This is a warning issued by a listed company to investors that the profits will be lower than expected.

It is done several weeks before the company’s actual announcement.

It avoids earnings surprise to investors as it ensures that all information needed by investors is available in the market.

It is a requirement by regulators such as the CMA to make sure that the market is efficient as possible.

Example 

On Feb 18, 2015 Pan Africa Insurance Holdings issued a profit warning stating that its after tax profit will be less than 25% of the previous year’s profit. Before the issue of the market prices was KES 118, after the issue there was an 11% drop to KES. 105. This shows that the profit warning announcement was reflected in the market