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By Kate Hanaghan, 25 January 2002 16:10

NEWS Last year's fourth quarter saw more profit warnings in the UK than ever before with the software services sector leading the list of shame. The figures, produced by Ernst and Young, indicate that although the software and computer services sector still accounted for the largest number of warnings, its share of warning reports were down last quarter. Of a total 1,538 companies on the list, 149 issued profits warnings in the last quarter of 2001 - a rise of 10 per cent on Q3. For the full year the total was 520 - an increase of 117 per cent on 2000. Telecommunications companies were amongst the first to be hit by the economic downturn. However, Bryce Wolfe, an analyst at Ernst and Young, said: "The telco sector went into distress early followed by the services sector. Both are now starting to emerge from this." Wolfe argued that while the number of profit warnings generally looks bad, it doesn't tell the whole story. "The news in the private sector is a lot worse than in the public. There are companies funded by VCs that are burning lots of cash and making no sales but they are not obliged to reveal their figures," he said. Wolfe's advice to high-tech companies struggling in hard times is to open and improve relations with the bank. "You must ensure the bank doesn't dictate your strategy. CFOs need to actively manage banking relationships to make sure they don't break their bank covenants," Wolfe concluded. Guardian iT is one such company that is currently negotiating with its bank in an attempt to temporarily relax some of the group's covenants. The company's preliminary results will be released in March at which time it will also issue an update on details relating to the talks.