Commenting, Gordon Owen, Chairman of Energis said:.
Our performance, compared with the same period last year, has been robust, although the tougher market conditions over the last six months have slowed revenue growth. Our continued focus on high margin, high value services has enabled us to increase gross margins and we have maintained the proportion of total revenue derived from advanced and internet services. We have also increased the proportion of total turnover derived from our Continental European businesses..
In addition, Energis has taken advantage of its financial and operating strength to increase and extend its core finance facilities. This reinforces our fully-funded position and gives us headroom to exploit strategic opportunities which may arise as our competitive position strengthens relative to other business providers..
We remain committed to our strategy and continue to make good progress as a leading national e-business and telecoms solutions provider in all our European markets..
David Wickham, Chief Executive of Energis said:.
The market for business telecoms has changed fundamentally compared with last year. Many companies which were focused on growth have cut back their development plans and are now much more focused on cost-saving and cost efficiency. As customers have adjusted to economic slow-down, so we have seen an overall lengthening of the time taken to confirm orders. We have also witnessed a slow-down in the growth of usage of telecoms by some customers and, in a few cases, a reduction, reflecting these customers’ current levels of trading activity. We have also tightened our credit criteria in order to minimise our exposure to weaker wholesale customers.
This change in demand accounts for the small increase in sales compared with the second half of last year, as slower growth from some current customers masks the extent to which new business has been won. It also masks the progress Energis has made in transitioning from a position of providing telecoms solutions to support growth to one of providing solutions to help customers save money. In achieving this, the strength of our relationships with systems integrators helping companies implement re-structuring and outsourcing programme have come to the fore. So has the value of our sales force re-organisation, which ensures that we have one sales interface able to deal with all aspects of our customers’ needs..
During this period, we have strengthened our margins and the high quality of our customer base and overall business mix, and we have improved our recurring revenues through renewing contracts. The underlying recurring revenue has increased to £421 million from £384 million in the second half of last year. Internet and related services have grown 11% reflecting the continued move towards IP based products and solutions. Hosting and related activities now accounts for 21% of total revenues, with 90% of hosting being managed and complex, the latter producing average revenue of between £25,000 and £150,000 per server..
All this helps to offset the current decline in the growth of advanced services, which particularly suffered from a drop in one-off initial set-up charges and hardware sales related to the slowdown in the order cycle..
Our business has now adjusted to the changed order cycle, and we are securing significant new orders. At the end of September, we reported that we were tendering for contracts collectively worth over £400 million a year with an average contract life of over two years. Since then, we have signed contacts worth £48 million a year. This includes orders we had originally expected to land in the first half; but it reinforces our confidence in meeting our plans for the year. At the same time, we have increased the total pipeline of contracts we are tendering for to some £430 million..
New customers include with several large government departments, such as the Employment Service, Castle Cement, a major brewing company, Babtie Group and Ordnance Survey in the UK, Opodo a pan European travel portal, Glaxo Smith Kline in Switzerland; Koerber PaperLink and VTG-LEHNKERING in Germany; and Adecco, Vitae, Shell and Amsterdam Thuiszorg in the Netherlands. .
In the second half our margins will benefit from the repricing agreement with BT on partial private circuits, which has cut their headline cost to us by over 30% since August, and from completing our restructuring and integration programme which will cut our operating costs by £20 million a year. In parallel, we have been able to reduce our capex spend by over £60 million..
Last week we launched syndication of an amended medium term bank facility which is being extended in maturity until 2008 and increased in amount from £600 million to £850 million. The revised facility amount, of which £725 million is underwritten will provide us with strategic headroom for operational and inorganic investment opportunities..
Looking forward to the second half, revenues and margins are underpinned by our current run-rate of revenue and by the management actions we are undertaking. In the current economic environment, Energis’ growth will inevitably be slower than in previous years; but our competitive positioning continues to strengthen and we remain well on course to be a leading national e-business and business telecoms solutions provider in all our European markets.
