Warning bells ring across the markets
Economy The vaunted recovery is proving to be a mirage for many of Britain's companies
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It would take a determined optimist to have read the business pages this summer and still call this a recovery. The export figures may bring solace to the Government, but for vast swathes of British commerce the recession never lifted.
A skim through the company results announced over just the past six weeks makes chilling reading. During that time dozens of the UK's largest businesses have warned their shareholders that trading is grim. Not all have issued clear-cut profits warnings but all have disappointed the market with their assessment of prospects.
Our table shows a handful of the better-known names to have undershot expectations and the market reaction as reflected in the movement in the share price on the day of the announcement.
Far from easing, the situation appears to be deteriorating. Yesterday four companies issued negative statements: profit forecasts for Courtaulds were downgraded after a gloomy annual meeting; Harrington Kilbride, the publisher, said losses had continued "at a high level"; EW Fact, the training company, warned on first-half profits and VHE, the recently floated environmental business, passed its final dividend.
The previous day another clutch of even better-known names paid the price for surprising the market: United Biscuits said it would cut its dividend as it abandoned US expansion plans; French Connection said first-half profits would be less than half last year's; and mighty Prudential warned that life insurance and pension sales were in decline.
A number of themes emerge from the deluge of bad news, all of which suggest that the market has misunderstood the nature of the recovery. From the high street to the housing market, the consumer is in retreat, and for manufacturing industry, raw material prices are wreaking havoc with margins.
Hardly a day goes by when a retailer does not warn that its expectations have been dashed. WH Smith started the flood in May and has been followed by Etam, which warned of a first-half loss last month, Allders and Sears, which also predicted lower interim profits. Other squeals have come from MFI, Jacques Vert and Essex Furniture.
While consumers are loath to open their wallets in the shops, they are equally chary of signing up for holidays. Even when they do decide to travel, bookings are being made at the last minute to take advantage of firesale prices. Eurocamp warned in June that holiday sales were sluggish and saw its shares tumble 49p to 229p in a day. Airtours and First Choice concurred.
Elsewhere, the moribund housing and property markets have claimed a clutch of victims. Bellwinch became the first housebuilder to admit that lower sales, flat prices and high land prices would hit profits. YJ Lovell agreed two weeks ago, pulling out altogether. Berisford's Magnet stores are under the cosh, Wainhomes has been one of the market's worst recent new issues and Hambros blamed its dividend cut partly on the state of the housing market.
In industry, rising raw material prices continue to put the squeeze on a range of businesses. Allied Colloids and BTP complained about chemical prices; MFI was hit by the cost of boxing up its flat-pack furniture and newspaper publishers have been hit by soaring newsprint costs.
What is not clear is whether the increase in warnings marks a fundamental deterioration in conditions or is a reflection of more openness about trading since London International Group, the Durex condom maker, was criticised by the Stock Exchange two years ago for handing out profit information to a limited number of analysts. Be that as it may, whole areas of the economy are plainly still on their knees.
SUMMER OF DISCONTENT: some recent warnings
Date Company Warning Movement
8 June Hambros Housing slump and bond falls. Dividend halved 183p -28p
9 June Eurocamp Sluggish holiday bookings 229p -49p
9 June Etam Slow sales. First-half loss forecast 176p -30p
13 June Berisford Magnet hit by housing slump 219p -39p
30 June Rank Consumer spending to fall in second half 399p -9p
7 July Allied Domecq Tough trading to hold back profits 539p -16p
12 July Johnson Matthey Profits falling in catalytic systems 567p -13p
18 July Prudential Lower pension sales 338p -8p
18 July French Connection First-half profits to fall 50 per cent. 223p - 68p
18 July United Biscuits Dividend to be cut. Profits to fall 279p -42p
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