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By | Paul Kunert 28th November 2011 11:51

Phoenix sales and profits falling as UK economy burns

Boss calls for divisional overhaul to cut costs

Phoenix IT Group is set for a structural revamp after the loss of major contracts in each of its operating divisions forced down sales and profits for the half year to 30 September.

The IT services group recorded a 4.4 per cent decline in sales to £132.2m, operating profits fell 12 per cent to £13.9m and profit before tax dropped 9 per cent to £12.1m. Net debt went up 12 per cent to £71.1m.

As a result, boss Dave Courtley has decided to kill off the ICM brand and overhaul the shape of the group in a bid to cut costs, moving to five divisions including hosting, biz continuity, telecoms, managed services and SI customer units.

The firm will create an over-arching operations unit across the group and centralise HR, finance and commercial functions.

"Integrating activities in this way will better leverage our service delivery capabilities and result in various cost savings, simplifications and economies of scale in operations and the functional areas," the company said in a statement.

The Business Continuity (BC) division – formerly ICM – which designs, implements and hosts DR services, saw sales rise 3.1 per cent in the fiscal half year to £29.4m. Meanwhile, operating profit grew 2.6 per cent to £7m and the order book fell £8.4m to £108.5m

Revenues growth was "undoubtedly" hit by the "uncertainty in financial services", which accounts for 46 per cent of biz BC turnover, Phoenix said. The market was typified by slower decision-making and larger deals evaporated.

The order book fell due to caution in the customer base with a £9m decline recorded among the "top five contracts".

Sales at the mid market unit which flogs managed, professional and hosting services along with products declined 7.3 per cent to £45.5m, operating profits climbed 3.6 per cent to £3.6m and the order book rose £9.7m to £75.3m, largely due to hosting.

"The business lost a degree of sales focus and experienced longer sales cycles than expected during the period which have resulted in disappointing revenue growth ... principally due to the previously announced loss of a contract," Phoenix said.

Hosting biz – served mainly by the mid-market unit – grew 33.7 per cent to £10.8m.

Partner Services, the third party maintenance unit selling IT support and hosting, saw revenues fall 5.7 per cent to £57.5m, operating income fell 9.7 per cent to £7.8m and the order book collapsed, down £39.6m to £138.6m.

The firm blamed the loss of an annual services contract worth £9.1m, terminated at the end of fiscal H1, for the drop in turnover.

It added: "A scarcity of large outsourcing deals in the current UK IT services market and a continued trend towards shorter contracts is reflected in the Division's order book".

Courtley said board expectations for the second half of the year, based on the trends so far, were "broadly" in line with the first half.

"While the overall sales pipeline has improved recently, longer sales cycles and the challenging macroeconomic environment will continue to impact the rate of new business wins in the shorter term," he said in a statement. ®

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