Published November 22, 2008

Tough times spark profit warnings

At least nine companies have raised alarm over weaker showing in the past two weeks

By EMILYN YAP
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COMPANIES continue to issue profit warnings as tough economic conditions, plunging equity markets, foreign currency swings and falling commodity prices erode earnings.

No less than nine firms sounded the alarm over weaker performance in the last two weeks. Just yesterday, JEL Corporation (Holdings) warned that falling stock markets and volatile foreign exchange rates could lead to an impairment to its quoted investments and an exchange loss.

The consumer goods distributor said that 'challenging economic conditions are likely to have a negative impact on the group's markets, and subsequently to its operating performance going forward'.

The selldown in equity markets has also affected Khong Guan Flour Milling. The firm said last week that it had to write down substantially the value of its short-term quoted securities. This led to an unaudited loss for the half year ended Oct 31.

Steel product distributor HG Metal Manufacturing projected a net loss for the fourth quarter ended Sept 30, partly because of foreign exchange losses from the strengthening greenback. The sharp correction in steel prices in the last few months also led to a write-down on its inventory value.

Novo Group has been similarly affected by falling prices of steel and steel-related products. Coupled with shrinking demand for such goods due to the global economic downturn, the supply chain manager is expecting a loss for the second quarter ended Oct 31.

Besides small- and mid-cap companies, even big industry players have seen earnings come under pressure.

Singapore Telecommunications, for instance, highlighted early this month that its Q2 profits will suffer from costs of subsidising Apple's iPhone 3G and lower contributions from overseas units.

The group eventually reported a 12.1 per cent in net profit to $868 million for the quarter ended Sept 30.

With the economy still slowing, the outlook for corporate earnings is unlikely to pick up soon.

'We expect earnings downgrades to continue for the next few quarters,' said a DBS Vickers report yesterday. 'DBS economist has cut Singapore's GDP growth forecast for 2008 to 3 per cent and 1.2 per cent for 2009.'