Sykes warns of Scots restructuring after loss of major contract

American outsourcing giant Sykes has warned that a restructuring of part of its Scottish unit is on the cards after the loss of a contract from a "major client".

In the annual report for Sykes Global Services - which reveals a rise in turnover but a drop in profits - the firm warned its Galashiels-based warehousing and "fulfilment" business had lost the important contract in January, following December's year-end.

The Borders warehouse employs more than 100 people involved in posting items to customers on behalf of other companies. It is understood that a number of contracts are serviced from the facility.

Sykes also has a multi-lingual call centre on the outskirts of Edinburgh where about 600 workers offer customer services for major technology companies across Europe and America.

The firm said: "The directors are in the process of considering how the company will be restructured and therefore the full financial impact of this loss of contract is not known at this stage."

The business in Scotland is run semi-independently from the US parent company.

But yesterday directors said they were forbidden to talk about the recent contract loss and restructuring - described in the report as a "significant event" - and passed inquiries on to the parent company's headquarters in Tampa, Florida. The US company did not return calls for comment.

The annual report showed that the UK business had grown its revenues, with turnover increasing from 23.8 million in 2009 to 24.6m last year, although a slip in the firm's margin meant operating profit fell slightly, from 2.4m to 2.1m.

On 31 December, the company had a cash balance of 4.5m and no debts, after paying back an inter-company loan of 3m in August.

The director's report stated: "The company has considerable financial resources together with long-term service contracts with a number of customers and suppliers across several geographic areas and industries.

"As a consequence, the directors believe that the company is well placed to manage its business risks successfully despite the current uncertain economic outlook." The firm noted that the main risk to its UK business was "competitive pressure".

Last year, Sykes' US parent company declared a loss of $10.2m (6m), despite breaking through the $1 billion-mark with revenues of $1.16bn, up from $813m in 2009.

The Nasdaq-listed firm received $154m from one client alone - telecoms giant AT&T.

Sykes' operations in the UK, Ireland, Italy and the Netherlands are run from Edinburgh by senior director Kenny Morris.

In past interviews, Morris has said he believes the Scottish capital - with its long-established and well-regarded universities - makes an ideal catchment area for recruitment, one of the business' main challenges.