Xansa shares slide on gloomy prospect for IT spending

The computer services company Xansa ruled out a real recovery in customers' IT spending before the start of next year, sending its shares sharply lower.

Xansa, whose clients include Barclays bank and Boots, the healthcare retailer, said it had suffered from a marked slowdown in IT spending across most of its client base in the second half of its year ended April.

Despite tough markets, Xansa delivered a 10 per cent rise in full-year profits to £46.5m, in line with forecasts. Turnover grew 18 per cent to £515m.

The group has had a difficult start to 2002 with two profit warnings in the first three months as IT services customers cut costs in the face of economic downturn.

Things took a turn for the worse when its blue-chip banking client HBOS last week scrapped a contract 18 months ahead of schedule.

"We remain cautious about the economic environment and do not expect a significant upturn in IT spending before the start of calendar 2003 at the earliest," Hilary Cropper, Xansa's executive chairman, said.

Shares in Xansa, which have tumbled almost 70 per cent so far this year, fell 3.3 per cent to 101.5p.

"Most of the news was out there already but investors are looking at the prospect for next year and without HBOS and the suggestion that they don't expect any growth before 2003, it's not positive," said Michael Tyndall, an analyst at Nomura Securities, which has a "hold" rating on the company.

Ms Cropper said Xansa's poor outlook was a simple reflection of an economic slowdown and she expected projects that are currently on hold to be initiated when the market picks up.

But operating margins are likely to be diluted by more than 1 percentage point this year from last year's 9.5 per cent as costs rise in line with investments linked to big contracts such as BT Group. Xansa scored a £250m seven-year contract with BT on 5 June to process payments, payslips and online purchases for the telecoms group.

Xansa, however, was dealt a big blow weeks later with HBOS cancelling its contract, due to expire in summer 2005, after a review of its IT strategy.

The contract was set up in June 1998 to supply software development and information technology systems planning to Bank of Scotland, which merged with the Halifax bank in September to form HBOS.