30 April 2001
Disease set to hit whole economy

By Robert Harris, Business Editor

A SPATE of profit warnings from UK-quoted companies is on the cards as the economic effect of foot-and-mouth spreads.

The impact of the outbreak, so far borne by agriculture and tourism, could hit many other companies into 2002, claims business adviser Ernst & Young.

“The economic effects of the epidemic will not die as foot-and-mouth fades,” warned Alan Bloom, head of corporate restructuring.

Only 11 of the 136 profit warnings reported in the companys latest quarterly analysis are related to the epidemic, but that is likely to rise.

Ernst & Young says a host of suppliers and service providers to farming and tourism remain vulnerable.

“Confidence has taken a big hit in tourism and agriculture. Together they consume large numbers of services,” said Mr Bloom.

Food processors are already being affected, with five of the 10 profit warnings between January and March attributable to foot-and-mouth.

Road hauliers, the rural housing market, the leather-goods trade, automotive services and mobile-phone and electricity companies are also in the front line.

Land will remain quarantined for some months, and movement restrictions may remain in place in some areas.

The psychological effect of even a minor later outbreak could be devastating, says Ernst & Young.

It urges every company to examine its position in the supply chain for foot-and-mouth-related effects and to assess the financial implications now.

“Time will be required to recover from psychological blows as businesses in and around these sectors go bust, some throw in the towel or others divert or suppress investment as risk aversion sets in,” said Mr Bloom.

“We see the effects spilling over into many sectors into 2002.”

Overall profit warnings in the first quarter of 2001 rose to 136, a 77% increase on the previous three month period.

Slowing world growth was the biggest culprit, followed by the troubled software and computer services sector and foot-and-mouth.

Ernst & Young forecasts that warnings could peak at about 150 next quarter.

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