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To: maceng2 who wrote (706)	1/16/2005 5:10:45 AM
From: maceng2	Read Replies (1) \| Respond to of 1417

Companies hit by profit squeeze news.bbc.co.uk The rise in crude oil prices hurt many businesses The number of profit warnings issued by UK companies rose 40% in 2004, research has found, as declining consumer confidence took its toll on business. According to a survey by Ernst & Young, nearly 300 UK firms issued profit warnings last year, about 90 more than the previous year. Successive interest rate rises, the escalating cost of oil and the weak dollar all impacted on company profits. This trend may continue in 2005 if confidence erodes further, E&Y said. Deteriorating conditions The last quarter of 2004 saw the highest number of profit warnings - 85 in total - since the first three months of 2003. Trading conditions deteriorated over the period, with manufacturing output declining in November and retail sales falling in December. The much vaunted 'soft landing' is now looking slightly bumpy Andrew Wollaston, Ernst & Young Ernst & Young said the annual increase in profit warnings was higher than expected, reflecting the impact that five interest rate rises since November 2003 have had on consumer spending. "The impact has been much stronger than many anticipated and the much-vaunted 'soft landing' is now looking slightly bumpy," said Andrew Wollaston, Ernst & Young's corporate restructuring partner. Broad-based squeeze Companies operating across a host of different industries found their profits squeezed in 2004 as sales fell and costs rose. According to Ernst & Young, the support services sector was the most affected, producing 32 profit warnings during the year. Computer services firms and general retailers also struggled, being forced to issue 31 and 25 warnings respectively. Profits have been under pressure for some time Doug Godden, Confederation of British Industry Prospects for 2005 hinged on whether consumer confidence would erode further and whether oil costs would hit companies' supply chain operations, Mr Wollaston said. "While there is no cause for concern in the short term, should the trend continue and the warnings level rise towards the one hundred mark, this could indicate a significant deterioration in the state of corporate UK." Right offering Many High Street retailers including Marks & Spencer, Woolworth's and Next have reported disappointing sales over the Christmas period. Ernst & Young said businesses needed to be mindful of the fact that consumers were increasingly cautious about their expenditure. Shoppers have become more cautious "Despite a generally benign economic environment, 2005 has already seen a number of warnings," Mr Wollaston said. "The focus will be very much on how company management controls costs, improves margins and continues to deliver the right offering to cautious customers." The Confederation of British Industry said British businesses were under pressure from intense global competition, the strong pound and tax and regulatory burdens. "Profits have been under pressure for some time," said Doug Godden, the organisation's head of economic analysis. "Companies are going to have to redouble their efforts to control costs, become more efficient and stimulate demand with innovative new products and services."