Profit Warnings

WA’S listed companies have fared better than their counterparts in most other States, according to a wide-ranging Ernst & Young study.

The Ernst & Young Profit Warning Watch found Australian listed companies issued 107 profit warnings in 2000-01 – more than double the number issued in 1999-2000.

Only eight WA-based public companies issued profit warnings in the 2000-01 year, compared with four in the previous fiscal year, a big jump in percentage terms but numerically small compared to other States.

Queensland’s public companies also bucked the profit warning trend. Only five of its publicly listed companies issued profit warnings, actually down from seven in the previous year.

New South Wales had the worst result. Its home-based public companies issued 59 profit warnings up from 20 in the previous year.

The study also found the share prices of companies that announced profit warnings fell an average 12 per cent just 24 hours after the announcement.

Analysts blame the turbulent economy for the hike in profit warnings.

Despite the introduction of the GST in July 2000, the financial year started with strong levels of demand. The Olympic Games gave the economy a further boost.

But by October retail sales had started to fall and a weaker housing market, a softer Australian dollar and falling employment sparked talk of a recession.

The study found 65 per cent of companies announcing profit warnings blamed either difficult market conditions or lower-than-expected sales.

Ernst & Young corporate finance restructuring national director Rick Dennis said apart from the difficulties in predicting future economic conditions, a surge in profit also could be attributed to regulators more stringently interpreting company disclosure rules.

“When a company issues a profit warning it is telling the market its previous earnings forecasts have been too optimistic, or unexpected events or changes in the external environment have had a significant negative impact on the company’s earnings to cause it to lower its profit estimate,” Mr Dennis said.

“We anticipate that, while economic conditions remain uncertain, forecasting will be top of mind for many chief executives and many companies may take a more conservative approach to future forecasts.”