THIRD quarter profit warnings from UK listed companies returned to levels last seen in the dark days of 2008 this year as the weakening economy, combined with one of the wettest summers on record, forced firms to cut their cloth accordingly.
The latest profit warnings report from accountancy firm Ernst & Young, released today, shows 68 warnings were issued between July and September.
Although the report does not mention individual companies, those telling the market to lower expectations in the third quarter of this year included fashion house Burberry, toy firm Hornby and waste management specialist Shanks.
Drinks firm Britvic, which is in talks to merge with Scottish peer AG Barr, put out a profit warning in July after recalling faulty Robinsons Fruit Shoot bottle tops.
Four warnings were issued in Scotland, twice as many as reported in the corresponding quarter in each of the past three years.
Ernst & Young says Scotland’s warnings related to firms in the FTSE sectors of beverages; software and IT; support services; and technology, hardware and equipment.
But Colin Dempster, head of restructuring at Ernst & Young in Scotland, said the most troubled sector north of the Border was construction.
“While its lack of listed companies is reflected by its omission from the report, Scotland’s construction sector continues to witness the most stress with industry leaders calling for urgent support as recently as this week,” he said.
The report noted that the quarter also saw the highest number of companies citing adverse weather conditions as a factor in warnings since the winter freeze of 2010-11. But many of those same companies had issued previous warnings, identifying weak UK demand, a slowdown in global markets and growing uncertainty in the economic outlook as more pressing concerns.
Dempster said: “While some profit warnings from consumer-facing sectors can be blamed on bad weather, the poor performance of the UK economy and growing global growth concerns remain the real underlying issues.”
Across the UK, the support services category in the FTSE listings was the worst affected, with 15 warnings.
The recruitment and training sub-group alone issued four warnings during the period – its highest number in three years. This, Ernst & Young says, is a sign that more companies are preparing for leaner times ahead.
Alan Hudson, head of the accountancy firm’s restructuring practice in the UK & Ireland, said: “Its breadth plus its exposure to government and corporate spending patterns makes the support services sector a useful bellwether of confidence in the wider economy. Given its position in the firing line of austerity, this quarter’s spike in warnings in that sector reflects the trend of companies cutting their cloth to match new realities.”
He said the three-year high in recruitment company warnings was consistent with businesses focusing on operational improvements to drive growth rather than transaction activity.
Britain’s listed retailers bucked the trend. No warnings were issued by FTSE food and drug retailers for the first time in two years, while three profit warnings were issued by “general retailers” – the lowest quarterly total for two years.
Hudson said retailers would be under pressure to drive sales in the run up to Christmas, when momentum must be gained and maintained. He said many will be tempted to offer discounts, but the tactic can backfire if companies trap themselves in a “discounting spiral” that can damage their brand.