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Affiniti blamed for KCOM revenue drop and losses

Microscope contributor

KCOM has blamed its integration arm for a fall in revenues during its fiscal first half year.

More dramatic however was the group's £101m loss which resulted largely from a goodwill impairment charge but a £1m unpaid bill from Lehman Brothers compounded the situation.

The drama did not stop there, as the board announced a strategic review of operations and that chief executive Malcolm Fallen was standing down.

Management of the Telecom & Internet Services (T&IS) and Integration & Managed Services (I&MS) arms will now report to Bill Halbert, who has become executive deputy chairman.

Un-audited interim results for the six months to 30 September 2008 showed a 6.8% dip in KCOM revenues to £243.6m and a £101.8m loss compared to a £5.3m profit a year earlier

The T&IS division saw sales fall 2% to £119.8m while I&MS revenues tumbled 11.3% to £124.1m, as operating margins fell £5.9m due to fewer project and product sales and slowing demand for managed services.

Business brands in the I&MS division include Affiniti, formerly Omnetica and smaller outfits Smart 421 and Jam IP.

The fall in sales was expected said KCOM, "the most significant factor behind this was the reduction in I&MS project and product revenue on account of current market conditions."

The group reviewed the value of goodwill and intangible assets relating to the acquisition of Affiniti and has "taken an exceptional impairment charge to the carrying value of I&MS goodwill of £106.9m."

Overheads had fallen £2.5m to £66.1m due in part to an 8.3% year-on-year reduction in headcount at Affiniti which now employs a little over 1,000 staff.

"We have implemented a range of initiatives to reduce the cost base of the business which will be key to an improvement in the profitability of I&MS," said KCOM.

Despite the gloomy results, the company said Affiniti's pipeline improved considerably in the second quarter and looked stronger beyond that with a contract book of £185.6m as of the end of September.

"Our outlook for public sector business in the second half of the year remains strong, reflecting the positive impact from the restructuring of the public sector sales teams in June 2007," it said.

The IT services market however is expected to remain challenging in the second half said KCOM.


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