LONDON (Alliance News) - Escher Group Holdings PLC Monday said its first half pretax profit fell by more than half, as revenue was hurt by a major contract moved from its development and customisation phase to roll-out, meaning that consulting services revenue declined as a result.
In a statement, Escher, which provides outsourced, point-of-sale software to the postal industry, said it made a USD418,000 pretax profit in the six months ended June 30, compared with USD1.1 million in the corresponding period last year.
Revenue fell to USD11.1 million from USD12.9 million. According to the group, consulting services revenue was reduced as a major contract transitioned from its development and customisation phase to roll-out, which will lead to the recognition of license and maintenance revenue instead. During the first half, Escher recognised USD1.8 million of the outstanding USD6.0 million licensing revenue from this major customer, and expects to recognise the remainder in the second half.
"The board's expectation, adjusted for a subscription-based model, for the financial outcome for the full year remains dependent on a license sale and the rollout by a major customer of its integrated Riposte solution. When this has been rolled out to a certain number of workstations, Escher will recognise significant license revenues. Progress with rollout is continuing and the expectation is that rollout will complete in 2014," the group said in a statement.
Escher said its recent move to a subscription-based revenue model is positive in the long run but will have a "materially negative impact" on revenue for 2014.
That said, gross margin increased by two percentage points to 63% due to the company's mix of revenue, with a bigger proportion of higher margin license and maintenance revenue.
Escher said it is confident about prospects for 2014 and beyond, due to the quality of its pipeline and current technology set.
Escher will not pay an interim dividend, as was the case last year.
In addition, Escher said it has signed a five-year contract with Deutsche Post DHL to supply its enterprise mobile software designed to support the ecommerce market.
The five-year subscription license agreement is based on a minimum of 15,000 mobile devices for Deutsche Post DHL, Escher said.
Escher said it has adapted its software to support transactions running on mobile devices used by posts and logistics companies.
Using Escher's software will allow Deutsche Post DHL to streamline its Paketshop network by introducing easier collection and delivery of parcels, Escher said, adding that the agreement allows for further worldwide expansion.
The subscription-based revenue model will spread the expected license revenues over a five-year period, according to CEO Church.
Escher shares were Monday quoted down 8.6% at 265.00 pence.
By Samuel Agini; samagini@alliancenews.com; @samuelagini
Copyright 2014 Alliance News Limited. All Rights Reserved.
