Profit warnings from businesses with a DB pension scheme increased 85%

46% of the companies issuing a profit warning with a DB scheme this quarter cited supply chain and rising costs as the main factor

The number of listed UK companies with Defined Benefit (DB) pension schemes issuing profit warnings almost doubled in the third quarter of 2021, according to EY-Parthenon’s latest profit warnings analysis.

Of the total 1,228 listed companies in the UK, 22% have a UK DB scheme, 5% of which issued a profit warning in Q3 2021.

Additionally, 15% have warned in the last 12 months, compared with 62% in 2020.

According to the analysis, 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 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, with 43% citing vulnerabilities in supply chains and energy and labour markets as the reason.

Of the 13 companies issuing a profit warning with a DB scheme this quarter, 46% cited supply chain and rising costs as the main factor.

Karina Brookes, UK Pensions Covenant advisory leader and EY-Parthenon partner, said: “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.”

James Berkley, EY-Parthenon Pensions Covenant and 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.”

Brookes 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.”

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