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Fall in number of profit warnings

The number of profit warnings posted by UK firms fell in April-June to their lowest second quarter level since 2003, a report has said.

There were 63 warnings issued by firms listed on the London Stock Exchange in the quarter, down 36% from a year ago, said accountants Ernst & Young (E&Y).

The decline may add to the growing feeling that the UK is nearing the bottom of the recession, E&Y said.

But it added that the economy still had a “difficult road ahead”.

Keith McGregor, restructuring partner at E&Y, said: “Many companies have withdrawn profit guidance due to a difficult forecasting environment, while three successive quarters of negative growth have diminished market expectations.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.”

The report found that profit warnings increased in the support services sector to 17 in the quarter, from 12 a year earlier.

The rise was not surprising, said E&Y, “given the sector’s sheer size and exposures to the vagaries of the cycle”.

Support services, which includes recruitment, is the largest FTSE industry grouping and makes up a large part of the economy.

Six media companies put out warnings in the three-month period, down from 13 a year ago.

Mr McGregor added that the number of profit warnings were unlikely to increase rapidly, even if the economy contracts further.

“In this scenario profit warnings should stay relatively low,” he said. “However, if markets become buoyed by optimism too quickly, then we may see a further correction later in the year.”

This was posted in Bdaily's Members' News section by Ruth Mitchell .