A pair of profit warnings in the support services arena highlight two vulnerable areas for quoted companies, namely the pros and cons of operating in more than one country and having no control over client spending habits. These issues are central to why infrastructure consultant Hyder Consulting (HYC) falls 23.4% to 489.88p and safety equipment specialist Latchways (LTC) drops 11% to £11.35.
Hyder says it will miss profit expectations due to project delays in the Middle East and not as many contract awards as anticipated in Australia. Latchways has blamed slowed than expected orders in the UK and Europe for its construction-facing products. It also says the conversion of sales leads into product orders is taking longer than anticipated for its aviation and wind energy divisions.
That's not all. Unfavourable foreign exchange rates puts another dent in the companies' finances. If you earn in one currency and report in another, there's always a risk that the exchange rates work against you. The Australian dollar is much weaker than when analysts last looked at Hyder around the time of its financial results in November 2013. That means its earnings expectations will have to be nudged downwards. When combined with the project delay issues, Liberum Capital makes severe cuts to its earnings forecasts, implying minimal growth over the next two years. Its 2014 pre-tax profit is reduced by 18% to £17 million and 2015 numbers reduced by 25% to £17.5 million.
Latchways says the US, Australian and New Zealand dollars, together with the euro, are risk factors for the business. It blames a strengthening pound in today's announcement, alongside operational gearing effects and marketing investment, for contributing to its profit warning. Stockbroker N+1 Singer reduces its 2014 pre-tax profit by 31% to £6.8 million; and 2015's numbers are lowered by 22% to £9 million.
This is Latchways' second profit warning in four months. In November it flagged lower spending with a long-standing utility customer whose 2013 fiscal budget is running low. The utility needs the remaining cash to fund other projects which means Latchways won’t get any more orders until the start of the utility’s new financial year in April 2014. There’s also tough comparative numbers. Last year Latchways benefited from a big Airbus order; this year it is filling the revenue gap but there’s not enough new business to produce year-on-year revenue growth.