More profit warnings to come

There was a record number of profit warnings in the second half of 2001-2002, according to an Ernst & Young survey, which found there were 88 warnings in the six months to June 30.

This was an increase of 10 per cent on the previous quarter and a rise of 31 per cent on the same period a year ago. And there are more to come, says Ernst & Young, with corporate finance restructuring partner Peter Shear predicting another 65 to 75 profit warnings by the end of 2002.

Several factors have contributed to this, including Australia's economic outlook, but Mr Shear said that the US situation has also made an impact. Companies are going to be more careful now in the way they report profits, with many becoming more conservative and revising their forecasts downwards. E&Y expects directors to seek independent reviews of management earnings forecasts.

Although large companies are more likely to receive media attention for their profit downgrades, E&Y found that smaller companies were actually responsible for more warnings: 68 per cent of the downgrades came from companies with annual turnover of less than $100 million, while only 10 per cent came from companies with revenue over $500 million. The largest number of warnings came from manufacturers (21), then technology companies (19), followed by finance institutions 98) and mining companies (8).