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Phoenix IT Group has announced full year results that confirm a challenging year dominated by a major reorganisation under new leadership and persistently tough market conditions. It’s also getting a new FD - Jane Aikman, formerly of renewable power generator Infinis Group - following the resignation of Steve Clutton. The company’s shares are down 9% in early trading this morning.
FY12 was a year of change for Phoenix. The highly experienced IT services leader CEO David Courtley took over the reins in August 2011 (see Phoenix courts Courtley). Since then he has pushed through a significant reorganisation of the business, reducing its internal divisions and removing its multi-brand approach to the market (see Phoenix IT: three become two become one).
We spoke to Courtley this morning and he confirmed that the new structure he has initiated is “complete and working”. Internally and externally, the business is now shaped according to his turnaround plan.
While a lot of the hard change work has been done, Phoenix’s results and outlook suggest that it has suffered from the inevitable disruption a reorganisation causes, but is yet to see the benefits of those changes. FY12 revenues were down 2.6% at £265m. Reorganisation costs helped to push EBIT down to £7.9m, taking Phoenix’s EBIT margin down to a thin 3.0%, compared to 10.9% in FY11. That said, before such non-recurring costs and amortisation, operating margin was down less dramatically (from 13.3% to 12.4%).
Of Phoenix’s three reporting lines, business continuity managed a small rise in revenue (of 1.5%). But partner services (i.e. support and hosting for large IT services providers) was down 0.5% and mid-market fell by 7.3%. The latter was especially hit by pressure on maintenance and product sales. The challenge for Phoenix in the opportunity-rich mid-market sector is to shift its focus to managed/hosted and cloud services, which is very much where the action is today and for the foreseeable future.
The year ahead is critical. Having been through much change in a short period, Phoenix needs to show it can compete and deliver growth and EBIT improvements. At present, it is suggesting the topline should show some growth in H2 of FY13 (i.e. from Sept to March). The environment may remain tough, but 2012 does look a tiny bit better in terms of market growth in Phoenix’s addressable markets than 2011, and a number of players (not least Computacenter) are likely to report improving toplines during the year. Courtley and Phoenix will be keen to show they are now in a position to at least keep up with their industry peers.