Profit warnings surge, says E&Y

A record number of companies issued profit warnings in the third quarter of this year, a survey by the Big Five firm found. And the firm said the number of warnings is set to grow for the last three months of the year, despite consumer confidence remaining strong.

Andrew Wollaston, a senior partner in Ernst & Young’s corporate restructuring arm, told Accountancy Age: ‘We will see profit warnings from between 130 and 150 [FTSE companies] over the next three months. Consumer confidence is probably the single biggest factor underpinning the UK economy at the moment.’

The slowdown in the technology sector, which accounted for 41% of the third quarter profit warnings, is now seeping into other industry sectors, according to E&Y’s analysis.

Most profits downgrades were attributed to falling demand in US markets, general statements about difficult trading conditions and clients delaying or cancelling contracts at short notice.

The media sector, traditionally seen as an economic bellwether, accounted for 16% of the total profits warnings between July and September.

London and the south east fared worst of all with 68% of warnings coming from this area.

Wollaston urged business leaders to start managing their businesses around cash.’People have to start managing their businesses around cash metrics as opposed to profit metrics,’ he said.

‘Whatever the length of the current downturn there will be an upturn – no matter how distant it seems. Companies must manage their businesses very tightly over the next few months if they are to be best-placed to take advantage of opportunities that will arise when the upturn comes,’ he added.

Meanwhile Deloitte & Touche has warned the world could be on the brink of the ‘worst economic downturn’ since the Second World War.

The firm said with Japan and much of Asia already in recession and the US on the edge of outright recession, ‘there is no doubt that a severe slowdown is in train [in the UK] also’.


Deloitte & Touche Economic Review

Ernst & Young survey

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