Profits warnings soar by 39 percent in third quarter, worst since 9/11 |
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Sun, 23 Oct 2005 18:05
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LONDON - Profits warnings by British companies have reached a new high since the 9/11 attacks and these underline the fact that UK businesses are "yet to master the art of financial planning," according to new research by Ernst & Young.
September also saw the highest number of profits warnings with 46 firms issuing them as opposed to a total of 57 for July and August combined. These 103 warnings in the last quarter were the highest figure in three years and have soared by 39 percent when compared to the warnings issued at the same time last year.
"This level is not normally seen unless there is some sort of external shock to the economy, such as war," said Andrew Wollaston, corporate restructuring partner at E&Y. “With profit warnings averaging 92 a quarter in the past 12 months, businesses are clearly finding it difficult to forecast in the current environment.”
The scenario is unlikely to show any significant improvement in the rest of the current year as well as the early part of the next year, the report noted. Keith McGregor, Corporate Restructuring Partner at Ernst & Young felt that the multitude of profits warnings pointed to a lack of financial planning, "Businesses should be able to control and forecast their cost base. UK Plc has still yet to grasp the importance of rigorous business planning," he opined.
Till date 2005 has seen 370 profit warnings by quoted companies as against the 261 issued at the same time last year. Rising costs and weaker-than-expected demand are the main reasons behind this spurt in warnings. The high cost of energy is the single biggest culprit. "One of the biggest increases has been in the building and construction sector, where there were 10 warnings, the highest in quite some time," said Tom Burton, corporate recovery partner at Ernst & Young.
However, the profits warnings from retailers slipped to five in this quarter as compared with the 10 warnings in the previous quarter.
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