Services face dip in profits

The financial performance of the UK services and software industry may be worse than previously realised, increasing fears that a new wave of stiffing is on the way.

UK sales growth has plunged by more than 60 per cent for the leading firms in the sector, according to veteran industry watcher, Richard Holway. He has cut his forecast for revenue growth in the UK software and services industry for 2000 from 14.2 per cent to 9.4 per cent - well down from the 1997-98 figure of 25 per cent.

Holway said even this figure assumes some "modest pick-up" in growth rates in the second half of the year.

"As the half-yearly reporting season draws to a close, the software and computing services companies quoted on the London Stock Exchange, including the Alternative Investment Market, have shown a 39 per cent decrease in pre-tax profit. That compares with a 20 per cent increase for the same period in 1999," he said.

Last month, parliamentary lobby group Eurim warned that suppliers suffering from disappointing results will be desperate for any revenue they can get, and are likely to turn to stiffing to make up the shortfall.

The worsening profits outlook could make this pressure even greater.

"Although we expect some improvement in [the second half], our prediction that profits growth will be in negative territory in 2000 as a whole seems pretty much assured," Holway said in his Systems House newsletter, published this week.

Earlier this year, Holway warned that the services and software industry is in the worst condition since the recession of the early nineties.

The CSSA has urged members to hold back from passing on the pain to the user. "Good-quality companies that want to survive have to pay attention to customer relationships, and stiffing the customer is not the best way of building long-term confidence," said John Higgins, director general of the supplier trade body.