Warnings up for WA corporates

WA companies accounted for almost one in five profit warnings during the second half of calendar 2002, with the State’s corporates going against the national trend, where the number of downgrades Australia-wide dropped after a dismal start to the year.

Companies based in WA issued 14 of Australia’s 77 profit warnings during the six months ending December 31, a jump from around 10 per cent of national profit warnings issued during the first half of the calendar year.

Comparatively, during the first half of the year, 88 profit warnings were issued of which just 9, or 10.2 per cent, were from WA.

The fall nationally was the first in the three and a half years since business services firm Ernst & Young began surveying profit warnings.

But while the number was down, far larger companies have been forced to issue warnings than previously was the case.

Ernst & Young found that the percentage of warnings coming from companies with revenue greater than $500 million rose to 30 per cent from just 10 per cent in the previous half.

In addition, 12 per cent of ASX200 companies reported warnings compared with 8 per cent in the second half of 2001-02.

The uncertain economic global environment and the impact domestic-ally of the drought throughout much of regional Australia were significant contributors during the period.

Ernst & Young partner in corporate finance restructuring, Brian McMaster, has forecast an increase in numbers in the first half of 2003.

He is tipping between 80 and 90 profit warnings for the period.

“The number and nature of the profit warnings announcements during this period indicate improvements in the trading conditions for some industry sectors,” Mr Mc-Master said.

“However, the profit outlook for other sectors has been negatively affected by the drought and the global uncertainties that have impacted and continue to impact on world markets.

“The impact of the drought is unlikely to be restricted to purely agricultural based companies, with other companies that are not categorised as agriculture, such as wine companies or food manufacturers, likely to be negatively affected over the next six months.”

The result has been a shift in the sectors making the most warnings.

“As domestic consumer spending and borrowing levels have strengthened there has been a reduction in warnings from sectors directly impacted such as retail, telecommunications and media, and most recently manufacturing,” Mr McMaster said.

“Conversely, sectors such as finance and mining, which are more reliant on global commodity and investment markets, currently comprise a greater percentage of the warnings.”

But Mr McMaster believes that, more than anything, it is the greater emphasis on compliance that is affecting the number of profit warnings being issued, particularly in WA.

“For WA it would be more of a compliance issue. Manufacturing remains pretty strong, as does the resource sector,” Mr McMaster said.

“[WA] boards are just generally becoming more diligent in their reporting at the moment. Probably more so than in other States.”

He believes the tough ASX disclosure rules, which came into effect on January 1, may result in even greater numbers of profit warnings in the future.