Profit warning rise at 10-year high
Profit warnings by struggling listed companies saw their biggest quarterly rise for more than a decade in the final months of 2011, according to a new report.
Quoted companies announced they were lowering their expectations 88 times in the final quarter of 2011, compared with the 51 warnings which were issued in the previous three months.
According to the research by accountants Ernst & Young, it is the biggest quarter-on-quarter jump since 2001 and pushed up the total number of profit warnings last year to 278, in contrast to the 196 the previous year as the best performers pulled away from underachieving "zombies".
Warnings in the quarter from the likes of retailer Mothercare, Mr Kipling cakes manufacturer Premier Foods and ailing Blacks Leisure pushed the proportion of listed companies who put out warnings in 2011 up to 14%, the highest since the financial crisis first started in 2008.
Alan Hudson, head of Ernst & Young's UK restructuring practice, said: "As evidenced by the sharp jump in the number of warnings, 2011 was a tough year for many companies and this year is likely to continue in the same vein, with the gap between the winners and losers widening.
"Many businesses are still expanding profitably, but others - the zombie companies - remain moribund by debt or defunct business models, unable to build value or gain momentum in these challenging economic conditions. Creditor patience cannot last forever and, as growth becomes increasingly elusive, we expect further rounds of restructuring in the year ahead."
Retailers were the worst affected, with companies in the sector issuing 39 profit warnings in 2011, more than the whole of 2009 and 2010 combined.
During the last quarter of 2011, a record 18% of the listed companies who work in the retail sector put a warning out.
IT services and support services also suffered the knock-on effects of the public sector and businesses cutting back, with both sectors seeing 12 warnings each during the quarter. Software and computer services companies alone issued 31 profit warnings throughout 2011, 40% more than the year before.
According to the report, pressure on firms' incomes is likely to remain intense during 2012 due to threats such as the eurozone crisis, slower growth in China and a potential fall back in US demand.