More profit warnings to come in 2011

THE number of profit warnings is due to rise this year after sliding to a record low in 2010, according to analysis by UBS.

Analysts at the bank emphasised that profit warnings are already on the rise, with January seeing as many warnings as the whole of the fourth quarter in 2010.

Last year saw just 196 profit warnings, compared to an average of 342, the analysts said, citing data compiled by Ernst & Young. The fourth quarter of last year saw the number of warnings rise to 51, concentrated in IT, media, retailers and support services.

And UBS expect UK firms to be stretched, despite a record high of 62 in the manufacturing purchasing managers’ index for January.

“Inflationary pressures showed up in record rises in input costs and higher output prices,” UBS said of the PMI survey.

Analysts blamed the uptick of warnings at the end of last year on the IT and services sectors’ exposure to contract cancellations and postponements due to government cuts.

Snow also played its part for the consumer sector, prompting the analysts to conclude: “Even Mother Nature appears to be against a smooth recovery.”

And the bank predicts that further warnings could continue to be concentrated among retailers: “Tougher times are ahead for the retailing sector when household incomes are under more pressure in face of potentially higher tax bills, mortgage costs and rising unemployment,” it said.

The analysts also suggested that warnings are less likely among international FTSE 100 firms with exposure to demand in higher-growth markets.

Despite the overall drop in warnings last year, aerospace and defence saw profit warnings double as governments dropped contracts globally.

The sectors where the number of warnings fell most in 2010 were industrial engineering and electrical equipment, which were 60 per cent down on 2009.