Company profit warnings leap

LONDON - UK businesses have yet to master the art of financial planning, say Ernst & Young, reporting a 39 per cent jump in profit warnings in the third quarter.

"Businesses should be able to control and forecast their cost base," said Ernst & Young Corporate Restructuring Partner Keith McGregor. "UK Plc has still yet to grasp the importance of rigorous business planning."

Conditions are unlikely to improve during the rest of 2005 and into 2006, McGregor said, noting firms need to align costs with revenue and take heed of Chinese, Indian and eastern European competition.

Ernst & Young research showed 103 profit warnings in the three months to September 30 from UK-quoted firms -- a rise of more than a third compared with the same period last year and up 6 per cent from the second quarter this year.

September accounted for 46 of those warnings, Ernst & Young said, the highest number in a single month in four years.

The FTSE All Share Index rose more than 3 per cent in September despite those warnings but it has fallen about 6 per cent this month.

"With profit warnings averaging 92 per quarter in the 12 months to the third quarter, businesses are clearly finding it difficult to forecast in the current environment," said Ernst & Young Head of Corporate Restructuring Andrew Wollaston.

Half of firms delivering warnings blamed difficult market and trading conditions and almost a fifth cited increased costs.

"Though the economy is weaker than a year ago, this continued high level of warnings ... is a real concern," Wollaston added.

Despite fears about the health of the high street only five retailers issued warnings in the quarter, half the number than in the previous quarter, Ernst said.

One such firm was fashion chain French Connection, which slashed its full-year profit forecast in July, blaming a weak retail environment which has continued to weigh on the sector in the run up to Christmas.

"The lower warnings level is evidence that the continuing bad news has started to affect confidence to the point that boards of retail companies are no longer prepared to sign off aggressive forecasts," Wollaston said.

Instead, software and computer services firms like Misys, electronics companies like Abacus, the support services sector and media and entertainment stocks featured more prominently.

Construction and building materials firms accounted for 10 warnings in the quarter, the highest since 2001.

"This is a sector facing real pressure in all markets," said McGregor. "Consumer and housing market related areas are being hit by demand."

- REUTERS