Number of profit warnings down 36% on year
Accountants Ernst & Young (E&Y) have reported that the number of profit warnings by UK Plcs has stabilised but cautioned that the economy still had a “difficult road ahead”.
The group said 63 profit warnings were issued in the April-June period – a year-on-year drop of 36% and represents the lowest second quarter figure since 2003.
However, E&Y cautioned that difficult times lie ahead and the worst may be far from over.
Keith McGregor, restructuring partner at E&Y, explains: “Many companies have withdrawn profit guidance due to a difficult forecasting environment, while three successive quarters of negative growth have diminished market expectations.”
“Add in hamstrung banks and a lingering credit crunch, and it’s apparent that although the economy appears more stable and the outlook brighter than at anytime in the past year, UK plc still has a difficult road ahead,” added Mr McGregor.
However, in the support services sector (which includes recruitment and is the biggest FTSE industry grouping and makes up a major part of the economy) profit warnings actually increased to 17 during the April-June period, up from 12 a year earlier.
According to E&Y, the increase was not a surprise, “given the sector’s sheer size and exposures to the vagaries of the cycle”.
Mr McGregor concludes by saying that the number of profit warnings were unlikely to increase rapidly, even if the economy contracts further.
Earlier this month, official figures revealed that the UK economy shrank by 2.4% in the first three months of 2009 – far worse than expected and the biggest quarterly decline in 51 years.
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