October 24, 2005 | posted by Michael Baxter in Uncategorized |

All but the recently estranged from Mars should find little of surprise in the latest headline figures from Ernst and Young on profit warnings. The Sunday papers may have proclaimed the report as if it was some kind of shock and horror, but actually hearing that there’s been a 39% increase in the number of profit warnings issued by UK quoted companies in the last quarter, to the highest number for three years, is about what you would expect. Quoted companies do make up a key part of the UK economy, after all, and if the economy dips and slows down, then it is hardly a surprise to hear that our companies have suffered too.

But, look beneath the headlines, and perhaps things become more interesting.

For London the three months was bad, but not unusual. The region usually leads the rest of the UK in terms of the absolute number of warnings, but actually its third quarter performance was exactly on par with its average. Ignominiously, the South East topped the list by region, but look a little further north towards Yorkshire and the North East and disaster strikes. The region saw over three times more profit warnings than usual.

Perhaps more light can be shined on the performance if we look at sectors. The Construction and Building Materials sector performed badly, but then as the house market has slowed down that’s hardly surprising. In all there were 10 profit warnings in this sector, precisely half of them falling into the South East, with Midlands and East Anglia picking up another three. Also down was media and entertainment, again, this is what you would expect, this sector does after all feed directly off the ever more frugal consumer.

But also suffering were software and computer services, it’s not so obvious why. A big factor cited was that it’s taking longer for companies to sign contracts.

As for why Yorkshire and the North East had such a bad three months - no obvious reason leaps out. Hotels and Leisure performed badly in the region, there were six warnings in the sector nationwide, with four of them falling in this region. But, overall, Yorkshire and the North East suffered 22 profit warnings spread over 13 sectors, compared to an average of just eight warnings in recent years.

There is one big surprise in the figures. Retail actually saw an improvement - is this a sign of things improving? Or merely a sign of how bad things have got: they don’t need to give us the bad news of a profits warning, we already know it’s bad.