Fragile companies at risk when support ends - EY

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More than half of UK listed companies at heightened risk of insolvency claimed government support in December and could face a financial reckoning when assistance is withdrawn, according to a survey.

In the year to March 2021, 63 UK listed companies issued at least their third profit warning in a 12-month period - almost double the 32 companies in 2019, EY said. Up to one in five of these companies is statistically likely to go into administration within 12 months of the third warning, the accountancy firm added.

In December, 35 of these companies claimed furlough support and one third are claiming at least one other form of government support such as a loan and/or deferred business rates and VAT.

A total of 174 UK listed companies issued at least two profit warnings in the year to March and 42% of these claimed furlough support in December. The hardest-hit were travel and leisure businesses (23), followed by retailers (15) and industrial support companies (8).

Alan Hudson, EY-Parthenon UK&I Turnaround and Restructuring Strategy Leader, said: "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. As government support comes to an end, many firms could be tested to their ultimate limit. Even stronger firms could face issues."

He said the government's extension of its support measures to September gave companies time to strengthen balance sheets and review operations. Companies should check their supply chains in case a supplier goes under, Hudson advised.

"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," he said.