Client shutdown hurts DWS earnings

DWS Advanced Business Solutions EBITDA hit by Christmas close down

Government elections and a disruption in service to a major client led to a drop of five per cent in DWS Advanced Business Solution’s (ASX:DWS) earnings before interest tax depreciation amortisation (EBITDA) to $12.77 million during the first half of the 2010/2011 financial year.

In a statement to the ASX, the Australian IT services company indicated one that a shutdown of contract labour by one of its major clients for a seven week period between December and January had a negative impact on day-to-day operations in Sydney and Melbourne.

“While the impact of this stand down was mitigated by several exemptions being received, it did disrupt normal operations,” the statement reads.

Revenues from ICT clients decreased five per cent in the half year to 31 December 2010, as the company implemented a program to reduce client-specific risk in the ICT sector and reduce revenue in the area.

However, revenue from government clients grew five per cent, despite a prolonged federal election and the Victorian state election.

DWS recorded revenues of $48.45 million during the first half of the 2011 financial year, an increase of one per cent for the six month period. The company also reported a loss in net profits after tax of 3 per cent, from $8.96 million to $9.25 million.

According to the statement, the company has also invested $275,000 into a new business intelligence (BI) model.

The report indicated margins for the six month period to 31 December 2010 were affected by lower utilisation of employees and increased employment costs, which the company forecasted would stabilise in the second half with higher utilisation and less required investment in its BI practice.

In November last year, the company’s chief executive, Danny Wallis, flagged expectations for flat to negative earnings for the half.

In a speech to shareholders, Wallis said that the prolonged federal election, and the lingering effects of the global financial crisis, led to a degree of uncertainty across most industries. However, Wallis did note that he expected performance to improve in the second half, “on the back of a strong pipeline of work across all geographic regions".

Follow Chloe Herrick on Twitter: @chloe_CW

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