Phoenix hit by reorganisation costs

Phoenix IT will incur a series of exceptional costs as a result of its reorganisation programme and a loss-making contract.

Under the reorganisation, the company is to retire its ICM brand and bring it under the single Phoenix heading while also reorganising the group's structure.

The information technology and business continuity company will now be divided into: Systems Integrators (desktop support); Communications (network services to Telecommunications and other companies with networking requirements); Hosting (hosting and Cloud services; Managed Services (Outsourced IT services to the middle market); and Business Continuity.

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The reorganisation costs will total £10m in the current financial year and will include 300 redundancies however the group assured that it will save around £4m per year (£2m in the year to March 2013).

Meanwhile, an additional £8.1m intangible asset impairment will be realised in the current year to reflect the retirement of the ICM brand.

Phoenix IT is also to end leases from four properties in the next 12 months.

The exceptionals do not end there however, as a contract entered into by the firm's Partner business is likely to require a provision of up to £5m after it incurred a loss of £0.9m in the nine months to the end of 2011. PhoenixIT says "actions to mitigate future losses are currently being investigated and the level of the actual provision required will be determined during the coming months".

Investors hate uncertainty and this comment will not have pleased shareholders.

As of the end of last year the order book value was £309m versus £322m the previous year while the annual contract value was up very slightly at £195m versus £194m.

Shares in Phoenix dropped 9% in very early morning trading but have recovered slightly to be around 3% down on yesterday's close at 11:19. Over the last 12 months the stock has lost 37% of its value.

BS