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Company profit warnings at lowest level in nearly two years

Published 26/07/2015

Only 4% of quoted companies warned on profits between April and June
Only 4% of quoted companies warned on profits between April and June

Profit warnings at UK firms in the second quarter of the year fell to a near two-year low, as business momentum picked up after a decisive general election result, a report said.

Only 4% of quoted companies warned on profits between April and June, the lowest percentage since the third quarter of 2013, according to the latest Profits Warnings report by accountants EY.

The survey added that listed firms only issued 57 profits warnings in the second quarter, a 26% drop compared to the first three months of the year.

The report said that a decisive general election result returning a Conservative Government provided greater certainty for businesses by the end of the period, while rising disposable incomes, low interest rates and a buoyant housing market boosted economic momentum.

Alan Hudson, EY's head of restructuring for UK & Ireland, said: "This period was a quarter of two halves. In April, UK profit warnings again hit a seven-year high; however in May an improving global economic outlook and an unexpectedly decisive general election result appeared to set the ball rolling on many contracts and investment decisions.

"This helped companies meet lowered forecasts and feel more confident about the future."

However, some areas of business still struggled during the period, with the software and computer services firms issuing 17 warnings, more than any other sector.

Simon Pearson, EY technology transaction partner, said: "Companies can't afford to stand still in this sector. Where possible they should think about broadening their client base by market and geography."

Stock market quoted general retailers issued five profit warnings in the second quarter, taking their first half total to 11 - the highest since 2011.

The report said the UK's recovering economy still has not been enough to cushion some retailers against a costly battle to keep pace with changing consumer behaviour and the constant demand for low prices.

Jessica Clayton, EY transaction advisory services partner and retail specialist, said: "Consumers are sticking to behaviours adopted during the recession - they have become comfortable with shopping with the discounters and diverting any spare cash to treats."

She added: "New technologies, new partnerships and changing store profiles will offer new ways to interact with consumers. However, some retailers won't have the ability or capacity to reinvent themselves fast enough."

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