Midlands quoted companies increase profits warnings
PROFIT warnings from UK quoted companies based in the West Midlands rose during the third quarter when compared with the previous three months, new figures show.
However, nationally the figure dropped significantly in Q3. Ernst & Young said the fall was due to diminished expectations, rather than economic improvement.
In its latest Profit Warnings data the firm said UK quoted companies – Main Market and AIM listed – issued 51 profit warnings in Q3, 11% more than the same quarter of 2010 (46 warnings) and 28% fewer than were issued in Q2, 2011 (64 warnings).
In the West Midlands three profit warnings were issued in Q3, one more than in Q2 and the same number as in Q1. However the warnings came from different sectors compared to the national trend. One warning was issued in the Media sector, the second came from Travel and Leisure and the third from Aerospace and Defence.
Ian Best, restructuring partner at Ernst & Young in Birmingham, said: “Undoubtedly, part of the drop is due to limited growth in the UK economy which, when combined with operational efficiencies, is helping companies to meet profit expectations.
“However, it is also true that these profit expectations have been scaled back significantly over the summer, hit by escalating fears of a double dip.”
The FTSE sectors with the highest number of profit warnings this quarter were General Retailers and Media with six, and Software & Computer Services and Construction & Materials with five.
UK retailers are facing face their biggest test since 2008, with many high street names already disappearing into administration.
E&Y said quoted Retailers have already issued more profit warnings in the first nine months of 2011, than in the whole of 2010 and 2009 combined, and will be approaching Christmas with more than the usual mixture of hope and trepidation.
It said they would be keeping a tight rein on stock and cash levels in the lead up to Christmas and the December quarter rent day.
“As we move into the vital final quarter, profit will come second to cash flow concerns for those retailers who have already dug deep into their reserves to put stock on the shelves and pay the rent. Some are clearly running on empty and desperately need tills to start ringing quickly,” said Mr Best.
“Some in the sector are clearly up against it as competition and pricing intensifies and the consumer remains cautious.”
Construction & Materials was the FTSE sector with the highest proportion of companies warning this quarter, with 15% of companies warning in Q3 and 24% in the year-to-date.
“The long construction pipeline has delayed the impact of the slowdown and austerity in the sector, but cracks are now starting to show. The pain is focused mainly at the small to medium end, where there is less of a buffer against contract loss,” added Mr Best.
A weakening in domestic growth and continued uncertainty surrounding the situation in the Eurozone and the United States is compounding an already stuttering economy.
“Given the increasing economic worries at home and abroad, many UK quoted companies have been exceptionally cautious in their recent outlook statements,” said Mr Best.
“This means a tough 2011 and an austerity Christmas is priced in for most quoted UK companies and even a flat final quarter could result in a only a modest year-on-year rise in profit warnings.”
