Fall in number of UK company profit warnings

Leading business analysts Ernst & Young have reported a halving of the profits warnings issued by UK companies in the second quarter of this year when compared with the first quarter.

A spokesperson for Ernst & Young said: “Our analysis of profit warnings for the second quarter of 2003 shows just 39 companies issued warnings, the lowest total since we began our research in 1998.”

The quarterly report on from Ernst & Young found that:

• The total was down 52% from the total in the first quarter of the year
• The leisure and hotel sector led the field, with six warnings, but this was down significantly from the 11 warnings issued across the sector in Q1.

The only sectors to buck the downward quarterly trend were Health, up to four warnings from one in Q1. Also aerospace and defence, banks, and real estate, all moved from zero to one warning each.

The Ernst & Young report stated: “While this sharp decline in warnings doesn't appear to have been driven by any clear improvement in the business environment, it does appear to reflect an absence of major external shocks.”

Profit warnings can stem from a variety of factors and do not necessarily mean that the health of a firm is in question. However, when relatively large numbers of warnings come from a particular sector or type of businesses, this can prove a useful signal that these sectors or type of businesses are facing difficulties. Isolating the issues, which have led to the warning, help in the study of the causes in more detail and it can provide an indication of future prospects.

Ernst & Young’s Analysis of Profit Warnings, issued by UK quoted companies, is a quarterly report that includes a study of profit warnings by industry sector and region and provides an insight into the key issues surrounding these warning companies.

(SP)