Firms more cautious on profits

Tim Wallace
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THE NUMBER of profit warnings issued by UK businesses fell 18 per cent in the second quarter of 2012, according to figures out yesterday from Ernst and Young – but only because firms are more cautious in their initial predictions, not because profits are improving.

Sixty warnings were issued in the quarter, down from 73 in the previous three months. But any unexpected deepening of the Eurozone crisis could push warnings up again, the report warned.

“Part of the fall in warnings is undoubtedly due to a slight improvement in trading conditions, alongside hopes for an Olympic boost, and, crucially, falling input prices,” said Ernst & Young’s restructuring head Alan Hudson. “However, many companies have also battened down the hatches and cut costs to meet targets,” he added.

Though most FTSE sectors saw a year-on-year drop in profit warnings, the UK’s construction and materials companies were the worst hit during the quarter as seven firms issued alerts – the highest number since 2008.

The British high street has also continued to feel the stretch, with five profit warnings from firms in the FTSE’s general retailers list.

Though this number matched the previous quarter it was down from nine in the same period a year ago, suggesting that pressure on the consumer purse has begun to ease.

“Even if the UK economy moves back into the black this summer, the recovery still lacks the traction it needs to build sustainable momentum,” said Hudson.

“There is only so much fat that companies can trim and only so long they can tread water with little or no investment – investment that both they and the UK economy desperately need.”