Leaner trading conditions and the impact of foreign currency conversions were reflected in revenue and profit declines at Insight Enterprises according to fourth quarter prelims released this morning.
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At the same time, the company said an internal review had unearthed errors in historical accounting treatment related to the release of certain aged trade credits from its balance sheet and may result in a reduction of up to $70m retained profit.
For Q4 2008, Insight expects revenues to fall 10% to $1.16bn and a 77.3% drop in profits to $5.4m, including $3.2m in severance pay and $6.2m foreign exchange losses as the US dollar soared against Sterling, the Euro and the Canadian dollar.
"While softening demand for IT solutions led to fourth quarter results below management expectations, our successful efforts in 2008 to reduce our base cost infrastructure and refine our go-to-market model partially mitigated these results," said Insight CEO Rich Fennessy.
In 2008, Insight cut its workforce by 425 positions in North America and EMEA, invested in SMB software sales across Europe, streamlined back office functions across all geographies and implemented a for-ex hedging strategy.
Sales in North America fell 7% to $789.1m as hardware and software demand remained soft, and lower agency fee for enterprise software deals led to a drop in gross margin.
In EMEA, sales declined 19% to $329.2m but excluding the negative effects of the for-ex translations, net sales in the region declined 5% in local currencies.
The trading climate was unlikely to improve this year said Insight but it reckoned the second half would be better than the first, reflecting year-on-year comparisons for the period and the effect of partner programme changes.
"Uncertainty around the depth and length of the global recession, anticipated volatility in currency markets, and continued tightness in the credit markets will combine to make 2009 a challenging year for most companies," it stated.
The release of Q4 prelims was also used to reveal that an internal review covering trade credits from 1996 has highlighted certain errors which Insight expects with cumulate in the restatement of results for 2007 and the first three quarter of 2008.
It also expects that the restatement of results will include a "material reduction of retained earnings as of December 31 2004, related to the accumulation of such errors in prior periods. The cumulative restatement effect is expected to be $50 million to $70 million, before consideration of any tax effects".