic surge in sales over the summer months. Of the 13 companies issuing a profit warning with a DB scheme this quarter, 46% (6) cited supply chain and rising costs as the main factor.
Karina Brookes, UK Pensions Covenant Advisory Leader and EY-Parthenon Partner, comments: “Whilst profit warning levels remain lower than last year, this latest rise coincides with the end of most government support measures and is strongly linked to the recent supply chain challenges and rising energy and labour costs seen in many sectors.
“Companies with DB schemes are concentrated in industrial, consumer and construction sectors, which are being hit hard by these supply challenges and rising costs. As issues play out, directors of corporates sponsoring DB schemes and pension trustees should take notice of The Pension Regulator’s increased powers and monitor signs of covenant deterioration and clearly document actions.”
James Berkley, EY-Parthenon Pensions Covenant & Transactions Partner, said: “The UK market has been very attractive to buyers and private equity in particular, contributing to a 5% fall in the number of listed companies with a DB scheme in 2021. As we enter the final quarter of the year, the number of businesses being prepared for sale remains at historically high levels and the introduction of the Pensions Act creates additional risk for sponsors looking to transact at speed. Early engagement with stakeholders and pension trustees remains critical.”
Karina added: “We are certainly seeing clients and the regulator being more aware of and concerned with the number of companies being taken private. Trustees should seek to determine the risk associated with their scheme sponsor being taken over and consider options available to either reduce the risk or better secure the scheme.”