Profit warnings jump to highest level since height of financial crisis

 

Company profit warnings jumped to their highest level since the height of the financial crisis last year amid fears over the economy and slower-than-expected demand from China.

The number of UK stock market listed companies warning over profits leapt to 86 in the fourth quarter from 68 in the previous three months, taking the total to 287 or 15% in 2012 - the highest since the credit crunch and banking sector meltdown in 2008.

The report by accountancy giant Ernst & Young comes after gross domestic product (GDP) figures today revealed output shrunk by 0.3% in the final three months of the year, fuelling fears the UK is on course for a triple dip recession.

Industrial companies were the hardest hit, with the electrical and industrial sectors each issuing 17 profit warnings last year, up from five and eight respectively in 2011.

Alan Hudson, head of Ernst & Young's UK restructuring team, said rising uncertainty at the end of 2012 had led to a fall in demand.

He said: “Slower-than-expected demand from China in particular landed heavy blows on companies reliant on emerging market growth, which would have cancelled out declining sales elsewhere.”

Transport companies also suffered, with nearly 40% of listed companies in the sector issuing warnings, against 16% in 2011.

But despite a spate of high profile retail collapses this month, with the likes of HMV, Jessops and Blockbuster calling in the administrators, the number of retail profit warnings fell to 17 last year, from 39 the previous year.

Mr Hudson said the number of warnings stayed low because retailers had already factored in a squeeze on consumer spending.

He added the summer of celebrations had also provided a welcome boost to trading, helping to offset the washout summer.

The travel and leisure sector also fared better last year, issuing just 11 profit warnings, compared with 14 the previous year.

Experts are predicting a steadier year ahead and a fall in the number of profit warnings, despite concerns that Britain is heading for a triple dip recession.

Keith McGregor, head of restructuring for Europe, Middle East and Africa at Ernst & Young, said: “Eleventh hour deals in the US and eurozone have removed the immediate threat to global markets, raising hopes of a more stable year in which a recovery can plant stronger roots.”

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