Key takeaways from the latest profit warnings report

EY-Parthenon publishes its profit warnings report on a quarterly basis⁽¹⁾. The report outlines the profit warnings issued by companies from different sectors and provides an analysis of the factors driving the warnings issued. Profit warnings are statements issued to the stock exchange by listed companies to declare that their full-year profits will be materially below management or market expectations.

Key takeaways from the latest profit warnings report

Construction businesses continue to operate in a pressure cooker environment. The latest profit warnings report from EY-Parthenon showed the same amount of warnings were issued in 1Q2025 by construction and materials firms as in the whole of 2024.

The sector issued five profit warnings last quarter – the highest quarterly total in over a year – with rising uncertainty cited as the primary challenge. With employment cost increases and margin pressures pushing construction’s mid-tier to its limit, what are the main takeaways from the latest report?

The national outlook

Despite an 11% year-on-year fall in all UK profit warnings in 1Q2025, EY-Parthenon’s report suggested tariff disruptions and the broader economic fallout are expected to intensify sector vulnerabilities.

Looking at the 62 profit warnings issued in the first quarter, sales short of forecasts, delayed or discontinued contracts, and labour market issues were among the main driving factors. Across the UK, 18% of companies issued profit warnings in the last 12 months – a level usually associated with recession or shock.

That said, the level of profit warnings issued nationally has remained relatively steady since the spike seen during the COVID-19 pandemic. In 1Q2025, total UK warnings were down on the quarterly and annual comparisons, and fell by 30.3% on pre-pandemic 1Q2019.

^{Source: EY-Parthenon analysis of UK profit warnings}

However, this picture is less optimistic in some instances at a sector level. Construction and materials firms issued the third-highest number of warnings in 1Q2025 behind software and computer services, and industrial support services. Home construction was also among the sectors with the highest percentage of companies issuing warnings in the last year.

What’s happening with construction profit warnings?

EY-Parthenon’s report identified delays in contract commencement and project timelines as the most common drivers behind the profit warnings issued by construction and materials firms. These are placing added strain on working capital, which is exposing mid-market firms and subcontractors more than others. It comes as no surprise that mid-market firms are also experiencing the highest concentration of profit warnings and financial distress.

Other issues spotlighted in the profit warnings report included regulatory scrutiny, namely under the Building Safety Act 2022. While positive for improving quality and safety, new duties and procedures mandated by the Act are complicating project approvals and operational planning.

Elsewhere, high employment costs were flagged as a key challenge for the construction sector in EY’s latest Restructuring Pulse Survey. The survey, which is conducted across different European regions, collects insights from workout bankers to identify the challenges driving restructuring trends across different sectors. In contrast to the rest of Europe, construction featured heavily in the UK survey which was attributed to the localised impact of rising UK employment costs, and the relative size of its service economy.

Unlike other areas of the economy, construction is often disproportionately impacted by cost increases, usually due to fluctuations in demand uncertainty and materials prices.

Given construction output flatlined in the first quarter of 2025, increases in National Insurance Contributions and the national living wage could spell further trouble for the sector. Even with the spate of new orders seen in 1Q2025, construction’s mounting labour problems could delay or derail confirmed work, compounding the knock-on effect of employment costs.

Construction profit warnings in context

When considering all of the available construction and materials profit warnings since the start of 2007, the impact of the global financial crisis and the pandemic on the sector are clear. In 2020, 33 profit warnings were issued in total with 14 issued in the first quarter alone – the highest annual and quarterly totals of the available data.

^{Source: EY-Parthenon analysis of UK profit warnings}

While warnings in 1Q2025 were nowhere near this level, they increased on the quarterly and annual comparisons. The level in 1Q2025 was also higher than in the first quarter of 2015 and the same as it was in 2009, just after the financial crisis.

Looking ahead, the report picked out rising National Insurance Contributions and heightened economic uncertainty as challenges for 2Q2025. The latter was underlined for its potential to counter the possible benefits of reduced costs on materials redirected to the UK following tariff changes.

The report also suggested that fresh challenges pose a risk to the sector’s stability, after several high-profile insolvencies that underscored ongoing vulnerabilities. Data from the Insolvency Service showed construction insolvencies in March 2025 were at a seven-month high and accounted for 18.1% of all company insolvencies in England and Wales.

Dr David Crosthwaite, chief economist at BCIS, said: ‘The latest insight from EY-Parthenon highlights the unstable environment construction firms are currently operating in. In the 17 years since the 2007-08 financial crisis, the sector has struggled to recover and maintain a period of long-term prosperity.

‘Profit warnings are by no means a reflection of every company’s woes, but they are a good indicator for assessing how the largest quoted firms are faring. This time around, economic uncertainty and the government’s taxation of businesses appear to be negatively impacting the sector. Without greater demand and capacity certainty, the next profit warnings report could well be bleaker still.’

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^{(1) EY Partheon – Analysis of UK Profit Warnings – here}