Guardian IT shares dive 60% on fresh warning

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The disaster recovery group Guardian IT shocked the market yesterday with its second profit warning this year and the embarrassing admission that its own financial controls were partly to blame.

Analysts, who almost halved their pre-tax profit forecasts for this year to close to £7m, said the credibility of the company's management was now seriously in doubt while Guardian's reputation as a sector stalwart was in tatters.

Operating profits for the current year are now expected to come in £5m to £6m beneath forecasts at £13m to £14m on sales, some £8m to £10m beneath expectations, at £113m to £115m.

Shares in the company closed down 60.2 per cent at 175p. The stock had traded as high as £16.55 last year.

Guardian said a financial review undertaken by Neal Roberts, who joined as finance director at the start of the month, showed a "substantial" deterioration against its previous forecasts.

"This is due principally to an overly optimistic forecast of expected sales, a reduction in achieved sales and the under-forecasting of costs and currency implications," the company said.

Guardian also said trading conditions had worsened during the second half of the year with customers cutting their spending on IT while delaying taking decisions on buying services into next year.

Those factors, combined with a fall in contract renewals, impacted its core "disaster recovery" division where the market remains "difficult". Its data management business also weakened.

Peter MacLean, the chief executive, said: "Conditions have not improved during the second half of the year and the likely timing for the signing of new business contracts across both divisions will remain uncertain for the immediate future."

The company, which now expects to end the year with £110m of net debt, said it planned to review its cost base and would also look into its own business forecasting practices.

"Management have been left with egg on their face," said Adam Lawson, an analyst at Teather & Greenwood. "It [the alert] is a combination of macro conditions, causing people to be more frugal with cash, coupled with some pretty embarrassing mismanagement."

Guardian said it would also be talking to its banks to ask for flexibility on the covenants attached to its borrowings.

Mr MacLean did not think Guardian was losing market share and believed the company's pipeline of sales prospects was "healthy".

The alert comes after its August warning when it said that conditions in the web hosting market had "materially worsened" while sales in disaster recovery were being postponed. In September, it quit the web hosting market altogether.