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LONDON (Alliance News) - Wireless services company Starcom PLC on Wednesday saw its shares plunge in early trade after it said a change to its accounting policy will mean its 2014 results are materially below market expectations.
Starcom said it will no longer recognise revenue in respect of "bill and hold" sale prior to the delivery of goods, though the company said it is able to satisfy the relevant criteria for this type of revenue recognition.
The accounting policy change, however, will mean revenue of USD4.8 million in respect of "bill and hold" agreements will not be recognised in its 2014 results, meaning it will materially miss market expectations. Had the sales been recognised, the company would have booked revenue of USD9.5 million, meaning it now expects to post revenue of USD4.7 million. For 2013, it reported revenue of USD9 million.
This change in accounting policy has been made in light of the company's experience to date of "bill and hold" sales which were recognised in 2013, which amounted to USD2.8 million. In 2013, goods were produced against firm commitments from customers to take delivery in 2014. Pending delivery, the goods were held in a segregated area in the Starcom's warehouse to the order of the relevant customers, many of whom were existing customers.
Starcom said it had fully expected that all the goods would be drawn down during 2014 but, to date, the level of drawdowns remains relatively small.
It now expects the "bill and hold" agreements for both 2013 and 2014 to be recognised as sales in 2015, meaning it does expect its 2015 revenue to be a significant improvement on 2014.
Starcom shares were down 10% to 7.5 pence in early trade, one of the worst performers in the AIM All-Share.
By Sam Unsted; samunsted@alliancenews.com; @SamUAtAlliance
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