Fewer UK profit warnings in second quarter

The number of British companies issuing profits warnings fell by 10% during the second quarter of the year, figures showed today.

During the three months to the end of June 64 profits warnings were issued, down from 71 in the first part of the year, according to financial services group Ernst & Young.

The group said the fall followed a 30% rise during the first quarter, but added that the figure was still well above the number of warnings seen during the final three quarters of 2003.

It added that the decline could mainly be attributed to a fall in profits warning among retailers, who were benefiting from consumers’ continuing spending spree.

Warnings from retailers fell from a traditional post-Christmas high of 11 during the first quarter to just three in the second part of the year.

But other sectors fared less well, with IT, leisure and construction companies all issuing more warnings.

E&Y said IT companies issued six profits warnings during the quarter up from two during the first three months of the year, probably as a result of companies reducing their IT spend, while leisure companies issued five warnings up from two.

Construction firms saw the number of warnings they issued rise to seven from just one in the previous quarter as a result of concerns over interest rates, the housing market and British government spending on construction projects.

Software and computer services companies, and support services firms issued the highest number of warnings at nine each.

Andrew Wollaston, corporate restructuring partner at Ernst & Young, said: “The decline in warnings in Q2 2004 appears to reflect the continuing relatively good health of the economy.

“It also shows that the Bank of England’s four interest rate increases since November, including successive ones in May and June, have so far done little to dampen economic activity or consumer confidence.

“With profit warnings arising with lower frequency but across a wider range of sectors, there is a sense that the playing field is levelling out, and that companies continue to have reasonable certainty against which to plan and forecast.”

The most common reasons given for issuing warnings were difficult market or trading conditions, followed by sales falling short of forecasts and the impact of exchange rates, often due to sterling’s high level against the US dollar.