A BUMPER year for companies across the UK saw the number of profits warnings fall by 10 per cent in 2006, although small firms and high street retailers struggled, figures show .

Ernst & Young says that 342 profits warnings were issued last year, compared with 381 in 2005.

Smaller companies appear to have had more difficulty in forecasting accurately. In 2006, 75 per cent of companies issuing profit warnings had a turnover of under é200m, compared with 70 per cent in 2005 and six per cent in 2004. They cite contractual problems as the main reason.

Ernst & Young says that a growing number of profits warnings come from companies listed on the Alternative Investment Market.

Andrew Wollaston, corporate restructuring partner at Ernst & Young, said: "The high incidence of profit warnings from AIM companies, especially in their first year of flotation, has placed increased scrutiny on the junior market.

"Its light regulatory burden is one of AIM's main attractions. But, with AIM becoming increasingly popular, there will be more competition for investment and therefore a greater need for companies to adopt better forecasting and investor relations."

The highest warning sectors in the last three months of 2006 were software and computer services with 14 warnings, support services with 11 warnings, general retailers with nine warnings, technology hardware and equipment with seven warnings and food producers with four warnings.

Ernst & Young says that the "relatively high" number of profit warnings in the general retail sector show it was a "tough" year on the high street.

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