K3 laments lost deals as sales fall 'significantly' below expectations

Microsoft partner remains confident that software development strategy will bear fruit

Microsoft Dynamics partner K3 has warned that its earnings will be "significantly" below market expectations after seeing major client deals fall through.

In a trading update, K3 said that its H2 had "started confidently", but a major new contract then failed to materialise and a "large customer" entered administration.

The firm also said that some clients are buying software at a slower pace than anticipated.

K3 said it expects adjusted operating profit to be around £1.5m for the year, compared to £4.6m in the previous year.

However it claimed that it has continued to see success with its intellectual property, particular in the fashion vertical.

"Notwithstanding the reduced financial performance expected this year, the company has continued to make encouraging strategic and operational progress," K3 said.

"In the second half, K3 was included in Microsoft's top 20 independent software vendors globally, with 'K3 I Fashion' selected as Microsoft's recommended solution for the fashion vertical.

"This strong validation stands K3 in very good stead in its markets and the pipeline for this product remains strong and high quality."

K3's share price dived by over one quarter after the update was published.

Angela Eager, research director at analyst TechMarketView, said that K3 is likely feeling the effects of the UK's struggling high street space.

"This is a hard blow for a company that has been coming back from a difficult time in 2017," she said.

"While management was optimistic that the most recent H1 was a blip, we cautioned that the second half of the year had its risks, with Brexit uncertainties and continuing sluggishness on the high street potentially dampening demand in K3's primary markets as we approach Christmas."

On K3 losing out due to a new contract stalling and an existing customer going out of business, she added: "The positives from this situation is that these were not factors that K3 had control over."