Fall in profit warnings a 'false dawn'

THE UK's quoted companies have had a relatively benign start to the year but a new analysis of profit warnings from listed firms warns of more turmoil along the path to recovering corporate profits.

According to accountancy firm Ernst & Young, profit warnings from quoted UK companies tailed off from a peak in the first quarter of 2009, culminating in the lowest number of profit warnings recorded for six years during the October to December period.

A total of 282 firms downgraded expectations during 2009, 37 per cent fewer than in 2008.

This was followed by just eight warnings in the first two weeks of 2010, half of the number seen a year earlier.

General retailers were among the best performers, as the sector recorded its first warning-free quarter since the series began in 1999.

Colin Dempster, restructuring partner with Ernst & Young in Scotland, said previously depressed earnings forecasts also helped companies of all types to beat market expectations and keep profit warnings low.

However, he cautioned that the withdrawal of government stimulus packages, the frailty of the recovery, and the expected end of quantitative easing measures in February will all ensure that "this is not the end of the story".

"Rapid recovery costs and 2010 is when we start paying," Dempster said.

"Growth in the first part of the year could sit in contrast with economic stagnation or even a second dip later on. Brace yourselves for a bumpy recovery."