.jpg;139;63)
As expected, FY results from infrastructure services firm, Phoenix, were not a pretty sight. Even allowing for the (hopefully) exceptional £68m charge for accounting regularities at mid-market arm Servo last September (see here), most of the 'underlying' numbers went south. Headline revenues fell 4% to £250m, EBITDA fell 14% to £32.8m, pre-tax profit was down 25% to £14.9m, leaving EPS adrift 28% at 13.9p. IFRS net losses measured £59.6m or -79.1p per share.
Though difficult market conditions contributed to the decline in Phoenix's business, prior management's fundamental reorganisation of its operating arms in April last year did real harm. As so often happens in these situations, focus turns inwards instead of outwards and plots get lost.
This was especially the case at Phoenix's core Partner Services division (services to SIs and outsourcers) which contributed the lion's share of the revenue decline, down 7% to £109m, shaving 25% from underlying profit to £10.9m. This is a segment under pressure as Phoenix's IT services clients turn their attention to margin stability even at the expense of top line growth. But therein also lies the opportunity if Phoenix can convince its partners to hand over more of the lower margin infrastructure work to them so that the partners can focus on higher margin activities.
But arguably management's key challenge is to restore Mid-market services to profitability. Executive chairman Peter Bertram told me that new leadership appointments will provide much needed experience and focus to enable them to "sell infrastructure out of a box" (managed services and hosting services) to the mid-market. We see this as a fragmented and fast-growing segment where Phoenix is already one of the largest players.
TechMarketView subscription service clients can also read about our recent meeting with management in UKHotViews Extrahere.