Scrapping of FIGARO software system will cost Brewin Dolphin £32m.
UK wealth management firm Brewin Dolphin has revealed that the shutdown of a major IT software program will have a significant effect on its profits.
In its H1 2014 interim results, the company revealed that over the past three years, it had invested £33.2m into introducing FIGARO, a software package, to its wealth management system as part of a plan to improve profitability.
However just over two weeks ago, the company decided said it was terminating the project; rendering at least £32m of the investment in the program worthless.
Due to the nature of the original contract signed with the software providers, JHC Systems, the company also added that it will have to pay out an additional £15m over the next 10 years, highlighting the risk companies take in making such a major investment into new technology.
The termination followed an investigation which found issues with the software's "functionality and robustness", which were uncovered when the company installed FIGARO in its execution-only service, Stocktrade.
As a result of these problems, which the company said were taking up a surfeit of both time and resources, the company no longer believes it will be "an appropriate operating system" for its discretionary wealth management business, although it will keep FIGARO for Stocktrade.
The decision was taken by the company's new management team following a board shake-up last March, with a new chief executive and non-executive chairman being appointed.
"The Board believes the decision to cease the roll out of FIGARO is in the best commercial interests of the Group" the company had said in a statement following the initial news.
"Moreover, it remains confident that the 2016 operating margin target will be achieved through on-going business improvements."
The company's H1 2014 results had reported encouraging pre-tax profits in the first half of the year, increasing from £6.8m at the same stage last year to £21.4m this year.
However, this will be wiped out by the decision taken less than six weeks after the end of the first half to stop using the FIGARO system.
Shares in Brewin Dolphin have dipped by about 6% since the May 13 announcement.
Source: Company Press Release