Phoenix IT Group PLC - Interim Management Statement

31 January 2012

Phoenix IT Group (LSE: PNX.L - news) plc

Interim Management Statement

Trading update

Phoenix IT Group plc ("the Group" or "Phoenix") releases its Interim Management Statement relating to the period from 1 October 2011 up to the latest practicable date prior to the publication of this statement, 30 January 2012. Financial data is for the Group's third quarter (1 October 2011 to 31 December 2011), unless otherwise stated.

The Group's performance in the third quarter of the year is in line with the Board's expectations and the outlook for the current year remains unchanged from that described at the time of the interim results with the second half performance expected to be in line with the first half performance due to the challenging macro environment.

The Group order book and annual contract values were as follows:

Update on reorganisation

As previously announced, we are working on a reorganisation of the Group to simplify our operations, providing greater sales focus and enabling more effective targeting of our markets. The result of this is an integrated business structure which was launched in January bringing together the strengths of both ICM (KOSDAQ: 038710.KQ - news) and Phoenix IT Services under a common Phoenix brand.

The Group, operating under the single Phoenix brand, now comprises five customer facing business units as follows:

· Systems Integrators - Desktop support and other services to Systems Integrators and Outsourcers;

· Communications - Network (BSE: NETWORK.BO - news) services to Telecommunications and other companies with networking requirements;

· Hosting - Hosting and Cloud services;

· Managed Services - Outsourced IT services to the middle market; and

· Business Continuity - Specialist business continuity and availability services.

Each of these units is focused on serving a well-defined segment of the market for which the Group has a proven and very competitive set of service offerings. The simplicity of the structure and branding will enable Phoenix to focus on, and communicate effectively with, customers in each of these segments, in particular to ensure that we deliver excellent operational service and drive growth with both existing and new customers.

We have also integrated our service delivery and functional back office operations across the Group. This will enable us to take advantage of our scale and geographic footprint, drive continuous efficiency, and develop new services to ensure we remain compelling and competitive in the market.

Plans are well advanced to complete the reorganisation by the end of the current financial year. While the reorganisation provides greater strategic focus, it also facilitates departmental consolidation, property rationalisation and other efficiency savings. This will lead to a reduction in staff numbers, principally in back office and delivery functions, in excess of 300 (11% of the total headcount as at 30 September 2011). In addition, the streamlining and simplification of our operational model will lead to the opportunity to rationalise our property requirements with the planned exit from four leased facilities over the next 12 months.

The reorganisation will lead to exceptional charges in the Income Statement in the current financial year of approximately £10m. The cash cost is likely to be £3m in the current financial year and £5m in the financial year ending March 2013 reflecting the phasing of the reduction in staff numbers, a period of transition and the implementation of revised operating models.

Net (Frankfurt: A0Z22E - news) of reinvestment primarily in customer facing roles to drive growth, the resultant cost savings flowing from the reorganisation are expected to be around £4m per annum with approximately half of this benefit coming through into the financial year ending March 2013 and the full benefit in each year thereafter.

Other matters

Following a regular review of our contract portfolio for potential lifetime losses, the Board has concluded that a single specific contract which was entered into by our Partner business is likely to require a provision of up to £5m. The contract incurred a loss of £0.9m in the 9 months ended 31 December 2011. Actions to mitigate future losses are currently being investigated and the level of the actual provision required will be determined during the coming months and included in the current year financial results.

In addition to the exceptional charges above, there will be an impairment charge of £8.1m in the current financial year reflecting the write off of the intangible asset carrying value of the ICM brand at 30 September 2011. The rebranding exercise and consolidation of our brands under the Phoenix trading name means that the ICM brand will be retired and can no longer be recognised as an intangible asset. This is a non-cash accounting adjustment and the prospects for our ICM related businesses together with the value of their customer contracts and relationships remain unaffected.

Outlook

The Group has a broad spectrum of capabilities and facilities across an extensive footprint in the UK. Following the reorganisation, our customer facing business units are well positioned in chosen markets with the benefit of a diversified customer base. The Group enjoys a high proportion of recurring revenue with good forward visibility and the Board remains confident in the Group's prospects.

A call for analysts and investors will be hosted at 8.00am GMT today. Details are as follows:

Dial-in via telephone: +44 (0)20 3106 4822 UK / International Toll

Access code: 7550114

Enquiries: