Beleaguered IT services supplier Phoenix IT (PNX) has a long road to recovery. Today's full-year results show just how big a task IT industry veteran and chief executive officer (CEO) Steve Vaughan is taking on with an ugly set of figures showing revenues and adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) down 7% to £233 million and 8% to £31 million respectively.
In fairness to Vaughan, he's only been in the job since March and probably spent much of his time fire fighting and assessing the real health of the business.
Phoenix's problems run deep and long. Five years ago, in 2009/10, the supplier of network hosting, managed services and business continuity produced £47.4 million of EBITDA on £246 million sales. A revolving management door has not helped, while multiple strategy changes have turned the company into a flea-bitten dog always chasing its own tail. The share price chart below shows just how sceptical the market has become.
Which makes today's 3.2% share price fall, to 91p, understandable even if Vaughan has been able to rush through his operational fix-it check list and spell out a three-point plan to rescue the business. This involves establishing three clear divisions: Business Continuity, Managed Services and Partner, aimed at improving both external traction and internal coherence, and addressing cloud services demand effectively, where it has failed in the past.
Year one will have management concentrating on operational efficiency and quality, without sacrificing stability. Year two's focus will fall on improving account management and standardising services, while integrating all of these moving parts into an effective and integrated business is the year three challenge.
Will this be enough? Only time will tell but Vaughan has history, turning round struggling IT business Synstar before selling it to Hewlett Packard (HPQ:NYSE) for £163 million in 2004. Analysts are in unison that Vaughan's three-point rescue mission is not only sensible and achievable.
'We think that the new strategy, and the details underneath, sound both appropriate and deliverable,' says Numis number cruncher Will Wallis.
'This turnaround strategy should set a platform for longer term sustainable returns,' Investec confidently predicts, albeit down the line. This year, February 2015, investors can expect earnings to crumble further from last year's 12.1p per share, with 7.2p to 7.4p the expected range.
But this epitome of a 'special situation' could have a silver lining.
'So far we learn that a key focus on emerging opportunity to provide cloud services to middle market customers in both Business Continuity and Managed Services segments,' explains Panmure Gordon tech analyst George O'Connor. 'A restructuring typically has a double-whammy effect, earnings are believable and increase, the shares get a re-rating as they shake off their dog status. Thereafter a trade buyer should emerge, and that could make it a triple-whammy.'