Anite warns that increased R&D spending will hit first-half profits

Shares in Anite dropped 25 per cent yesterday after the IT consultancy and services company warned profits for the first half of the current year could fall beneath the previous year's figure.

Shares in Anite dropped 25 per cent yesterday after the IT consultancy and services company warned profits for the first half of the current year could fall beneath the previous year's figure.

The company, which employs about 2,400 staff worldwide, blamed the anticipated slump on increased spending on research and development. In addition, Anite forecast flat demand from its telecoms customers thanks to the uncertainty surrounding the launch of third-generation, or 3G, mobile phone services. The stock fell 19.75p to 59.25p.

Nevertheless, the company remained upbeat on its future prospects after having turned out a 41.5 per cent increase in profits in the year to 30 April.

"We remain confident in our strategy and the positioning of the group in what could be a tough year ahead and believe that we will continue to benefit from our business and geographic diversification," John Hawkins, the chief executive, said.

He predicted Anite's consultancy business would produce a similar performance this year to the year reported while forecasting its solutions business would see "strong" growth from the travel and public sector with a "flat" performance from telecoms. Anite reported a pre-tax profit before exceptional items of £28.3m, up from £20m a year before. Total sales were £202.5m, up from £192.4m.

Stripping out the effect of acquisitions, profits at its consultancy arm fell 35 per cent while profits at its software solutions division grew 37 per cent. Within solutions, its public sector business proved the star performer, growing sales by 59 per cent to £54.9m while profits jumped to £4.6m from £1.5m. "Overall, in a challenging market environment, we believe that the group and its businesses have delivered a highly creditable performance," Mr Hawkins said.

While analysts at Equityinvestigator described the figures as "in line" with their forecasts, they were concerned by the forecast increased level of R&D spending.

Anite predicts R&D expenditure for the current year will rise to about £9.7m compared with the £6.2m it invested in the year reported.

"Because exceptional investments are often a tacit acknowledgement that investment levels have not been sufficient historically, it suggests that this investment may not be a one-off and it may preface higher investment levels in the long term," the analysts said.

But fears that the company's accounts could come under intense scrutiny, thanks to the nine acquisitions it made in the year reported, proved unfounded.

"Anite's share price has been weak on the back of tenuous arguments concerning Anite's aggressive acquisition strategy and unspecified accounting issues. These can be finally laid to rest as Anite's operational execution and management of acquisitions remains exemplary to date," the Equityinvestigator team said.

While Anite said yesterday that any further potential acquisitions were likely to fall in the public sector, it noted they were likely to be "modest" in size.