Sema Group, the Anglo-French computer services company, yesterday became embroiled in a row over its accounting practices after reporting first-half results boosted by booming demand for mobile phone software and e-commerce.
Profits before tax and goodwill rose 23% to £47.4m in the six months to June 30, exceeding analysts' forecasts of up to £46.2m.
But its share price slumped 17% as analysts questioned the company's decision to include surpluses from a pension fund in its operating profit figures.
The row centred on the inclusion of a £14.3m refund from its Swedish pension fund as a non-exceptional item. Several analysts said they believed the refund should have been treated as an exceptional item and they claimed it distorted the operating profit.
The company has seen its shares gain 86% since May 23, that trend being boosted last week on the back of rival software company CMG's report of higher than expected demand for software system integration services from wireless phone companies.
Sema executives said the company beat analysts' forecasts despite the refund, because the money was offset by exceptional costs - redundancies and early retirement for people in Sweden - and the extra costs incurred in France because of the 35-hour working week.
Chris Mutter, Sema's vice president of finance, yesterday defended the company's position, saying that the £14.3m pension return was a non-recurring item, but an ordinary and not exceptional item. It was not hidden, he added.
According to Mr Mutter, the £49.3m of operating profit be fore goodwill amortisation was a true representation of the company's performance and had not been artificially inflated.
Mr Mutter said the pension money featured in the right place in the report, according to the generally accepted accounting principle guidelines.
After adjusting for the "exceptional credit", the operating profit before goodwill had fallen by £3.8m, from £38.8m in the first half of last year to £35m this year.
Away from the accounting debate, revenues increased 13% to £720m, slightly higher than analysts had forecast, and chief financial officer William Bitan said he expected second-half growth of between 13% and 15%. "We are pretty confident for the second half of 2000."
The company is also on the look-out for acquisitions in the United States, where its presence was minimal before it bought LHS Group this year for $4.7bn in stock.
Tidu Maini, Sema's senior vice president for corporate development, said he was looking for another company in the US, but it would have to be the right company. Sema would not rush into a deal, he said. "We continue to look for the right bargain combined with the right technology."
Demand for telecoms software, such as customer care and billing systems and text messaging, surpassed Sema's expectations. Telecoms revenues rose 28%, including a 130% increase in sales to mobile companies.
Revenue from Sema's mobile phones unit more than doubled, and it more than tripled at the electronic commerce unit. Total sales rose 7.7% to £720m from £669m.
Sema hired 1,800 people in the first half, taking its workforce to 19,533.
