Phoenix IT Group boss rules out break-up or sale

New chief executive concludes firm needs to 'get back to basics' following review of operations

Phoenix IT Group's new chief executive has concluded a sale or break-up "is not the right approach" for the firm as it sank to another annual loss.

As exclusively revealed by CRN, Phoenix was stripped of its Cisco Gold contract last autumn and this – alongside "difficult trading conditions" – put a dent in the London-listed firm's figures for the year to 31 March.

Revenue dropped by seven per cent to £233.4m and although underlying EBITDA came in at £30.5m – down eight per cent – statutory pre-tax losses hit £29.2m.

Onlookers suspected that Phoenix's decision to sell off part of its Cisco break-fix operations in February could mark the beginning of a wider break-up strategy.

However, the firm's newly appointed chief executive, Steve Vaughan, signalled he intends to keep the business together following the completion of a review of its operations.

In a statement to the London Stock Exchange, Vaughan admitted a series of restructurings had left the firm "over-complicated in its structure and too diverse in the services provided". However, Phoenix can unlock "considerable value" by blending the capabilities of the three segments it currently works in: business continuity, managed services and partner services, Vaughan said.

"Partner adds scale to our offerings in the other two segments, allowing us credibly to offer 'enterprise-strength IT for the middle market'," explained Vaughan. "Some of the skills we currently use in managed services can also be of value in some of our Partner contracts if deployed properly – this is unexploited opportunity."

For fiscal 2014, the Cisco contract loss left a £11.5m dent in the order book of its Partner business although overall revenue rose by one per cent in this segment to £114.4m (due mainly to a rejig of where accounts sit).

Managed services, which were also affected by the contract loss, saw sales tumble 19 per cent to £68.4m while business continuity fell three per cent to £50.6m.

But rather than selling off assets, the firm simply needs better focus, Vaughan said, as he laid out a three-year plan for returning Phoenix to growth.

"Two issues come to the fore," he said. "The first is the need for stability and a long-term direction so that the business can develop towards a clearly understood objective without constant upheaval and distraction. We need a clearly articulated strategy.

"The second is the need to deliver on our promises. For too long, there have been disappointments, shortfalls and surprises. These have undermined investor confidence and the faith of our customers and employees. The group needs to get back to basics and build much stronger foundations."

Vaughan hinted that cloud would form a key plank in Phoenix's turnaround plan, adding that cloud is growing at 20 per cent annually in its core midmarket.

"If we simplify our service lines, inject greater discipline into the way we manage our client accounts and focus hard on delivering consistent, excellent service to those clients then I am convinced that there is a real opportunity for us to return Phoenix IT to a sustainable growth path," he said.