UXC profit warning as downturn causes IT contracts disputes

Computer and services provider UXC expects a $4 million write-off in first-half results after the downturn sparked a number of contract disputes.

The company said in a statement to the Australian Securities Exchange that it expects earnings for the six months to 31 December will be 28% to 32% lower than a year ago.

UXC says it is negotiating change orders on two major contracts which are ongoing, and “is in discussion with customers on a small number of other contracts in relation to disagreements relating to scope of work”.

As a result of these discussions, the company has taken $4 million in write-offs.

While revenue in the first half of the 2008-09 financial year is projected to be 20% ahead of the $273 million reported in the previous corresponding period, the company says redundancy and restructure costs and the contract negotiations have result in $6.3 million in abnormal costs.

“In addition to the impact of the… non-recurring charges, reasons for the decline include an inability to reduce the costs in the business quickly enough in response to rapidly changed market conditions, which are a consequence of the global financial crisis. This has now been, and is continuing to be, addressed.”

While UXC expects first-half results to be “poor”, it is much more optimistic about the next six months. Revenue for the full year should total $700 million, the group says.

“The contract renewal/contract wins cycle has resulted in a very strong skew of earnings into the second half. While this was foreseen during the budgeting and planning cycle at the beginning of the year, its impact has been much greater than anticipated.“Barring any unforeseen circumstances, second-half earnings before interest, tax, depreciation, amortisation and unallocated corporate costs are expected to be between two and three times greater than the first half, and well ahead of the $28.9 million achieved in the previous corresponding period,” the statement said.

The company attributes the optimistic projections to new contracts, first-half cost reductions and earnings contributions from the recent acquisition of Ingena Group.

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