UK-listed companies with defined benefit (DB) schemes issued 20 profit warnings in the third quarter of 2024, the highest quarterly total in 2024 so far, EY-Parthenon has revealed.

Its Profit Warnings report showed that the number of warnings from UK firms with a DB scheme increased by 33 per cent in Q3, and made up 24 per cent of the 84 profit warnings issued during the quarter.

However, the 20 warnings issued between July and September 2024 represented the same figure as in Q3 2023.

EY-Parthenon noted that the rise in profit warnings in Q3 meant that 23 per cent of UK-listed companies with a DB scheme had issued a profit warning over the past 12 months.

Companies with DB schemes in the FTSE Industrial Support Services sector issued the most warnings in Q3 with six, followed by FTSE Industrial Engineering, which had four.

The most common driver for profit warnings from companies with DB schemes was contract issues, cited by 30 per cent of firms, followed by rising costs (20 per cent), and credit tightening (20 per cent).

For the first time this year, labour market issues were not cited as a reason for any warnings from companies with a DB pension scheme, EY-Parthenon revealed.

Commenting on the findings, EY-Parthenon partner and UK pensions covenant advisory leader, Karina Brookes, said: “Uncertainty has been a persistent feature of the business environment for several years now.

“This pressure intensified over the summer as companies awaited the new Chancellor’s Autumn Budget and faced heightened geopolitical tensions. The latest profit warning data gives us a real-time indicator of this shift in business sentiment and the impact it can have on company earnings.

“In this environment, against a backdrop of the new DB Funding Code and better funded pension schemes, it’s still important for schemes to monitor if the sponsor covenant can support the scheme’s risk level, as even low dependency on covenant will mean that some covenant reliance remains especially for those adopting a run-on strategy.

“Both corporate and scheme positions can shift quickly, so having flexible plans in place which can be adopted quickly when circumstances change will be key in securing the best possible outcome for scheme members.”

EY UK pensions consulting leader, Paul Kitson, added: “Despite quarterly profit warnings from companies with a DB pension scheme hitting their highest level this year, DB funding has remained robust throughout 2024.

“DB pension schemes have approximately £250bn of surplus assets, so it raises the question of whether and how UK-listed companies with a DB pension scheme could more easily utilise that surplus when facing market challenges.”

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