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ITNet posted a loss of £16.6m for the six months ended 30 June 2003, compared with profits of £8m for the same period last year. Turnover grew 15 per cent to £104.6m.

The company blamed the cancellation of an £83m contract with the Cabinet Office for the loss.

Bridget Blow, chief executive of ITNet, said: "2004 has been marred by a decision taken by the Cabinet Office without good cause to terminate our £83m contract signed in July 2003. The Board will take all necessary steps to recover compensation for the loss of the Cabinet Office contract, and is confident of a positive outcome."

ITNet is setting aside £24.4m to deal with the unexpected end of the Cabinet Office data centre contract - £18.8m for assets already acquired and £5.6m for exit costs. The company says it is confident of getting this money back but is setting money aside to satisfy accounting principles.

Local government revenue grew by 19 per cent since June 2003. ITNet has extended its contract with Cadbury Schweppes for an extra two years and £7.4m. ITNet will provide desktop, data centre and disaster recovery services until 2006. ®

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