ECsoft shares tumble as downturn bites

UK services company ECsoft saw its share price drop more than 30 per cent overnight after its management issued a further warning of hard times ahead.

The company's share price dropped on Tuesday by 177p to a year-low of 325p. Last year the shares reached a high of 787.5p.

The drop followed a statement explaining that the company expected an operating loss of between £3.5m and £4m for the first six months of 2002.

ECsoft has been hit hard by the downturn in the telecoms market, which accounted for 27 per cent of its revenues in 2001.

One of its biggest customers was Ericsson, which has cut back on IT spending and trimmed the number of suppliers it will use.

ECsoft issued a profit warning last October, blaming the effects of the 11 September attacks for companies deferring business decisions. At that time, it cut its workforce by 10 per cent to around 700.

According to spokesman Peter Lorant, the company plans to focus its activities in its key geographic markets - the UK, Scandinavia and Holland - and will concentrate its efforts in the public sector, financial services and telecoms.

ECsoft recently bought the Danish operations of CMG and disposed of its German business.

Lorant discounted the likelihood of further job cuts. "We are doing what we can to avoid it. Cutting staff in our business is a road to nowhere," he said. "We have deeper pockets than most, and had £37.5m in cash at 31 December 2001."

But Michael Gallagher, a broker with Deutsche Bank, took a more downbeat view, maintaining that the company had been too reliant on the telecoms market, and too reliant on Ericsson.

"Because of its small size, ECsoft is more vulnerable than other services companies operating in those markets," he said, adding that it needed to continue restructuring and that further staff reductions would be "highly likely".

Gallagher emphasised that the firm's longer term prospects were "dependent on the overall market".