UK profit warnings on the wane

Engineering firms are coming out of the downturn, E&Y suggests

British firms were in distinctly better shape during the first three months of this year than they were during the tail-end of 2001, a survey has shown.

The study from accountants Ernst & Young showed that 87 firms listed on the stock exchange issued a total of 91 profit warnings between January and March.

In the previous three months, there were a record 149 warnings - company statements aimed at informing investors that earlier profit or sales targets are being lowered.

The drop in profit warnings is the sharpest since E&Y started gathering the data in 1998, and signals a return to form from the sharp slump following 11 September last year.

Fighting back

E&Y said it believed the current quarter, from April to June, would produce a performance broadly similar or better.

And the average 14% decline in share prices that followed profit warnings during the past six months was smaller than in previous periods, suggesting that investors were getting accustomed to the gloomy tidings.

Companies, the report said, appeared to be getting "better at managing and forecasting in the current patchy and uncertain environment".

After years of trauma blamed on everything from an overvalued pound to a stifling tax burden, engineering and manufacturing proved to be one of the stars of the comeback.

After issuing 13 warnings between October and December, firms in the sector issued just four in the first three months of 2002.

Tech and telecom woe

The performance was eclipsed only by a fall from 14 to 2 in profit warnings from the household goods and textiles sectors. These industries benefited from consumers' sustained willingness to spend.

The worst showing came from the technology industries, with the software, computer services, media and photography sectors responsible for 11 warnings apiece.

And listed telecoms firms issued three warnings between January and March, having issued none at the end of last year.

"Both these sectors are continuing to suffer from a dramatic downturn in their key areas of activity," E&Y said.