U.K. Company Profit Warnings Increase on Weak Economy, E&Y Says
U.K. company profit warnings rose in the third quarter as a “washout summer” and weak domestic and global demand undermined business, Ernst & Young LLP said in a report published today.
U.K.-listed companies issued 68 profit warnings, up from 60 in the previous three months and the most for a third quarter since 2008, the group said in a report published in London today. Twelve companies cited worse-than-normal weather as the principal reason for the warning, the most since a cold spell at the end of 2010 and start of 2011.
Britain’s economy is set to shrink this year for the first time since 2009 as budget cuts bite and the euro-region debt crisis hurts demand in the U.K.’s biggest export market. While the economy probably grew in the third quarter, that will mask underlying weakness, with the Bank of England saying last week that the outlook has deteriorated in the past three months.
“Bad weather was, as ever, an exacerbating factor in most profit warnings,” E&Y said. “Weak U.K. demand, a slowdown in global markets and the growing risks to the outlook had a greater impact on profit expectations.”
E&Y said the increase in profit warnings from manufacturers stemmed from “sluggish” markets. It also said that the increase in total warnings came even as price pressures eased. “If price rises seen in recent industry surveys stick, this could provide a further knock to profits and the U.K.’s recovery,” it said.
“What is becoming clear is that both the U.K. and Europe’s climb out of the down-cycle will be both lengthy and volatile,” Keith McGregor, head of restructuring for Europe, Middle East and Africa at E&Y, said in the report. “Companies are having to adjust to the new reality and focus on strategy to protect and improve earnings in an extended period of low growth.”
The support services sector issued 15 profit warnings in the period, the highest of any industry, according to today’s report. Industrial engineering companies issued six warnings and electronic and electrical components companies five.
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