(Sharecast News) - Shares in specialist asset management service provider MJ Hudson were tumbling on Monday, after it announced that its annual results to 30 June were expected to be below previous guidance due to audit adjustments.
The AIM-traded firm had said on 12 July that it expected adjusted EBITDA to be "modestly ahead" of £8.3m, which it reiterated on 10 August.
Following recent feedback from EY over the 2022 audit, there were "ongoing discussions" between the company and its auditors in relation to the treatment of revenue recognition on one major contract, and certain costs included in adjusted EBITDA.
"The consequence of these discussions, taken as a whole, is that the board now considers that the company is unlikely to be in a position to meet prior guidance," the board said in its statement.
"The potential adjustment around revenue recognition relates to the treatment under IFRS of approximately £1.3m of revenue.
"This was from a single, multi-year contract with a public sector body and one which, in terms of value, is unchanged from its inception in early 2022."
MJ Hudson said, given that "significant time" had already been incurred in providing the service, any conclusion by the auditors that it could not now be recognised in 2022 would reduce both adjusted EBITDA and profit by an equal amount, and should improve revenue and profits in the current and future years instead.
"The other potential adjustments relate to the capitalisation of certain IT development costs after a significant period of internal investment as well as the level of allocated costs for management time in mergers and acquisitions, and fundraising.
"The company remains in close discussion on both these issues with its auditors."
MJ Hudson said the potential audit adjustments were all non-cash in nature, and did not have an impact on the operating performance of the group in the current year.
The final outcome on the issues in relation to 2022 remained subject to the ongoing discussions with the group's auditors.
MJ Hudson said it would provide an update in due course.
"Current trading in 2023 is encouraging and, in particular, the group's key transformative growth opportunities in environmental, social and governance (ESG), sustainability and the ManCo businesses in Ireland and Luxembourg are continuing their strong gains from 2022."
At 0923 BST, shares in MJ Hudson Group were down 24.86% at 17.66p.
Reporting by Josh White at Sharecast.com.
