Phoenix says Q3 performance (Oct to Dec) was in line with expectations, as it nears completion of its internal reorganisation. Outlook for the full year is also unchanged. Shares are down 8% in early trading nonetheless, not helped by news of a specific contract that has turned sour.
The contract in question involves an arrangement with a co-location partner. The partner hasn’t referred nearly as much business to Phoenix as was hoped, meaning the arrangement is significantly loss-making. On turnover of £600k in the first three quarters, the contract lost Phoenix £900k. So there’s a provision of £5m for future losses, as the contract has four years to run. All of which underlines the risks of partner-derived revenue models, especially in the current market. But thankfully for Phoenix, this is, as CEO David Courtley put it on a call with analysts this morning, “an isolated, one-off” case.
Meanwhile, Courtley is making progress on his reshaping of the business (see the HotViewsExtra piece Phoenix: three become two become one). He believes a more efficient and effective Phoenix will enter FY13, following the consolidation of the company around one brand and five business units. Whether Phoenix can carve out growth in the current market remains to be seen, although if it can, such growth is likely to come from its direct managed services and hosting business, rather than the support services it delivers via large outsourcers. Meanwhile cost is, understandably, coming out, with savings from back office and delivery headcount reductions (300 or 11% of the workforce are exiting) and streamlining of property.
Finally, we were pleased to hear Phoenix isn’t one of those players living in denial about BYOT (Bring Your Own Technology). Indeed, when we asked Courtley a question on the topic, he was keen to see the positives for a support and managed services player like Phoenix, even if the company isn’t aware yet of any impact on its business from BYOT. We agree; BYOT is coming fast and the smart companies will be those that grasp the opportunity to help clients get the benefits of this long-term trend while managing the complexity it introduces to the business’s infrastructure.