Phoenix IT's profits hit by accounting black holes

Information technology services provider Phoenix IT has uncovered the mis-statement of a number of accounting balances within its Servo division and its subsidiaries over a number of accounting periods.

Early signs indicate that certain control processes within the finance function at Servo's Birstall site in Leeds have been repeatedly and deliberately circumvented.

The impact of correcting these cumulative mis-statements will result in a reduction to net assets of around £14m on a post-tax basis. This adjustment, the substantial majority of which is expected to be reflected as a prior year adjustment, will be made in the group's half-year results.

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Excluding the impact of any further disruption to business that this issue may of itself cause, the board now expects earnings before interest, tax, depreciation and amortisation to be in the range of £38m to £44m for the year ending 31st March 2013.

Auditor PwC and legal firm Nabarro have been appointed to carry out independent forensic investigations and an operational and business review of the areas affected has commenced. In the meantime, one manager within the Birstall finance function has been suspended.

At this point, no firm conclusions can be drawn as to the time-frame nor the results of the reviews, the company said, but so far as it is aware, the accounting mis-statements are isolated to the Servo Limited business.

Based on the information to date, the board believes that the group is and will remain in compliance with the covenants in its banking facilities and that its net debt and working capital requirements can continue to be provided by the current banking facilities.

JH