Phoenix IT dives as markets remain tough

published 28 May 2012

Phoenix IT Group, which provides hosting and business continuity services, has reported falling revenues and profits as it seeks to restructure in the face of weak markets.

Underlying profit before tax for the 12 months to the end of March came in at £28.7m, down from the £32m reported in the previous year but slightly ahead of the consensus forecast of £27.58m.

Revenues were £264.6m, against £271.6 in the prior year, but again very slightly ahead of the consensus forecast of £264.35m.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Despite these figures coming in slightly ahead of expectations, Phoenix shares had plunged 9.2% by 08:30.

The dividend has disappointed, with the full year figure announced at 10.9p, versus expectations of 11p.

There was also worrying news from the firm's "Mid-market" division which saw revenues fall 7.3% to £91.1m and underlying profits down 9.4% to £7.5m.

Phoenix says "challenging trading conditions ... particularly affected the demand for traditional maintenance services and product revenues, the latter falling by 16.4% from £28.7m to £24.0m."

The problems at Phoenix have been well known since mid 2011, with a new Chief Executive, David Courtley, installed in August of last year while today has brought news of the resignation of the Finance Director, Steve Clutton, who will be replaced by new recruit Jane Aikman.

Part of Courtley's strategy has been to reorganise the business into five separate units - that reorganisation has cost £14.9m against proposed annual savings of £4m. Commenting, he said: "The transition to our new structure ... has been well organised and controlled. However, it has inevitably led to some disruption with a consequential impact on short term results.

"The business environment we operate in remains challenging with inflationary cost pressures offsetting some of the synergy benefits from the re-organisation that will be weighted to the second half of the year. Consequently, while we remain confident that we will see revenue growth in the new financial year, we are cautious about the Group's performance in the first half."