Ongoing arbitration has adversely affected the first year financial results of ASX-listed IT consulting firm Oakton (ASX:OKN), causing a slump in earnings before interest, tax, depreciation and amortisation (EBITDA) of $2.1 million.
In an update to the stock market this week, Oakton noted an EBITDA of $11.2 million for the first half of the 2010-2011 financial year, a result that was significantly lower due to an ongoing dispute with former Victorian customer Tenix Solutions.
The lawsuit, which began in February last year, is ongoing according to the consulting firm, with further hearings scheduled before the end of the financial year.
Tenix claimed up to $26 million in damages as part of the proceedings, while Oakton hit back in March with its own counter-suit, claiming $12 million damages and alleging Tenix had wrongfully repudiated a subcontract for the provision of services by Oakton in relation to the design, building and testing of software to be used by the company.
The ongoing dispute comes as Oakton reported a four per cent drop in revenues for the first half of FY11 to $90 million, as a result of ongoing underperformance in the Victorian unit of the business.
“We have implemented a performance improvement program for Victoria and as a consequence we expect an improved outcome in the final quarter of FY11,” Oakton chief executive, Neil Wilson, said in a statement.
He admitted, however, that the program has taken “longer than originally envisaged” to yield results.
Wilson said the fact that the company had already committed 70 per cent of its full year forecast revenue in the first half of the financial year was a good sign of growth for the coming months.
“We now have a clear point of difference compared with local and global competitors, and this has lead to growth in NSW, ACT and QLD across most sectors,” he said.
“In addition, opportunities in the Federal Government sector continue to improve and, subject to the impact of Queensland and Victorian disaster support, we are confident that our market positioning will enable us to capitalise on this.”
The company plans to increase staff retention policies and offset those staff lost in the first half of the year with additional hires before the end of FY11.
Oakton first advised of a potentially disappointing first half in November last year, leading to a drop in share price of 15 per cent at the time.
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