InterQuest Group (LON:ITQ) was among the heaviest fallers on the AIM markets this morning after announcing that a major client has terminated its contract with the firm.
The IT recruitment specialist said that the contract termination resulted from an alleged fraud by a client of its recently acquired technology staffing business Contract Connections Limited (CCL). The client is currently investigated for withholding £0.6 million from CCL.
InterQuest said that this amounts to a breach of contract and it will seek compensation and potentially damages “in due course”.
In the meantime, InterQuest will write-off both the £0.6 million receivable and take a related goodwill impairment charge of £2 million, totalling £2.6 million.
As a result, the group’s full year 2011 results will be “adversely impacted” by a £2.6 million impairment. However, InterQuest believes the termination will not have a material impact on its prospects as it will reduce the number of the group’s contractors by just 40 out of a total of over 1,200.
InterQuest added that it has otherwise traded well, seeing growth in both profits and revenues.
CCL was acquired in June for £4.6 million to expand its business in the legal sector. InterQuest expected the acquisition to be earnings enhancing in the first full year in ownership.
Shares in InterQuest tumbled 12.5 pence (20 percent) to trade at 49.5 pence in early deals. The group currently has a market cap of £15.85 million.