Gresham Technologies plc (LSE:GHT) said in a trading update today that it will discontinue its legacy IT contracting services business.
The software and services provider, which enables solutions for banking integration and payments, said it has decided to exit the lower margin legacy sub-contracting business from January 2024.
“Discontinuing our IT contracting business will further accelerate our plan to become a pure-play subscription software company and enable us to focus on creating long-term value through our high-margin Clareti solutions,” said Gresham Technologies’ Chief Executive Officer Ian Manocha.
“Whilst it has been a difficult year for financial markets, and customer budgets are expected to remain fairly tight, we have a solid pipeline of Clareti opportunities and a strategic plan aligned to customer priorities."
The subsidiary provides IT contracting and third-party software re-selling services as part of Gresham's relationship with Australia and New Zealand Banking Group (ASX:ANZ), which is its largest customer by revenue.
Gresham said it has agreed to renew the Clareti Control, Floe and re-sold third-party VBT software licences with the banking group in 2024 despite hiving off its contracting business.
The legacy contracting business, which accounted for £8.5 million of Gresham’s revenue with fixed margins of 13% in 2023, is not considered strategic to its future growth.
The move is part of its transformation to a pure-play software as a service (SaaS) company and aims to improve its gross and adjusted underlying earnings (EBITDA) margins.
The company said it remains confident in its Clareti business and its prospects for on-going growth, despite the challenging macro-environment.
Gresham said it expects to meet market consensus forecasts for revenues and earnings for 2023.
The software and services provider said 98% of expected revenues for 2023 have already been recognised or are under contract.
It said it also expects to close more Clareti subscription deals before the end of the year, which will increase its annualised recurring revenue and planned revenues for fiscal 2024.
Gresham’s share price fell by about 13.46% on early trades this morning to a price of 119 pence per share, according to LSEG data.