Moneyextra Sharedealing



Embargoed for 7.00am, Thursday 15 May 2008

Phoenix IT Group plc

Audited Preliminary Results For the year ended 31 March 2008

Transformational year for the Group with the acquisition of ICM

Successful year financially with results in line with expectations

Phoenix IT Group plc, ('Phoenix' or the 'Group'), the UK IT services company, announces its preliminary results for the year ended 31 March 2008.

Financial highlights

• Revenues up 82.1% to £230.8m (2007: £126.7m)

• Profit from operations before non-recurring items and amortisation of acquired intangibles up 45.4% to £33.0m (2007: £22.7m)

• Profit before tax, non-recurring items and amortisation of acquired intangibles up 20.2% to £25.6m (2007: £21.3m)¹

• Diluted earnings per share adjusted for non-recurring items and amortisation of acquired intangibles 24.1p (2007: 24.4p)

• Cash generated by operations before non-recurring cash flows £49.5m (2007: £31.0m) representing 168% of profit from operations before non-recurring items (2007: 150%)2 

• Free cash flow up 26.2% at £29.7m (2007: £23.6m)2

• Order book up 62.6% to £311.5m (2007: £191.5m)

• Proposed final dividend per share up 15.0% to 3.65p (interim dividend of 1.83p) giving a total dividend for the year to 31 March 2008 of 5.48p per share (2007: 4.764p)

Statutory information

• Profit from operations up 13.1% to £23.4m (2007: £20.7m)

• Profit before tax of £15.5m (2007: £19.3m)

• Diluted earnings per share of 14.6p (2007: 22.2p)

Operational Highlights

• Acquired control of ICM Computer Group plc ('ICM') on 29th May 2007; integration with existing businesses on track and will be complete, as planned by autumn 2008 

• Current year synergy savings of £1.7m and anticipate total synergies of £5.5m in the year to 31 March 2009

• New structure with three substantial customer facing divisions provides scaleable business and opportunities to operate more efficiently and improve Group margins 

  • BC ('ICM Continuous Business')

  • Partner ('Phoenix IT Services')

  • Mid-Market ('Servo')

• Significant new contract wins; annual contract value increased; and high conversion and renewal rates in all divisions

• Buoyant pipeline in all divisions with good visibility and recurring revenues

Jeremy Stafford, Chief Executive of Phoenix, commented:

'This has been a transformational year for the Group in which we have made very good progress with the integration of ICM as well as delivering a strong set of results. We are confident that we have the right strategy and structure in place for the enlarged Group to deliver value to our customers and to achieve sustainable, profitable growth.  

We have achieved good momentum into the current financial year and, in spite of continuing macro economic uncertainties, we remain positive about the outlook for the current year and beyond.'

Enquiries:

Forward looking statements

Any forward looking statements made within this statement have been made in good faith by the directors based on the information available up to the date of the director's approval of this report, and these forward looking statements should be treated with caution due to the inherent uncertainties, including macro economic, and IT services market uncertainties, and business risk factors which may affect the outcome.

This statement has been prepared for the Phoenix IT Group as a whole and therefore it gives greater emphasis to those matters which are significant to Phoenix IT Group plc and its subsidiary undertakings when viewed as a whole.

1 Profit before tax £22.0m (2007: £19.3m) plus amortisation of acquired intangibles £3.6m (2007: £2.0m)

2 See cash flow section of financial review

  Chairman's statement

Review of the Year

I am pleased to report that Phoenix IT Group plc has delivered good results in 2008 against a backdrop of significant change during the year. Following the Group's largest acquisition to date, that of ICM Computer Group plc in May 2007, an integration review and planning exercise was undertaken and the resulting integration programme is nearing completion. As a result the Group is well placed in each of the markets that it serves and enters the new financial year in a strong position.

Results

Group revenues increased by 82.1% to £230.8m (2007: £126.7m) and operating profit before non-recurring items and amortisation of acquired intangibles increased by 45.4% to £33.0m (2007: £22.7m). Profit from operations (after amortisation of acquired intangibles) increased by 13.1% to £23.4m (2007: £20.7m). The Group has continued to be highly cash generative during the year with the free cash flow increasing by 26.2% to 29.7m (2007: £23.6m) 3.

Dividend

The Board recommends a proposed final dividend of 3.65p (2007: second interim dividend of 3.174p), which, if approved at the Annual General Meeting, will be paid on 1 October 2008. Combined with the interim dividend of 1.83p paid in January 2008, this makes a total dividend per share of 5.48p (2007: 4.764p), an increase of 15%.  

Board Changes 

During the year we announced that Nick Robinson stepped down as Chief Executive Officer and became Non-Executive Deputy Chairman from 1 January 2008. Nick joined the business in its earliest years and has been instrumental in its successful growth and development. He remains a substantial shareholder and I am very glad that the Group will continue to benefit from his involvement on the Board.

I became Executive Chairman on 22 November 2007 after serving as Non-Executive Chairman since 21 October 2004. It is currently expected that I will remain in this role until 31 December 2008 when I will revert to Non-Executive Chairman.

Jeremy Stafford, who has served as Chief Operating Officer since 24 April 2007, became Chief Executive from 31 March 2008.

Employees

We are fortunate to have a strong team of talented and hardworking people in the Group who have delivered the successful performance achieved in the year and I thank them all on behalf of the Board and the shareholders. I am also pleased to formally welcome the management and staff of ICM to Phoenix IT Group.

Annual General Meeting

The Annual General Meeting will be held at the Group's registered office, Technology House, Hunsbury Hill Avenue, Northampton on Thursday, 14 August at 10.30am.  

Summary

The integration phase is nearing completion and the Group is confident that the new structure will not only deliver the anticipated synergy cost savings in the next financial year but also provide a platform for growth for each of the business units.

Peter Bertram

Chairman

14 May 2008

3 See cash flow section of financial review

Overview

The past year has seen Phoenix IT Group move to a new level following the acquisition of ICM at the end of May 2007 and the acquisition of Servo which completed in November 2006. During the year, we began the process of integrating these recently acquired companies, together with other Group Companies, into larger, more competitive business units focused on discrete market sectors. We have also worked on introducing a new operating model that leverages the benefits of scale of the enlarged Group. This integration process is currently being implemented and will be materially complete by the autumn of 2008. 

We have also had a successful year financially. For the year ended 31 March 2008 Group profit before tax (before non-recurring items and amortisation of acquired intangibles) grew by 20.2% to £25.6m4 (2007: £21.3m) on Group revenues of £230.8m (2007: £126.7m), an increase of 82.1%. 

Success factors in this growth and operational performance have included a focus on servicing the needs of our customers; operational precision; introduction of new and innovative services; and tight cost controls that help us quote for new business more accurately and keenly.  

The Markets the Group Serves

With effect from 1 April 2008 the Group moved from five operating units to three customer facing divisions - ICM Continuous Business (Business Continuity), Phoenix IT Services (Partner Services) and Servo (Mid-Market) - supported by Shared Operations and Corporate Services. 

Structural overview and the integration process

Following the ICM acquisition, the Group has undertaken a thorough integration review and planning exercise and the resulting integration programme is in the process of being executed. 

• ICM Continuous Business (Business Continuity).

The Business Continuity Division, comprising NDR and the Business Continuity business of ICM, will be branded ICM Continuous Business. The two businesses coming together create a powerful force in the UK business continuity market with 15 purpose built centres, over 7,500 recovery positions, extensive Mobile and IT recovery capabilities, and over 2,100 customers. The customer bases of the two businesses are complementary, with ICM having greater high end market penetration compared to NDR's mid market strength. This element of the integration plan will be substantially complete by the end of June 2008.

• Phoenix IT Services (Partner Services).

Phoenix IT Services continues to focus on delivering a wide range of IT support services to typically large end users through partners.  

• Servo (Mid-Market) 

Servo and ICM's Managed Availability Services business are being merged resulting in a significant operation enjoying increased scale benefits focused on providing IT solutions and services to a large mid-market customer base. From 1 April 2008 this division has been branded Servo. This element of the integration is underway and it is envisaged that it will be substantially complete by the end of Autumn 2008.

• The Group is also in the process of establishing a centralised operational shared services unit which will undertake activities (for example, logistics) on behalf of the three operating divisions to maximise operational efficiencies. Existing activities are being progressively transferred from the individual business units to the shared services centre. This is expected to be substantially complete by the end of Autumn 2008. 

The integration process is delivering a number of cost synergies for the enlarged Group, including:

• a reduction in the number of sites from which the business continuity division will provide services. Two sites in High Wycombe are in the process of being closed and the contracts will be transferred to other recovery centres; the two sites in Bristol have been combined; and the Darlaston, West Midlands facility is in the process of being combined with the NDR head office in Aston, Birmingham;

• greater operating efficiencies derived from the creation of larger units throughout the UK which will have a greater density of coverage; and 

• increased procurement and productivity gains arising from the combination of the Group's respective logistics operations and support functions. 

During the year the Group incurred a total of £6.4m of non-recurring items of which £4.3m has been a cash expense. £5.5m of the non-recurring items incurred during the year relate to the integration project and it is anticipated that a further £4.6m will be incurred during the next 12 months. The project has yielded cost synergies of £1.7m during the year and it is anticipated that further cost synergies of £5.5m will be achieved in the financial year to March 2009. 

ICM Continuous Business (Business Continuity).

The ICM Continuous Business Division serves the business continuity and disaster recovery market and for the year ended 31 March 2008 combined revenues were £42.0m (2007: £18.8m) with an operating profit of £8.9m (2007: £4.9m). The Business Continuity business of ICM has been part of the Group for 10 months of this financial year.

The merging of ICM and NDR creates a critical mass business providing a national network of business recovery centres that are well placed in relation to our target customer groups, with each centre equipped to meet the needs of our customers. The quality of our proposition and service offering has been recognised at the recent Business Continuity Annual Awards Ceremony which was held on 8 May 2008 where we received a number of awards including Service Provider of the Year.

Acquired in 2005, NDR provides business continuity and disaster recovery services, targeting predominantly SME customers. The company has built a strong reputation in this sector which it services effectively with consultancy services, real time data back-up, office and mobile facilities and support in the case of disaster or major business interruption. There has been continued investment in infrastructure to create additional Work Area and Data Centre capacity at the existing NDR Aston and Uxbridge facilities. 

The Business Continuity business of ICM provides services to a wide range of customers and in June 2007 acquired a lease on a 100,000 sq ft facility in Farnborough, Hampshire, and has subsequently signed two major contracts for the facility as previously announced, with values of £8.4m over 7 years and £12.0m over 3 years.

Combining the ICM and NDR customer bases has given us extensive penetration of the large enterprise and SME sectors providing us with a solid platform for growth and the knowledge and expertise to accelerate business progress.

Phoenix IT Services (Partner Services)

Our Partner Services business targets large enterprise scale customers through IT services companies ('Partners'). Against a market background of increased competition and commoditisation, our revenues exceeded £100m (2007: £91.5m) for the first time, representing double digit growth year on year, and delivered £17.8m (2007: £17.6m) of operating profit. Operating margins for the year were 17.2% (2007: 19.2%) and management believe the division's margin is broadly sustainable at this level due to increased economies of scale, low cost of sale and operational innovation.  

The performance of this division and in particular the decline in the operating margin reflects the material contribution of a large, high margin contract in the prior year. This contract did not contribute materially in the financial year under review. The underlying business has progressed significantly and is now well positioned for the future. The move away from reliance on a small number of very large contracts is both reflective of changes in the market and a determination to create a more stable and predictable base for this business.

We performed well in all sectors in which our Partner business competes: our system support business exhibited annual growth of 12%, managed services grew by 22%, projects by 23% and network services by 9% giving overall growth of 12.6%. 

Our engagement with established partners has also progressed well during the year. Service quality has remained high and we continue to meet overall customer service SLA's. 

We measure on-going cost performance in all phases of service delivery in order to find ways to improve efficiencies and protect margins. Cost is only one element of competition; differentiating our offer is another and considerable effort has been devoted to creating innovative new services, with good results. For example, we have introduced OneStream, an integrated remote monitoring system. Similarly, we have developed a web based password reset tool to enable users to reset their own passwords securely. After a successful pilot, we aim to scale-up the product in preparation for wider distribution.  

Our small French operation which delivers services to IT industry partners continued to grow by replicating the proven UK partner model.  The French operation continues to be profitable. 

Servo (Mid - Market Services) 

The Servo Division comprises the Servo business, which was acquired by the Group in November 2006, and ICM Managed Availability Services (for 10 months). Combined revenues for the year ended 31st March 2008 were £85.9m (2007: £16.4m) and operating profit was £9.0m (2007: £1.7m).  

The Servo Division provides customers with a complementary and extended range of services together with improved geographical coverage. 

The Servo business saw improving performance quarter on quarter and posted a very strong end to the year, reflecting both an improvement in Servo's business mix and healthy new business generation. 

ICM Managed Availability Services has a strong technical capability and this has thrived within the business development culture of the Group. ICM has been developing its hosting capabilities and has 3,000m² of hosting space which is nearly all sold as a result of strong market demand. A further 1,000m² of data centre space is under construction for 2008/9 with an anticipated commission date of August 2008.

Strategy 

We are confident that we have the right Group strategy in place to deliver value to our customers and to achieve sustainable, profitable growth. Each of our three operating divisions benefits directly from being part of the wider Group, leveraging our shared operation and corporate services capability as well as opportunities to cross-sell between divisions and to sell a wider portfolio of services to individual customers. In addition, as we plan for the longer term growth of the Group, we have established a strong modular structure which can be expanded with the addition of service lines and further acquisitions, as appropriate. 

The Board believes that a continuing focus on the UK will maximise the performance of the Group for the foreseeable future.  

Outlook

This has been a transformational year for the Group in which we have made very good progress with the integration of ICM as well as delivering a strong set of results. We are confident that we have the right strategy and structure in place for the enlarged Group to deliver value to our customers and to achieve sustainable profitable growth.  

We have achieved good momentum into the current financial year and, in spite of continuing macro economic uncertainties, we remain positive about the outlook for the current year and beyond. 

Jeremy Stafford

Chief Executive

14 May 2008

4 Profit before tax £22.0m (2007: £19.3m) plus amortisation of acquired intangibles £3.6m (2007: £2.0m)

  Financial Review 

Summary of Results

The 2008 results represent another positive year for the Group. Taking into account the ICM acquisition, revenues, profit before tax and cash generation were all at record levels. The results were achieved in an environment of significant change for the Group following the acquisition of ICM during the year, the acquisition of Servo in the latter part of the previous year and the subsequent transition from five principal UK operating companies to three customer facing divisions. The integration activity is progressing to plan and will position the Group for further organic and acquisition led growth.

The acquisition of ICM Computer Group plc was completed at the end of May 2007 for a cash consideration of £65.4m, including acquisition costs of £3.6m, and the issue of 14,047,184 shares in Phoenix IT Group plc. Accordingly, ten months results from the ICM business are included in these financial statements. In the ten months to 31 March 2008, ICM contributed total revenues of £68.2m and profit from operations of £6.9m. The ICM business continuity division generated revenues of £21.4m and profit from operations of £2.9m and the ICM Managed Availability Services division generated £46.8m and profit from operations of £4.0m. The ICM order book at 31 March 2008 was £97.4m, with £65.0m attributable to the BC division and £32.4m to the Managed Availability Services Division.

Revenue and Profits 

Revenues increased by 82.1% to £230.8m (2007: £126.7m). 

Group profit from operations before non-recurring items and amortisation of acquired intangibles increased by 45.4% to £33.0m (2007: £22.7m). Group operating profit margin before non-recurring items and amortisation of acquired intangibles has decreased to 14.3% (2007: 17.9%). This reduction in Group operating profit margin is primarily due to the operating margins of the mid-market businesses of Servo and ICM (which include a significant proportion of product resale) being lower than those of the Partner and Business Continuity businesses.  

As a result of a combination of continuing organic growth and the effect of the acquired businesses, profit before tax, non-recurring items and amortisation of acquired intangibles increased by 20.2% to £25.6m (2007: £21.3m)5.

Non-recurring items are those significant non-recurring items which are separately disclosed by virtue of their size or incidence to enable a full understanding of the Group's operating performance. Transactions which have given rise to non-recurring items are principally integration related charges of £6.0m (2007: £nil) and costs in relation to arrangement of the Group's new bank facilities at the time of the acquisition of ICM of £0.4m (2007:£nil). A full analysis of the non-recurring items is set out in note 2. The Group's integration and reorganisation programme is progressing according to plan and was well underway at the year end and consequently the further costs associated with the plan in the next financial year will be at a lower level than incurred to date. The project has yielded cost synergies of £1.7m during the year. Profit from operations (after non-recurring items and amortisation of acquired intangibles) increased by 13.1% to £23.4m (2007: £20.7m).

In accordance with the requirements of IFRS 3 'Business Combinations', customer relationships and brand name have been recognised on the acquisition of ICM as acquired intangible assets. A valuation of £18.7m has been attributed to these resulting in an additional amortisation charge in the period of £1.6m.

Profit before tax decreased in the year by 19.4% to £15.5m (2007: £19.3m) as a result of the non-recurring items and increases in both amortisation and interest charges. Investment income and finance costs are discussed below.

ICM Continuous Business (Business continuity)

The business continuity division, which comprises NDR and the business continuity division of ICM, had total revenues for the year of £42.0m (2007: £18.8m), an increase of 123.0%. The order book increased by 254.0% to £93.1m (2007: £26.3m). Profit from operations, although impacted by the acquisition of the Farnborough facility which made an anticipated start up loss of £0.1m, was strong at £8.9m (2007: £4.9m), giving an operating profit margin of 21.1% (2007: 26.2%). The reduction in the margins reflects the lower utilisation rates of the ICM business continuity facilities compared to those of NDR.

NDR, in isolation, increased its revenues by 9.6% to £20.6m (2007: £18.8m), profit from operations by 18.8% to £5.9m (2007: £4.9m) and order book by 6.6% to £28.1m (2007: £26.3m). The operating profit margin increased to 28.4% (2007: 26.2%).

Phoenix IT Services (Partner services)

The partner services division (Phoenix IT Services Limited and Phoenix IT Services S.A.) has achieved a resumption of revenue growth in the year with revenues increasing by 12.4% to £102.9m (2007: £91.5m). The order book at the year end was £171.9m (2007: £154.6m) an increase of 11.2% on the prior year and gives a strong platform for growth going into the new financial year. Divisional operating profit increased by £0.2m to £17.8m (2007: £17.6m) and the operating profit margin, although still strong, has decreased to 17.2% (2007: 19.2%) as a result of the continuing commoditisation of certain service lines and the ongoing effect of a significant reduction in what was the division's largest contract. Excluding the effect of the reduction in this contract underlying operating margins increased to 16.7% (2007: 16.5%).  

Servo (Mid-Market)

The mid-market services division comprises Servo Computer Services Limited, which was acquired by the Group in November 2006, and ICM Managed Availability Services Limited, which was acquired at the end of May 2007. This division reported revenues of £85.9m (2007: £16.4m) an increase of 425.4%, including the full year effect of Servo and the acquisition of ICM. The total order book for the division increased by 338.7% to £46.5m (2007: £10.6m), with an increase in Servo Computer Services Limited's order book of 33.2% to £14.1m (2007: £10.6m).

Divisional operating profit, including the full year effect of Servo and the ICM acquisition, increased by 424.9% to £9.0m (2007: £1.7m).

Investment Income and Finance Costs

During the year the Group arranged new banking facilities with Royal Bank of Scotland plc (replacing the existing facilities) comprising two and five year term loans totalling £100.0m, a five year £30.0m revolving credit facility and a £10.0m overdraft facility. The Group entered into a three year interest rate swap on 28 September 2007 at an interest rate of 5.78% plus applicable margin against the amortising balance of the principal term loan, giving interest rate certainty over £80.0m, £51.8m and £42.0m of the Group's bank debt in the three years ending 30 September 2010. 

Primarily as a result of the cash element of the ICM consideration, Group borrowings, including finance leases, increased to £103.0m (2007: £27.7m) and as a result, the Group's interest charges on borrowings and overdrafts increased to £6.7m (2007: £1.3m) and other finance costs (including the write-off of un-amortised loan costs and loan break costs following the arrangement of new bank facilities - £0.5m) increased to £2.1m (2007: £0.4m). The Group places surplus cash on deposit as appropriate in order to maximise the short-term return on cash balances which generated investment income of £0.2m in the year (2007: £0.2m).

Taxation

A full analysis of the tax charge for the year is set out in note 4. The Group's effective tax rate in 2008 was 30.6% (2007: 28.7%).

Balance Sheet

The significant changes to the Group balance sheet arise as a result of the acquisition of ICM. A full analysis of the book and provisional fair values of the identifiable assets and liabilities acquired is given in note 7.

As a result of the fit-out costs following the acquisition of a lease on a 100,000 ft² flagship business continuity centre in Farnborough in June 2007 together with further investment in data-centre facilities and capital expenditure arising from the integration programme, the Group's capital expenditure during the year was exceptionally high at £21.4m (2007: £4.4m). It is pleasing to report that the additional business continuity and data-centre capacity is operating in line with expectations and is expected to achieve profitability in the year to 31 March 2009, with significant un-utilised capacity remaining to drive further growth in profit from this site. Whilst the nature of business continuity and the Group's data-centre activities are significantly more capital intensive than the other areas of activity, additional capital expenditure is only incurred with clear visibility of the demand for the services that the Group can then provide.  

Cash Flow

Shareholders' Returns

Earnings per share

Adjusted diluted earnings per share excluding non-recurring items and amortisation of acquired intangible assets were 24.1p (2007: 24.4p)6.  Diluted earnings per share were 14.6p (2007: 22.2p) a decrease of 34.2% primarily due to the non-recurring items incurred in the year. Comparable basic earnings per share were 15.0p (2007: 23.0p). 

Dividend

The Board has declared a proposed final dividend of 3.65p per share to be paid on 1 October 2008 to shareholders on the register at 12 September 2008. This gives a total dividend for the year of 5.48p per share (including the interim dividend of 1.83p paid to Shareholders on 30 January 2008), compared to 4.764p for 2007, giving an increase of 15.0%. The total dividend for the year is covered 2.7 times by basic earnings per share, and Shareholders' funds at the end of the financial year were £120.3m (2007: £56.4m).

Principal risks and uncertainties

As a result of the contracted revenues in the order book, the Group has a high degree of forward visibility of its revenues over the next twelve months. Nonetheless, there are a number of potential risks and uncertainties which could have a material impact on the Group's performance over the current financial year and which could cause the Group's actual results to materially deviate from expected and historical results.

Integration risk

The ongoing integration of ICM and reorganisation of the Group into three customer facing divisions supported by Shared Operations and Corporate Services is expected to yield material annual cost savings and operational efficiencies. Execution of the plan is now well underway and the Group has good visibility of the remaining actions and activities, the synergies that will be delivered and the one-off costs arising. However, an activity of this scale may cause short term disruption to the Group. To mitigate this risk the integration activity has been thoroughly planned, external advisers have been used where appropriate, and the Group parallel-runs activities to test the effectiveness of the new processes. The resulting plans are being executed in series and are being tested at each stage to ensure that any disruption to the Group's customers is either eliminated or minimised.

Acquisition risk

Since November 2004 the Group has made three successful acquisitions. However, acquisitions can involve risks that may have a material impact on the Group. The Group mitigates this risk by undertaking thorough due diligence, and, where practical, by contractual representations, warranties and indemnities.

Competitor risk

The IT services industry is highly competitive. Several competitors, including, in some cases, Phoenix's partners, have longer operating histories, higher brand recognition, greater financial, technical, marketing, personnel and other resources than the Group. The Group's competitors have, and other potential competitors may have, well established relationships with current and potential partners of the Group. As a result, these competitors may be able to respond more quickly to new or emerging technology and changes in partner requirements, or to devote greater resources to the development, promotion and sale of their services, than the Group. In addition, the Group may experience increased competition from low cost outsourcing centres, including offshore centres, and new or existing niche market participants whose costs, particularly for labour and for service desks may be lower. Increased competition could lead to the loss of market share, loss of material contracts, renegotiation of price levels or a general reduction in revenues of the Group.

Macro economic risk

Whilst the Group has not seen any downturn in activity the recent tightening of credit and increases in market interest rates could lead to a slowing of growth in the UK economy. However, while there is a risk of macro economic factors and particularly the so called 'credit crunch' affecting direct sales activities, this risk is mitigated by the high proportion of long term contracted annuity business.

Treasury policies and objectives

The Group operates within policies and guidelines approved by the Board.  

It is the Board's preference to manage market risks without the use of derivatives but they will be used where necessary and appropriate to reduce the levels of volatility to both income and equity. The use of derivatives is strictly controlled and they are not permitted to be used for speculative or trading purposes.

The Group's main treasury risks relate to the availability of funds to meet its future requirements. At the year end the Group had undrawn committed borrowing facilities of £36.2m. The Group's policy with respect to facilities is to ensure that these are sufficient to cover the expected needs of the Group, having reflected the inherent uncertainty of projections and forecasts.

Key Performance indicators

The Group regards its profit and cash generation as the most appropriate measures of its financial performance.

Revenues

The Groups aim is to increase revenues each year through a combination of price and volume growth, organic expansion and acquisitions. For the year ended 31 March 2008, Group revenues increased by 82.1% to £230.8m (2007: £126.7m). Organic growth, excluding the effect of acquisitions, contributed 6.8%.

Operating margin

This represents the Group's profit from operations before non-recurring items and amortisation of acquired intangibles divided by Group revenues. For the year ended 31 March 2008, Group operating profit margin was 14.3% a reduction on the prior year margin which was 17.9%. This reduction was primarily due to the lower operating profit margins of the Servo (Mid-Market) division compared to the rest of the Group.

Profitability

Our main profitability KPIs are profit from operations before non-recurring items and amortisation of acquired intangibles and adjusted diluted earnings per share. These measures increased in the year by 45.4% and reduced by 1.2% respectively to £33.0m and 24.1p (2007: £22.7m and 24.4p).

Cash generated from operations

Strong control is exercised over the Group's working capital and conversion of profit into cash. For the year ended 31 March 2008, cash generated from operations was up 45.7% to £45.3m (2007: £31.0m). Cash generated by operations before non-recurring cash flows were £49.5m (2007: £31.0m) representing 168.4% of profit from operations before non-recurring items (2007: 150.2%).

Non Financial KPIs

Order book

The order book grew significantly in the year to £311.5m (2007: £191.5m) an increase of 62.6%. The like-for-like order book, excluding the effect of the ICM acquisition also increased to £214.0m (2007: £191.5m) an increase of 11.8%. Of the total £311.5m, 53.2% is expected to be recognised in revenues in the next financial year.

Contract renewal rates

The contract renewal rates by value for each operating division improved on last year. ICM Continuous Business (business continuity) division renewal rate was 89% (2007: 88%), the Phoenix IT Services (Partner Services) division's renewal rate was 86% (2007: 57%) and the Servo (Mid-Market) renewal rate was 92% (2007: 82%).

David Simpson

Chief Financial Officer

14 May 2008

5 Profit before tax £22.0m (2007: £19.3m) plus amortisation of acquired intangibles £3.6m (2007: £2.0m)

6 See note 5

Consolidated statement of income 

For the year ended 31 March 2008

Consolidated statement of recognised income and expense 

For the year ended 31 March 2008

The financial statements were approved by the Board of Directors and authorised for issue on 14 May 2008. They were signed on its behalf by:

David Simpson

Group Finance Director

  Consolidated cash flow statement 

For the year ended 31 March 2008

  Notes to the consolidated financial statements for the year ended 31 March 2008

1. Segmental reporting

Following the acquisition of ICM Computer Group plc, the Board has determined that the primary segmental reporting format is by business line, based on the Group's management and internal reporting structure. The Group's operations are based entirely in the UK and considered to be one geographical segment.

Principal activities are as follows:

Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Corporate costs relate to central group costs, including finance, legal and employee costs that are not directly attributable to the operating segments.  

Inter segment sales are charged at prevailing market prices.

The analysis of total assets and liabilities excludes inter-business balances. Unallocated total assets comprise goodwill arising on consolidation, derivative financial assets and other consolidation adjustments. Unallocated total liabilities comprise bank loans and overdrafts, taxation and derivative financial liabilities.

2. Non-recurring items

The funding of the acquisition of ICM Computer Group during the period necessitated a renegotiation of the Group's borrowing facilities.

3. Finance costs and investment income

Borrowing costs included in the cost of qualifying assets during the year arose on the general borrowing pool and are calculated by applying a capitalisation rate of 7.621% to expenditure on such assets.

4. Taxation

The tax charge on profit from operations for the year was as follows:

Corporation tax is calculated at 30% of the estimated assessable profit for the year. Based on future Government legislation the Corporation tax will be calculated at 28% of assessable profit from 1 April 2008.

Taxation for jurisdictions other than the UK is calculated at the rates prevailing in the respective jurisdictions.

The charge for the year can be reconciled to the profit per the income statement as follows:

In addition to the amount charged to the income statement, deferred tax of £94,000 (2007: credit of £10,000) and current tax of £134,000 (2007: credit of £82,000), relating to share option charges has been debited and credited directly to equity respectively.

A deferred tax credit of £267,000 (2007: £nil) and £166,000 charge has been posted to equity regarding the hedging liability and the actuarial gains on the pension obligation respectively.

5. Earnings per share