Thursday, 15 October 2009

Morse's margins march on

(By Anthony Miller – Thursday 15th October 2009 8:00am). Answering the headline question in our post a month ago about products and services player Morse’s FY results (see Morse – will new year bring new hope?), the answer is ‘yes’ on the margin front, and ‘hmmm’ on the revenue front.

The intensive therapy that CEO Mike Phillips and the team is lavishing on Morse’s product/services businesses continued to pay dividends on profitability in the company’s Q1 (to 30th Sept. – see here). ‘Adjusted’ margins were up across the board, including the core UK Infrastructure Services & Technology business (52% of total revenues), which now stand at 6.9% (FY09: 6.3%), despite revenues falling 11% yoy. The troubled Spain and Ireland units are now profitable – just – but like the UK, underlying revenues are down, though a last minute large deal at the end of the quarter pushed Ireland’s top line growth positive (+47%!).

However, Business Application Services margins stayed at the FY09 level of 6.3% (1Q09: 2.8%), and this included the release of a £300k provision now that all problems associated with overrunning fixed price contracts are fixed. Revenues declined 35% yoy to £7.4m. Frankly, with three different sub-scale businesses under the covers, BAS remains a huge challenge for management in the current climate. I can’t imagine there’s any more cost to strip out so now it’s down to winning deals and delivering. I’m just not sure whether they can pull that off.

But let that not detract too much from the terrific progress made so far on what Morse was really all about – product resale and associated support services. The business has been cleaned up both operationally and financially, but further success will be down to competing – and winning – in a still very tough market.

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