Phoenix IT Group is back in the black following the first full year of CEO Steve Vaughan’s turnaround strategy, in what is likely to its last fiscal before the Daisy Group acquisition is sealed.
The LSE-listed organisation is still struggling to get the top line moving in the right direction, as revenue fell nine per cent year-on-year to £212.4m in the year ended 31 March, but other key metrics improved.
The largest division, Partner Services (third-party service provided for other tech seller), reported the steepest decline in sales, down 15 per cent to £96.2m.
This unit lost the Cisco Gold partner franchise in late 2013 after it was deemed to have flouted the vendor’s Ts&Cs, and Phoenix confirmed the “contract termination” was the reason for the fall.
Some smaller managed-services and on-site support wins, plus a “major” win to provide desktop project support for an existing customer, meant the situation was better than it might have been.
The order book in Partner Services was some £44.7m lighter than it was at the end of the previous financial year, at £120.6m, and the annual contract value (ACV) was £83.3m, down from £94.1m.
The unit made an underlying profit from operations of £5.1m, down £1.9m, as the operating margin slipped from 6.1 to 5.4 per cent.
Phoenix was given the Platinum badge by HP to provide services for its wider channel, following the Cisco debacle, but this was pulled because it did not make the requisite revenue threshold.
The Managed Services wing – managed, professional and hosting services – reported a sales slide of £3m to £65.4m.
Again, the Cisco factor was felt here, “particularly the reduction in one large labour-only, low margin, professional service contract”.
Phoenix said it invested in the cloud and this, couple of reduced revenue, forced down underlying operating margin to 0.7 per cent from 1.7 per cent, as underlying operating profit slipped to £500k from £1.2m.
The order book is up five per cent to £56.7m, as a number of customers signed up to the CloudSure UK platform, but the ACV fell £3.3m to £32.5m.
“We continue to exit low-margin business in line with our strategy for improving the margin in the long term. This, however, has had a negative impact on the ACV in the short term,” said the firm.
Turnover in the Business Continuity arm fell 1.3 per cent to £49.9m, underlying profit from operations was essentially flat at £12.3m, the order book fell £14.4m to £71.2m and the ACV fell £2.9m to £48.2m.
“Order intake in the year has been low resulting in a reduction in the order book. The reduction in ACV represents the reduced scope of some of these renewals, particularly one large workplace recovery contract.”
Unlike results in recent years, Phoenix reported no exceptional costs, as such group profit from operations came in at £8.8m compared to an operating loss of £23.9m a year ago.
After tax and finance costs, net profit was £7m versus a net loss of £30.3m.
Phoenix tells us the results are exactly where they expected them to be a year ago – some progress made but lots of work ahead. Whether it is Daisy management behind the wheel in the year two and three of the recovery plan is another point.
Daisy is expected to close its 160 pence per share offer for Phoenix at the end of July, a bid that values Northampton-based Phoenix’s equity at £135m. ®