Phoenix IT Group has revealed it is overhauling how its Partner business works with resellers and SIs as it unveiled a mixed set of interim numbers.
The London-listed IT services firm said it is attempting to move its relationships with partners who buy its maintenance services to a service-level basis as part of a three-year turnaround strategy under new chief executive Steve Vaughan.
Alongside the likes of Daisy and Comms-care, Phoenix is one of the UK's largest channel services providers.
Phoenix's Partner unit generated 46 per cent of its total interim revenues, which fell 8.1 per cent year on year to £107.4m.
While group EBITDA for the six months ending 30 September also dropped by 6.6 per cent to £13.5m, underlying profit before tax came in ahead of expectations at £5m.
Vaughan said he was encouraged by the early results his three-year turnaround strategy have generated.
The first, one-year phase of Vaughan's masterplan – which is already six months in – sees Phoenix focus its efforts on "stability, efficiency and quality".
As part of these efforts, Phoenix is striving to increase the amount of Partner business that is delivered to defined service levels, with the first customer – Indian offshoring giant TCS – having already made the move to this model.
"To achieve better margins longer term we are changing the relationship with our customers to one based on service level rather than a given number of people on-site. Our customers are keen for us to change in this way too," Vaughan said.
Contractor usage within the Partner business has also been reduced in a bid to improve service quality and margin on some contracts, Vaughan added.
In Phoenix's fiscal first half, Partner revenue fell eight per cent to £49.8m year on year, although underlying operating profit from the segment rose by 29 per cent to £3.1m.
Phase one of Vaughan's plan of attack is also about fostering greater cross-selling between Phoenix's two end-user arms, Business Continuity and Managed Services, both of which focus on mid-sized customers with between a few hundred and a few thousand users.
Business Continuity saw interim revenues fall fractionally from £25.4m to £25m year on year, while Managed Services' revenues dropped from £34.5m to £32.6m.
Although cloud is a key prong of Vaughan's turnaround blueprint, Phoenix admitted that uptake of its CloudSure public cloud services, which it launched last November, had been slower than anticipated despite high demand.
However, Phoenix said its Cloud Backup and Recovery service is becoming lucrative, with its 85 customers in this area now bringing in annual revenues of £2.1m.
Speculation surfaced over the summer that Phoenix IT Group could at some point be smashed together with comms provider Daisy as the latter announced plans to be taken over by a consortium featuring Toscafund, which also owns an interest in Phoenix. Although conjecture that such a move could be on the cards will have only increased since Daisy's takeover was agreed, Vaughan appears intent on keeping Phoenix together as an independent company for the long haul.
Phoenix's share price has risen by about 12 per cent since Vaughan took the helm on 12 March and by about 56 per cent since July.
Year two of Phoenix's turnaround plan will see it focus on account management and standardising its service portfolio, with year three focusing on delivering integrated services to customers, Vaughan explained.
"In this first half we have proved to the market and to ourselves that we can successfully deliver on those goals. While there is always more to do, we are well placed to make good progress in the six months ahead," Vaughan said.
Peter Titmus, owner of channel services provider Networks First, said he understood the logic behind Phoenix's decision to change how it interacts with partners.
"If they are trying to go for more remote services - rather than having people onsite - that is the way the market is going," Titmus said.
Richard Eglon, marketing director at Comms-care, said: "Their strategy is no surprise as we've been adopting this model for a few years now around our SLAs."
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