Ultra Electronics to incur write-offs after Oman contract cancelled

25th Feb 2015 08:56

Ultra Electronics is up in arms after its joint-venture with the Oman Investment Corporation received a notice of termination on its contract to develop information technology services for the Oman Airport, and is aiming to try and recover costs.On 23 January the specialised electronics and software manufacturer already announced that it had been notified that the contract with Ithra was to be cancelled.Now it has been informed of the substantive reasons behind that decision, such as having allegedly not met certain contractual milestones.The company believes the termination on 9 February was unjustified, wrongful and unlawful. It is in discussions with its advisers regarding the recovery of the costs and claims incurred by the joint-venture.From a purely financial standpoint, Ultra said it will incur a £47m provision for the financial year 2014 linked to that contract, which will include the write-off of the contract balances, together with provision of all known liabilities.The cumulative revenue recognised from the contract was £114m, with 2014 revenue limited to £12m.In the wake of those events in Oman the company also carried out a review of its wider operations in the Middle East. It continues to see opportunities in the region but has decided to take a non-cash impairment charge on the outstanding good-will of the Al Shaheen joint-venture in the United Arab Emirates.On 23 January analysts at Investec told clients that the contract cancellation was disappointing, but not a complete surprise.The broker added: "The Omani Airport IT has suffered from delays and issues that were out of Ultra's control and consumed a disproportionate amount of management's time."As of 09:20 shares in Ultra Electronics were off by just 0.49% to 1,840p.