Last week, Volante shares dropped from $1.30 to $1.17 in a day, prompting the ASX to issue a standard please explain query to the company. In response Volante issued two releases stating that the company had incurred a total of $3.25 million in non-recurring costs related to corporate restructuring, tender submissions and redundancy payments. As a result Volante expects to achieve a first half EBITDA of between $11.5-$12.0 million instead of $14.8-$15.3 million. The market obviously wasn't very happy with Volante's reponse to the ASX because the shares tanked further to close on 94c.
Volante attributed the company's intended transition away from products and toward services as being responsible for a large portion of its non recurring costs. "Implementation of these structural changes has involved redundancy costs of $750,000 and other non-recurring costs totalling $1.5 million before tax in the first. These costs are expected to have a pay back within 12-18 months," said the Volante statement. "The company has also incurred tendering costs of approximately $1.0 million for large managed contracts. The outcome of these bids will not be known until the second half of 2005/6 and, if the company is successful, the benefits will accrue from 2006/7 onwards."
Volante's performance in the first half of calendar year 2006 should provide the answer as to whether the market has judged the IT services provider too harshly and presented investors with a buying opportunity or whether the devaluation of the company was justified.