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August 31, 2005

Morse loss widens despite sales increase

Hardware reseller and IT services firm Morse Plc slipped further into the red in its last fiscal year, despite a 10% increase in revenue.

By CBR Staff Writer

For the 12 months to June 30 2005, Morse recorded a net loss of GBP20.4m ($36.5m), compared to a loss of GBP15.5m ($27.7m) in the previous year, on revenue that grew to GBP429.5m ($766.8m) from GBP390m ($696.2m) in fiscal 2004.

However, finance director Stuart Cruickshank pointed out to ComputerWire that Morse has an aggressive amortization policy, which aims to write off acquisitions over three years. The company made an operating profit before goodwill amortization and exceptional items of GBP10.3m ($18.3m), up from GBP7.5m ($13.3m) in the previous year.

In April 2005, Morse issued a profits warning and forecast annual revenue of GBP418.7m ($747.7m). Cruickshank said that this estimate was made amid concern about the state of the UK infrastructure market. Since then, he said, Morse had enjoyed a good fourth quarter, suggesting that the decline in the infrastructure market is not as severe as had been feared.

Morse’s revenue figures include GBP44.2m ($79m) derived from the operations of Diagonal, which Morse acquired in August 2004, and GBP43.7m ($78m) generated by Morse France SAS, prior to its disposal to Opengate Capital (UK) Holdings Ltd for an initial payment of 1 euro ($1.23) in July 2005.

The acquisition of Diagonal helped increase Brentford, UK-based Morse’s domestic sales to GBP256.4m ($458.1m) from GBP237.4m ($424m) in fiscal 2004. Yet, if Diagonal’s contribution is stripped out, UK sales fell by 8.1% to GBP218.2m ($389.6m).

Diagonal also made a loss before interest and tax of GBP9.3m ($16.6m) in the UK, contributing to Morse making a total loss before interest and tax in the UK of GBP20m ($35.8m).

European revenue increased by 9.6% to 123.5m pounds ($220.5m), with the region also recording a profit before interest and tax of 2.3m pounds ($4.1m), compared to a loss of 5.9m pounds ($10.5m) in the previous fiscal year.

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Morse’s UK Technology and Integration (MT&I) division remains the company’s largest business unit, despite a 12.1% fall in sales to GBP188.5m ($336.6m). Morse increased revenue in each of its other four business areas, with business consulting sales nearly tripling to GBP60.4m ($107.8m).

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