Trustmarque: £2m profits evaporated after accounting change
Soaring overheads and falling sales didn't help as reseller hit the skids
A change in revenue recognition wiped £2m off Trustmarque’s profits according to the firm’s strategic and financial report, which also provides more details on its near-collapse and subsequent sale to Liberata.
As revealed, the York-based enterprise software licensing biz ran into cash flow difficulties last month after changing auditor and moving to GAAP accounting, but its equity investor Dunedin refused to bridge the 'funding gap'. This came just 15 months after the venture capitalist supported an £43m MBO.
According to the P&L accounts and strategic report filed at Companies House by Trustmarque, the number-crunching changes led to a restatement that reduced profits by several million pound and sales by some £500,000.
“Together with the impact of the strategic investments and the acquisition of Opin Systems, Trustmarque’s ultimate parent company, Project Lenon (Topco) (PLT) Ltd required increased investment,” it stated.
The accounts for PLT have not yet been filed, so El Chan is unable to analyse the level of debt carried by the parent company following the MBO, but hefty interest repayments are understood to have been another factor is its recent stumble.
Business Process Outsourcing firm Liberata, which specialises in Microsoft and Oracle wares, then bought Trustmarque, for an undisclosed sum. No related financials were mentioned in the report.
Liberata already owns Trinity Expert Systems so it is not beyond the whit of man that some sort of integration is in the offing.
Trustmarque’s financial year was extended from the end of August until the end of December for fiscal 13, a 16-month trading period, and sales crossed the line at £157m compared to £130.8m in the prior 12-month fiscal. This shows the monthly run rate for fiscal ’13 fell to £9.8m versus £10.9m in the previous year.
Profit before tax for the 16 months came in at £2.38m versus £2.28m in fiscal '12, but this included a much smaller corporation tax bill, on the back of the restatement, with the company coughing £275k to HMRC compared to £1.2m in fiscal ’12.
Operating costs soared more than 40 per cent to £16.1m compared to £11m in the prior year despite headcount rising by only ten people. The wage bill went through the roof to £12.78m, up from £8.3m.
The expense hike was possibly because management were labouring under the assumption that the profitability of the business was higher, and due to the longer fiscal.
The £2m profit reduction resulting from the restatement included £479k for the change to revenues recognised, £1m recognition of costs and £521k for the impairment of supplier income, namely rebates. ®