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Research from Ernst & Young has revealed that in the third quarter of 2006, 85
profit warnings were issued by UK quoted companies, one more than the second
quarter and a
decrease of 18% on quarter three of 2005.
Difficult trading conditions were again blamed for warnings by over 40% of the
companies involved.
Of these, 21% blamed contract delays and cancellations, most of these coming
from companies with less than £ 200 million turnover.
In addition, 16% cited increased costs and overheads, up from 11% last quarter,
as primary reasons for their warning.
AIM companies
The third quarter saw a continuing increase in the number of warnings from AIM
listed companies with 61% of warnings coming from AIM this quarter.
Six companies who warned in the quarter came to the market this year, all on
AIM.
This coincided with a focus in the press on the quality of AIM-listed stock and
in particular, its light regulatory regime.
Andrew Wollaston, Corporate Restructuring partner at Ernst & Young commented:
“Light regulation is a big attraction to some AIM companies, who make no bones
about the fact that is the primary reason why they are choosing to float on the
alternative market.
"However, the argument from some quarters is that if AIM is to continue to
attract investment, then AIM listed companies must be able to better balance
good investor relations and effective forecasting despite their relatively
limited resources.
"But the Stock Exchange recently responded with a number of proposals to tighten
up regulation. The most important being the introduction of a rule book for
nominated advisors.”
Analysis by sector
The highest warning sectors were support services with 17 warnings, media
companies with 13, the highest in the last four years, and software companies
with ten. Ernst & Young predicts though that the uncertain economic environment
is likely to cause companies, especially in the retail and chemical sectors,
where there are industry specific factors, further problems in future quarters.
Christmas pain
The number of general retailers that issued a profit warning in Q3 2006 remained
constant with six warnings compared to five in the last quarter. This though is
a common issue amongst many retailers – there seems to be little change in the
tough trading conditions they face.
As Keith McGregor, Corporate Restructuring partner at Ernst & Young explained:
“Next quarter includes the vital Christmas period and given the pressure on UK
consumer spending, the rise in internet shopping and polarisation of the high
street, we expect the pain to be felt by mid market retailers.”
“But there are bright spots in the industry. There are a few significant
retailers who are doing very well, particularly those who are looking overseas
to increase their growth, thus leapfrogging a near-saturated UK market.”
Source:
RedAlert
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