UK tech profit warnings at highest level since pandemic

The number of profit warnings issued by UK tech firms has almost tripled in the past year, highlighting the ongoing economic issues across the industry.

Outside of technology, UK-listed companies also registered the largest number of profit warnings since the start of the COVID-19 pandemic.

Over one-in-five (22%) profit warnings were issued by companies in the technology, media and telecoms (TMT) sector - a total of 16, up from six in Q1 2022.

In total, UK-listed firms sent out 75 profit warnings between January and March 2023, up from 72 across the same period in 2022. 

Results shared in EY Parthenon’s newest tech profit warnings report showed the start of the year was the worst period of profit warnings since the pandemic, with companies having issued an unprecedented 305 in Q1 2020.

Over one-third (35%) of profit warnings highlighted canceled or delayed contracts - a sign of continued uncertainty across the industry as demand remains unstable.

The report also found that 46% of the companies that issued a profit warning across the period had done so in the previous 12 months.

“Significant disruption and uncertainty, particularly in consumer-facing markets, is having a knock-on effect on the TMT sector as businesses reevaluate their cost bases and delay purchasing decisions,” said Will Fisher, UK strategy and transactions TMT leader at EY.

“The result is short-term revenue growth challenges for TMT companies, many of which are also trying to prioritize profitability and cash flow as they face a tighter and more expensive lending environment.  

“To navigate these revenue growth and profitability challenges, TMT companies need to look at how they can manage costs and pricing, reduce supply chain vulnerabilities, focus on talent retention and recruitment, and continue to adapt to their customers’ needs – including those on sustainability.”

98 companies have issued two or more profit warnings since the start of 2022. 31 have issued three, with nine of these having since delisted or been sold.

EY noted that at 29%, this percentage of delisting represents a higher-than-normal rate of companies dropping out of the market. 

One in five firms might be expected to delist after their third warning in normal market conditions.

The findings were published as firms continue to struggle with the global economic climate. 2023 has already seen a huge wave of big tech layoffs, with Amazon and Salesforce having axed 26,000 jobs in January alone.

Meta is set to continue to fire technical teams as it aims for another 10,000 redundancies after firing 11,000 staff in November.