Leisure sector 'come through the worst'

The leisure sector appears to have come through the worst trading period in the second quarter of 2012, but difficult conditions remain and a truer picture won’t appear until Q3, according to a new profit warnings report from Ernst & Young. The report examines the number of profit warnings across different industries in Q2 and found that the number of firms issuing profit warnings fell 18% in the quarter. The report found there were 60 profit warnings among Main Market and AIM-listed companies in Q2 2012, against 64 in Q2 2011 and 13 fewer than the first quarter of this year. The report says: “FTSE Travel & Leisure companies appear to have come through the worst, with no profit warnings from the sector in Q2 2012. “However, this appears incongruous with obvious consumer headwinds — as illustrated by the continual high level of retail profit warnings — and cautionary reports from trade bodies confirming difficult trading conditions. Therefore, it seems likely that several mitigating factors are at work. “Expectations are lower, following an exceptionally high number of profit warnings in the first quarter. Tour operators and airlines are part of a small group of UK businesses that actually can benefit from a damp start to summer. “Finally, many travel and leisure companies have benefited from the Jubilee celebrations and will be waiting, hopefully, on the outcome of an Olympic summer before making statements about their likely outturn for 2012. The third quarter will give us a truer picture of the sector’s performance.” Ernst & Young said that those firms issuing a high number of warnings are those facing strongest headwinds of falling demand, tightening finance and the quickening technological changes that are revolutionising the way companies relate to their customers. The FTSE sectors with the greatest number of companies warning were Construction & Materials (seven), General Retailers (five), Media (five) Software & Computer Services (five) and Support Services (five). Alan Hudson, head of Ernst & Young’s UK & Ireland restructuring practice, said, “Part of the fall in warnings is undoubtedly due to a slight improvement in trading conditions, alongside hopes for an Olympic boost, and, crucially, falling input prices. “However, many companies have also battened down the hatches and cut costs to meet targets, while recent peaks in profit warnings and increased Eurozone turbulence have also drastically reduced expectations in many sectors. “Even if the UK economy moves back into the black this summer, the recovery still lacks the traction it needs to build sustainable momentum. There is only so much fat that companies can trim and only so long they can tread water with little or no investment – investment that both they and the UK economy desperately need.”