Listed U.K. DB sponsors issue profit warnings over COVID-19

More than 60% of listed companies sponsoring defined benefit plans issued a profit warning in the first three quarters of the year as they worked to balance cash flows with meeting pension obligations.

Of the 524 profit warnings from U.K. companies, 228, or 44%, came from firms that sponsor a DB plan. Many of the warnings cited the impact of the COVID-19 pandemic as a reason, showed analysis by Ernst & Young. Also, 48 sponsors of U.K. DB funds issued more than one warning in the nine-month period.

The sectors with the highest number of warnings were travel and leisure, industrial support services, construction and materials, retailers and household goods and home construction. While these sectors were the hardest hit, a third of all listed companies issued profit warnings in the nine months to Sept. 30.

However, in the third quarter, listed companies that sponsor a DB plan issued 32, largely COVID-19 related, profit warnings, down 25% from the same period in 2019.

"It is vital that boards do not underestimate the depth and extent of both the immediate and long-term challenges ahead, as COVID-19 is not a temporary earnings challenge and will likely change how business and investors operate," Gareth Mee, U.K. actuarial leader at Ernst & Young, said in a news release.

The financial market backdrop is volatile as the U.S. elections and Brexit among other potential risk events will increase pressures across many pension funds' investment portfolios, Mr. Mee added.

"As we look to the end of the year, the mounting red flags of financial stress add to the growing concern of the hundreds of thousands reliant on pension schemes for their future well-being," he said. "Boards that plan carefully, are agile in their response and allocate capital wisely will have the best chance of riding this challenging economic period."