It was not the most auspicious welcome to the UK for Sudhakar Ram, co-founder and global CEO of Mumbai-headquartered Mastek, who recently took over direct control of Mastek’s UK operations (see here). An ‘anticipated’ drop in UK revenues hit the numbers (one major project completed and another ramped down), dragging Q1 (to 30th June) headline revenues down 6.6% qoq to $38.3m and squeezing EBITDA margins by over 3 points to just 8.2%. Part of the margin squeeze was due to increased software R&D costs (Mastek also develops packaged software).
The impact was of course greater in the UK, with revenues down 13% qoq in Rupee terms, and segment margins losing nearly 8 points at 14.8%. Nonetheless, the UK is still Mastek’s most profitable region, accounting for 44% of company revenues and over 60% of segment profit. Mastek’s North American operations are now its largest (48% of the total) but only generated an 8% margin.
Ram alluded to a “substantial improvement in (the) order backlog” which he expects will get the business growing again. Nonetheless, it is somewhat worrying that Mastek was not able to replace the revenues of the expiring contracts far enough ahead of time in order to prevent the decline.