Profit warnings soar on 11 Sept fall-out

A total of 520 profit warnings were issued last year, a rise of 117% on 2000 with 149 issued in the fourth quarter, according to the latest quarterly report by Ernst & Young.

The survey revealed that no industry sector has been exempt from the effects of the downturn and the 11 September attacks in the US.

Over 40% of the warnings in October either directly cited the impact of 11 September attacks or the knock-on effects on transport, tourism or American consumer confidence.

However sympathetic reactions from investors meant that share prices only fell by 14% on average on the first day of trading following a profit warning. Historically the fall has been as high as 25%.

Warnings are expected to drop in the first quarter this year, but the firm said companies would still have to maintain a watchful eye over cash flows, debt levels and margins.

Alan Bloom, head of restructuring at E&Y, said: ‘In the uncertain atmosphere that will dominate the next few quarters there will be extreme pressure on profit margins. Sales and prices will continue to remain stagnant or decline whilst fixed costs such as wages continue to rise.’

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