Profit warnings and sagging retail salesadd to recession fears

Gloomy outlook for Savills, Inchcape and UK Coal
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The Independent Online

Further evidence that the UK economy has gone into reverse was provided yesterday by a trio of profits warnings from companies operating in widely different sectors, as well as further grim sales figures from the high street.

Savills, the estate agency, Inchcape, the car dealership, and UK Coal all said yesterday they would not meet previous financial expectations, while sales figures from John Lewis indicated another week of gloom on the high street.

Savills cited "increasingly challenging markets" for a sharp reduction in transaction volumes that will drag its underlying profits below the analyst consensus of £48m for the year ending in December. Following the announcement, the company's house broker cut its estimate to £40m.

Deals have dried up in both Europe and Asia, said Savills, which specialises in the top end of the market and international sales. Not only is financial confidence in tatters, but buyers are holding off on the expectation of price falls to come. In Asia, customers expecting the market to drop by 15 to 20 per cent within the year are walking away from their 5 per cent deposits.

Plummeting confidence is wreaking similar havoc in the car industry. Inchcape, which employs 6,000 people in the UK and another 11,000 globally, lost more than two-thirds of its market value yesterday after warning that sales for the nine months to September were down by 1 per cent, pushing pre-tax profits down by 7 per cent.

The biggest problem is in the UK, where the new car market dropped by 18.8 per cent in the three months to September. Inchcape's sales fell 10.8 per cent over the same period. The Balkans are also proving tricky. The Latvian and Estonian markets are well down on last year's levels, although 40 per cent growth in Russian demand for international brands goes some way to offset the declines. But the situation is not improving and trading is now becoming more difficult across Europe, while the company is also predicting slowing demand in Hong Kong and Singapore.

André Lacroix, Inchcape's chief executive, said: "The global financial crisis and its consequence on the real economy is clearly affecting consumer confidence mainly in the mature markets, and this is having an impact on the purchase of big-ticket items."

Small-scale consumer spending is also suffering. Sales by the John Lewis Partnership, a bellwether of high street spending, for the second week in October were down by 4.8 per cent on the same week of 2007. Waitrose, the group's high-end supermarket chain, is having a particularly difficult time. Although sales are down by just 0.3 per cent year on year, with food inflation running at around 5 per cent, sales by volume are also 5 per cent down.

Yesterday's hat-trick of profits warnings was completed by UK Coal, the country's largest coal producer. Profit expectations for the year will fall "significantly below" expectations, the company said, sending its share price down by almost 34 per cent.

Riding high on soaring market prices, UK Coal nearly quadrupled its profits in 2007, but equipment problems and bad weather have pushed full-year sales expectations for this year down by 700,000 tonnes. And with the coal price down by nearly a third since August as the global slowdown limits demand for commodities, production losses are no longer being offset by rising income.