Page last updated at 13:32 GMT, Sunday, 12 July 2009 14:32 UK

Number of profit warnings 'falls'

Closing down sale
Profit warnings fell to the lowest level in the second quarter since 2003

The number of profit warnings by UK-listed firms fell in April-June to their lowest second quarter level since 2003, a report has said.

There were 63 warnings issued by firms listed on the London Stock Exchange in the quarter, down 36% from a year ago, said accountants Ernst & Young (E&Y).

The decline may add to the growing feeling that the UK is nearing the bottom of the recession, E&Y said.

But it added that the economy still had a "difficult road ahead".

"Many companies have withdrawn profit guidance due to a difficult forecasting environment, while three successive quarters of negative growth have diminished market expectations," said Keith McGregor, restructuring partner at E&Y.

"Add in hamstrung banks and a lingering credit crunch, and it's apparent that although the economy appears more stable and the outlook brighter than at anytime in the past year, UK plc still has a difficult road ahead."

Sector warnings

The report found that profit warnings increased in the support services sector to 17 in the quarter, from 12 a year earlier.

If markets become buoyed by optimism too quickly, then we may see a further correction later in the year
E&Y partner Keith McGregor

The rise was not surprising, said E&Y, "given the sector's sheer size and exposures to the vagaries of the cycle".

Support services, which includes recruitment, is the largest FTSE industry grouping and makes up a large part of the economy.

Six media companies put out warnings in the three-month period, down from 13 a year ago.

But E&Y said this should not be taken as a sign that the media downturn is bottoming out.

Media companies still have to deal with "cyclical challenges" such as cuts in advertising and consumer spending.

Mr McGregor added that the number of profit warnings were unlikely to increase rapidly, even if the economy contracts further.

"In this scenario profit warnings should stay relatively low," he said. "However, if markets become buoyed by optimism too quickly, then we may see a further correction later in the year."

"But, still countering our ability to predict the outlook for profit warnings is the ongoing trend for companies to limit or stop their profit guidance.

"Whatever companies decide on public guidance, it still does not remove their obligation to report material events that may impact profit as soon as possible to the market."

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