More than half of the UK companies which are most at risk of insolvency made a claim for government-backed support in December, new research has found.
According to EY’s latest profit warning analysis, dozens of companies are likely to enter administration when the government support measures end, leading EY to warn that some firms might have to shake-up their strategies to “avoid hitting a financial cliff edge”.
174 UK listed companies issued at least their second profit warning during the Covid crisis, EY research has found.
Between March 2020 and March 2021, 63 firms issued at least their third profit warning within a 12-month period, almost doubling last year’s total of 32.
More than half of these firms claimed furlough support in December, while a third claimed at least one other form of government support.
Statistically, one of in five of these companies is likely to enter administration within a year of the third warning.
“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,” said Alan Hudson, EY-Parthenon UK&I turnaround and restructuring strategy leader.
“As government support comes to an end, many firms could be tested to their ultimate limit. Even stronger firms could face issues.
“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.”
The hardest-hit businesses were operating in the travel and leisure sector, with retailers and industrial support companies also facing a higher threat of insolvency.
Hudson added that the government’s extension of its support measures to September allows companies time to strengthen their balance sheets and review their operations.