First half of the year more challenging than company expected, leading it forecast that its full year performance will be below current market expectations
Expansys has reported a number of losses for the first half of its financial year, claiming a worsening performance in Europe is to blame.
For the six months to October 31, the eCommerce and telecoms service provider reported sales of £45.6 million, down two per cent from the same period last year.
Losses rose to £2.1 million from £1.6 million while profit before tax fell to £400,000 from £1.6 million from the same half-year period in 2011.
Cash before tax dropped by £1.7 million to £2.3 million in this six month period. Expansys said this due to exceptional costs incurred around two factors.
The first being that Data Select Network Solutions (DSNS) was one of a number of distributors to receive a clawback claim from a UK operator, believed to be O2.
In July, Mobile News reported that O2 SIM card distributors were facing clawback charges of up to £1 million as a result of alleged fraudulent use of its international SIM cards be end users.
Expansys said it had been in continuous discussions with the operator and maintains there is no valid legal basis for the claim, but has now decided to make a provision due to the protracted ongoing negotiations.
The company said the second factor relates to the substantial restructuring of its European division. From November 1, Expansys outsourced the European warehouse and distribution facility, as well as the multi-lingual customer services function.
As a result, it expects to save up to £1 million per year, as well as delivering a necessary improvement to its customer service experience in the medium term, but does however expect to incur one-off reorganisation costs of circa £900,000 that have been treated as an exceptional cost.
Expansys chairman Bob Wigley said: “The first half of the year has been more challenging than expected, chiefly as a result of a worsening performance in Europe as we restructure the business to an appropriate scale in line with the market opportunity and difficult economic climate.
“We continue to experience headwinds in the retail business, but believe the realignment of our cost base will have a positive impact and bring the business increased profitability in the short to medium term.
“Our DSNS business continues to win new customers, but the predicted network terms changes are having an effect upon profitability. We continue to make good progress within our PJ Media multi-channel solution business and have signed several key strategic contract wins that will benefit the Group moving forward.
“The Group has spent a large amount of time this year restructuring underperforming areas of the business, and while not complete, we are already seeing operational improvements that are necessary to support the many strategic opportunities we have. However, due to the underperformance of the retail business chiefly in Europe, we expect full year performance to be below current market expectations.”