Profit warnings from UK listed companies increased by 39 per cent to 103 in the third quarter, with the software and computer services sector topping the list, according to a survey by Ernst and Young.
The sector saw 12 businesses issue profit warnings during Q3, ended 30 September, compared with seven warnings in the previous quarter. Since January a total of 370 companies have issued profit warnings, compared with 261 last year.
Andrew Wollaston, corporate restructuring partner at Ernst & Young, told CRN: “In the absence of any significant shocks to the economy, it’s surprising that the figures have increased. This continued high level of warnings is a real concern.”
In the report 22 per cent of firms blamed the increased number of warnings on delays or discontinued contract negotiations, half blamed difficult market and trading conditions, and 18 per cent cited increased costs and overheads.
Wollaston added that, in the IT sector, the increase in profit warnings was partly due to the longer time it takes for companies to sign cont-racts and to end-users choosing to lease rather than purchase software or hardware outright.
In July, Computacenter issued its third profit warning in seven months, which group finance director, Tony Conophy, blamed on “a combination of things, including low margins on PCs” (CRN, 4 July).
However, the percentage of companies both issuing profit warnings and with turnover below £200m fell by 12 per cent to 66 per cent during Q3, compared with the previous quarter, according to the report.
Steve Derbyshire, managing director of VAR Telemon, said: “It’s tough out there and the competition is very fierce. Maybe profit warnings are just a natural feature of such a market. Some vendors are also laying off staff to cope.”
The report also noted that the activity levels of mergers and acquisitions “continued apace” during Q3. It mirrored a separate Plimsoll Publishing report which identified 105 UK computer equipment distributors and dealers with sufficient financial resources to capitalise on their earnings by acquiring a competitor (CRN, 21 February).
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