It’s difficult to get too excited about Phoenix IT’s FY11 results. As we’d already gathered from the trading update in April (see No flap at Phoenix), the company ended the year on a calm note. Revenues and (underlying) profits both headed in the right direction – total revenues were up 11% to £271.6 million and operating profits were up 4.6% to £36 million. However, after taking account of “non-recurring” items and amortisation of intangibles, operating profits fell by 1.6% to £29.6m.
Across Phoenix’s three operating segments (now down to two since merging business continuity (ICM) and Servo (mid-market services), the performance was pretty consistent (i.e. none saw declining revenues), with business continuity up 5% to £55.5 million (organic growth of 1%), partner services up 13% to £117.9 million and mid-market services up 11% to £88.5 million (mainly due to the acquisition of contracts from KCOM Group).
But it’s the highs and the lows of moving into ‘cloud services’ that will make the future of these businesses interesting to watch going forwards. Take the ‘partner services’ division, which offers IT services, network support and infrastructure services to IT services partners (mainly the big SIs). It has already suffered due to the economic environment within which its partners have been operating – the pricing environment has become more competitive, margins are under pressure and there has been a scarcity of large contracts. ‘Cloud’ is exacerbating the situation and has had a hand in reducing the order book by £53.7m to £140.7m over the period, as shorter contracts become the norm. Phoenix has the opportunity to position itself firmly as the infrastructure partner of choice in the ‘cloud’ world. It already has an impressive list of SI partners for whom it delivers ‘white label’ services; it must endeavor not to lose out as its partners increasingly move to an ‘as a service’ model. Regardless, the pressure on margins will continue to be an issue.
In ICM (the combined mid-market and business continuity division), the ‘mid-market’ order book was up 35.5% over the period but things weren’t looking quite so rosy for the ‘business continuity’ operation where the order book increase was modest (and essentially boosted by one contract extension). Phoenix believes that the combined businesses will now offer a holistic solution to business resilience that is "unrivalled" in the UK market. Whether it’s unrivalled is questionable, as there are certainly other providers that already combine managed hosting and business continuity capabilities. However, Phoenix is continuing to invest in its cloud-related product and services and is also expanding its infrastructure and BC capability so is readying itself to give the competition a run for its money.