Matalan writes off £20m over failed IT system

Retailer Matalan is threatening to sue an IT consultancy after spending £20m on an unfinished new computer system that has now been scrapped.

The £20m write-off has hit Matalan's profits, which fell from £86.3m last year to £36.3m for the financial year ended 31 March 2006.

Matalan started the project in 2001 to replace existing legacy software that no longer had manufacturer support and lacked functionality but five years later the key replenishment and merchandising systems still remain to be completed.

The company has now decided to scrap the new software and stick with the existing supplier Torex, which has committed to provide support for "the foreseeable future".

Matalan's preliminary annual results statement said: "The Torex systems give the company the enhanced functionality it requires but more quickly and at a much reduced level of risk and cost compared to the implementation of wholly new software."

But the Matalan board said it may sue the IT consultancy that advised the company on the new system over the £20m write-off on software and development costs.

Matalan said: "The issues in connection with the software concerned are now the subject of possible legal proceedings against Kurt Salmon Associates Limited, the consultants who provided Matalan [with] advice which led to this work being undertaken."

No one at Kurt Salmon Associates was available for comment.