If you thought Promethean World’s Q1 results were bad (see Promethean: from bad to worse), you won’t want to read the detail of today’s first half performance. The hardware-focused education technology provider is feeling the full effect of tough budget conditions in the US and Europe.
Revenue in H1 was down 23% to £83.2m and the group moved from profit to loss even before all ‘the nasty bits’. Promethean reported an adjusted EBIDTA loss of £0.3m in the period (compared to a H1 2011 profit of £12.6m) and an operating loss of £148.5m (H1 2011: £4.1m profit), having written off Apax’s 2004 investment in the business with a non-cash goodwill impairment of £140.5m. The group’s cash balance also deteriorated, dropping to just £8.5m at the end of June from £10.3m the year before. The management is now assuming there will be no improvement in market conditions near-term and has taken action to cut operating costs by 20-25% by 2013.
Promethean has seen some pricing pressure but the overriding issue is one of falling volumes as education budgets are squeezed, particularly in the US and Europe. In the US, which accounts for over 50% of its revenues, sales were down 32%. Unfortunately Promethean couldn’t rely on the International business, which grew substantially in Q1, to make up the shortfall in Q2. First half International sales, which include the UK & Ireland, decreased by 9% overall to £38.5m.
Promethean’s results underline just how difficult it is for tech companies in the education market at the moment. Even its broad geographic spread isn’t enough to protect it from cuts to education budgets in established markets; cuts that tend to have a disproportionate effect on technology investment because schools look to protect teaching and infrastructure spending first. Promethean faces the additional challenge that its core interactive whiteboard market is mature in markets like the UK. It’s placing its bet for the future on ‘1-to-1 interactive and collaborative learning devices’ (tablets and touchscreen tables). Whilst that is undoubtedly the direction of travel, it’s hard to see many schools having spare cash to spend on luxuries like these in the near term.