Signs have emerged that the West Midlands is holding up well amid growing economic uncertainty – at least for the time being.
According to a report from business advisers Ernst & Young, five companies in the region issued profits warnings in the second quarter of the year.
That was the same the same number as the previous quarter and the same three-month period last year.
Nationally, however, E&Y says business “is experiencing treacherous conditions” as profit warnings for the second quarter of 2008 hit 98; the highest second quarter figure since 2001 and up 11 per cent from Q2 2007.
The report is being interpreted as providing further proof that the British economy is heading into recession. It shows that despite a fall in the total number of UK profit warnings from the previous quarter, more companies with a turnover of over £1 billion put out the storm cones in the second quarter, double the number in Q2 2007.
Half these larger companies blamed the credit crunch for their profit warnings in quarter two compared with around one in five in the total population.
Regionally, profit warnings in the West Midlands were attributed to “difficult trading conditions”, “increasing costs and overheads”, delays or discontinued contracts/ negotiations” and “acquisition/ merger costs”.
David Duggins, a restructuring partner at E&Y’s Birmingham office said: “After a pivotal quarter, it is clear that the ripples from the credit crunch have spread far beyond the financial sphere. Most of the 26 per cent of UK companies warning this quarter blaming the credit crunch for their woes came from outside the financial sector.
“Moreover, mistrust and trepidation has spread. Raising capital is perilous and equity markets are demanding unprecedented reassurance, especially from the leveraged and those exposed to home construction or the consumer.
“These are uncertain and challenging times for West Midland and UK plcs.”
Across the UK, the highest warning FTSE sectors in Q2 were household foods & home construction (24 per cent), general retailers (13 per cent), and personal goods (11 per cent).
The five profit warnings issued in the West Midlands were from companies operating in the health care equipment and services sector, pharmaceuticals and biotechnology, support services, and the food and drink sector.
E&Y says that as it predicted in its Q1 report, the household goods and home construction sector is suffering considerably.
Nationally, it issued the highest proportion of profit warnings by sector, driven by the troubled home construction sub-sector where almost 50 per cent of companies issued profit warnings in Q1 and nearly 75 per cent in the last six months.
“Market confidence in the sector has fallen to levels not seen before by even the most experienced operators,” said Mr Duggins. “The spate of redundancies announced by house builders in the last week are clearly aimed at executing a strategy of mothballing their businesses and land banks until the market recovers.
“How long the recovery will take, is difficult to call. In the last property downturn of 1989, the average value of UK houses fell for six years to 1995 and then recovered to 1989 values in 1997.
“These are choppy waters for UK plc to navigate. A flood of profit warnings and alarming economic indicators are making equity markets increasingly suspicious and intolerant of errors, raising capital is fraught with dangers and credit has gone missing.
“Bad news is chipping away at confidence, but the extent of the eventual slowdown is still hard to predict.
“Perhaps we are at the end of the beginning, but only in a sense of now feeling the second round effects of the credit crisis on the housing and consumer markets, not in the sense of stable bank balance sheets.
“This still has a long way to play out. At best, flat line growth is a certainty, at worst, recession a real possibility. Businesses and consumers, many of which have not experienced either, will feel the harsh reality.”