NCC’s £7m hit as new IT system flops

NCC Group, the high-flying IT security and assurance provider, says problems with a new computer system will cost it nearly £7m in the current financial year.

The fast-growing Manchester business said it has been forced to switch back to a former IT system due to “operational problems” with its new system which was being installed.

It stressed though that trading has not been affected by the issue, but will result in a one-off, “mostly non-cash charge of £6.9m.”

NCC said the project for the new system has begun three years ago, with the goal of it providing a complete integrated solution for all its business processes as well as a systems backbone for NCC Group as it grew organically and by acquisition, both in Europe and North America.

It began to be implemented in the UK Escrow business and in the finance department in March this year after a period of extensive testing, but since going live the new systems has “caused significant disruption across the whole group”.

It added: “Given the substantial investment in time and resources, the board has written off the £6.9m cost of the new system in the financial year to 31 May 2012.  This figure includes the expected £0.9m cash cost of the reversion back to the old system, over the next three months.”

Chief executive Rob Cotton said: “This is a very frustrating position to be in – we have invested considerable amounts of time and resource into the new system but have had to take the hard decision to revert to our old system as the new simply wasn’t measuring up to our needs.

“This decision has no bearing on our day to day trading; indeed we are on course to close the year today absolutely in line with our expectations, as stated in our IMS.”

In early trading, the company’s shares experienced a drop of around 7.5% – falling by 62p to £7.50. However, David Gormon of Manchester-based stockbroker Milkstone believes there is no cause for alarm.

“It’s slightly ironic that the failure of a new IT system has happened to a company with NCC’s excellent reputation in the field but it can happen to any business,” he said.

“NCC is still a very good business with excellent prospects so today’s price fall represents a good opportunity to pick up some shares.”