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Credit crunch profit warnings

Consumer uncertainty triggers profit warnings alertProfit warnings from UK
plcs hit their highest levels in the last quarter of 2007 since the same period
in 2001, and could see another bumper year in 2008, says Ernst & Young.

Pushed by those already wearing nuggets of worry, the credit crunch and the
US sub-prime mortgage crisis, there were 107 warnings in the fourth quarter of
2007, a chunky 22% increase on the same period in 2006 ­ and one-in-five
companies “explicitly blamed” those two factors for causing the profit warnings.
The report added that most warnings came from outside the financial sector,
demonstrating how all industries and companies, not just financial firms, have
been and will be affected by the fallout from these situations.

This year, the report found that retailers could be one of the hardest hit
sectors of UK industry, embattled by slowed consumer spending and increased
credit card application rejections, all pointing to a recession ­ which can only
mean CV time for some FDs, as a slew of corporate restructures among poorly
performing retailers are “inevitable”, the report indicated.

“Sectors reliant on fluid credit markets will continue to struggle, as will
those dependent on the consumer,” E&Y corporate restructuring partner Keith
McGregor said. “In addition, it is likely that refinancings will be more
challenging going forward. As we leave behind the relatively benign economic
conditions that we had at the start of 2007 and head into an uncertain 2008,
companies are going to have to get smarter with their forecasting.” Shares in
crystal ball-manufacturers could be a good buy this year, then.
www.ey.com

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