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Downward pricing pressure is taking its toll at software and hosted services house EDP whose prelim results showed flat revenues and a decline in profits, despite a one off boost from the sales of its HQ building.
For the year to September 30 2011 the £5.6m of revenue was essentially the same as last year but operating profit dropped back from £553K to £506K. Chief executive Julian Wassell said in a statement that there had been downwards price pressure in its markets and it had to follow suit. Given that this is the latest of several tough years EDP could be doing a lot worse. Its decision to run an in-house hosting facility for its applications is helping to provide revenue stability, with some contracts running to five years. Recurring revenue represents 79% of its total revenues.
Hosting generates 34% of total revenue (from 30% last year), which is acceptable growth but it will be interesting to see whether the economic situation will drive a noticeable increase in hosting. The decision to offer Vecta 7, the latest release of its sales intelligence product, solely as a hosting offering will help drive revenue in this area. Customers are not flocking to the hosted model however - a year ago EDP was hosting 97 customers and added only 20 during the year to take the total to 117. On the positive side, that means there is room for growth but is also a sign that customers remain cautious is and that is only likely to get worse given the economic backdrop.
Although revenues are flat, EDP is profitable and cash generative at the moment with a high level of recurring revenues and that is some comfort in the current environment but given its recent performance (see EDP keeps the business ticking over) that is more likely to set the company up for another year of stasis than growth.
