Firms told they face long haul to clear recession

Six profit warnings were issued by quoted companies in Yorkshire and the North East during the first quarter of 2010 compared to 19 in the same quarter of 2009, a year-on-year fall of 68 per cent.

Hunter Kelly, Yorkshire restructuring partner at Ernst & Young, said: "Despite this low level of profit warnings, we continue to question the real strength of the recovery. Once the significant props of government spending and effects of quantitative easing fall away, I fear that the UK economy will face some post election blues."

The number of warnings issued in the region between January and March 2010 remained on par with the fourth quarter of 2009, when there were five. It was well below the region's four-year average of nine.

The sectors which suffered in Yorkshire and the North East in the first quarter of 2010 were: support services (three); industrial engineering (one); healthcare, equipment and services (one); and mining (one).

Around a quarter of FTSE industrial engineering companies issued warnings in the last year, with by far the most common reason cited as "falling sales" and "delayed or discontinued contracts".

Mr Kelly said: "There are signs that warnings from these sectors are slowing, with the beneficial effect of the weaker pound and recovery in world trade starting to come through. But it is a slow process and sluggish domestic demand is still dragging on sales."

There were 54 profit warnings issued by UK-quoted companies during the first quarter of 2010 compared to 117 in the same quarter of 2009, a year-on-year fall of 54 per cent.

This figure represents the lowest number of first quarter-profit warnings in 10 years.

The FTSE general retailer sector issued four profit warnings compared to the eight issued in the first quarter of 2009.

This was better than expected, the report states "given the country ground to a halt for a couple of weeks in January due to the cold snap".

This pattern was repeated across the FTSE consumer goods and FTSE consumer services sectors, which collectively issued 13 profit warnings in the first quarter of 2010.

Mr Kelly added: "We could extrapolate from these figures further evidence that the recession has been much easier than expected on consumer-facing companies – and it is true that consumer spending has held up remarkably well.

"But it is also worth noting the large caveat to these figures: the incredible 33 per cent drop in the number of quoted retailers over the last three years, many of whom left the market due to insolvency."

The economic uncertainly, combined with a possible hung Parliament, also makes it a very difficult for companies to forecast for the year ahead, Mr Kelly added.

He said companies would be under pressure to generate growth in profits to support share price levels. "Costs can only be cut so far, government spending can only fall and interest rates must rise, which leaves limited options for management who might be tempted into more risky growth strategies.

"These factors alone should increase the number of profit warnings in the quarters ahead, to which we need to add the month on month cumulative effect of higher taxes following the new fiscal year.

"Companies will still need to manage forecasts and expectations tightly in what will be another difficult year – they need to be prepared for the long haul."