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Over 15% of UK-listed companies issued 2012 profit warnings

E&Y says number of profit warnings highest since the financial crisis

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UK-listed companies issued the most profit warnings over 2012 since the height of the financial crisis, according to a new study published by Ernst & Young (E&Y).

The global advisory firm’s latest quarterly Profit Warnings report, published this week, says UK companies listed on the main market and AiM issued 86 profit warnings in the fourth quarter of 2012, up 26 percent quarter-over-quarter, taking last year’s total to 287. This was the highest since 2008 according to E&Y.

In total, over 15 percent of all UK quoted companies issued profit warnings in 2012, the highest annual proportion of companies warning since 2008, when nearly 18 percent did so. Concern over the economic outlook for 2013 peaked in the final quarter of last year, when 26 companies cited delayed or cancelled contracts in their profit warning – also higher than the previous peak in 2008.

E&Y attributed the rise to mounting risks across the Eurozone and US, combined with a slowdown of growth in China, knocked business confidence and reduced demand, encouraging a climate of inertia.

Business service companies issued the highest number of warnings in the fourth quarter as well as the whole of 2012, hit by falling activity, widespread corporate cost cutting and contract delays. FTSE Support Services issued 15 profit warnings over the quarter, taking their annual total to 46 and FTSE Software & Computer Services issued 8 warnings in the final quarter and 24 warnings for the whole year.  

Keith McGregor, E&Y’s head of restructuring for Europe, Middle East and Africa, said, “Profit expectations dropped sharply in 2012 as economic forecasts fell and escalating risks in key global economies unnerved businesses, leading to delayed investment and purchasing decisions. The UK economy lacked the strength to gather momentum against this difficult global backdrop and finished 2012 with nothing more than a low growth landscape on the horizon.”

In relative terms, industrial companies saw the largest increase in the number of profit warnings in 2012, with FTSE Electronic & Electrical Components and FTSE Industrial Engineering sectors both issuing 17 warnings in 2012, up from five and eight respectively in 2011. Almost 40 percent of FTSE Industrial Transportation companies issued a profit warning in 2012, compared with 16 percent in 2011.

Unusually, the overall rise in profit warnings was not accompanied by a rise in warnings from consumer-facing sectors, including retail. FTSE Travel & Leisure companies issued just 11 profit warnings in 2012, down from 14 in 2011. Warnings from the FTSE General Retailer sector fell to just 17 in 2012, from 39 in 2012 – the lowest number since 2002.

Looking ahead to 2013, E&Y said that barring further economic shocks, the number of UK profit warnings is likely to fall this year. Profit expectations took a considerable hit at the end of 2012 as companies adjusted to lower levels of demand. Further dramatic adjustments are unlikely unless 2013 brings a further escalation of risk in key economies, the report concludes.


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