Phoenix IT : Preliminary Results

RNS Number : 4337P

Phoenix IT Group PLC

08 June 2015



8 June 2015

Phoenix IT Group plc

Audited Preliminary Results for the Year Ended 31 March 2015

Phoenix IT Group plc ('Phoenix' or 'the Group'), the UK IT services company, announces financial results for the year ended 31 March 2015.

Financial Results

	2015	2014	Change
	£m	£m
Financial Performance
Revenue	212.4	233.4	(9.0%)
Underlying EBITDA¹	27.1	30.5	(11.0%)
Underlying profit before tax²	9.6	12.6	(23.1%)
Profit before tax	8.8	(29.2)	£38.0m
Basic earnings per share (p)	8.5	(40.0)	48.5p
Dividend per share (p)	0.5	2.6	(2.1p)
Other Key Performance Indicators
Net debt (including finance leases)	(49.0)	(56.1)	£7.1m
Annual contract value	164.0	181.0	(9.4%)
Order book	248.5	304.9	(18.5%)

¹ EBITDA is group underlying² operating profit plus depreciation and share option costs.

² Underlying is adjusted for non-recurring items and amortisation of acquired intangibles.

Operational Highlights

·Strong performance on Net Debt and Profit before tax

o Focus on profit, not revenue, has returned stability to Group financial position

o Underlying EBITDA of £27.1m (2014: £30.5m) in line with initial expectations

o Strong control on non-recurring items has produced a strong Profit before tax of £8.8m (2014: loss of £29.2m)

o Net Debt £7.1m lower at £49.0m - a significant year-on-year reduction

o Order Book and Annual Contract Value lower as transition to higher-margin, lower revenue contracts continues

o Following the offer for the company from Daisy Intermediate Holdings Ltd, the board has decided not to recommend a final dividend.

·Phase one of Group strategy complete with progress made across all three Businesses

oPartner:good efficiency improvements and several customers transitioned from a headcount-based revenue model to Service Level Agreements, improving customer retention, profitability and competitiveness. Legacy contracts coming to an end as expected reducing revenue.

oBusiness Continuity:a quieter first half, lifted by the renewal of our second largest Business Continuity ('BC') customer in July, with a better second half including a significant new customer win with Shop Direct and good growth in consulting revenues.

oManaged Services:extended key customer relationships and secured new contract wins, including several conversions of BC relationships into larger Managed Services mandates.

·Stable, more effective operational platform now built from which to target phase two

o More efficient Group operations built, matched by a Group-wide focus on customer profitability

o Phase two strategic efforts already underway:

§ standardised, simplified service lines defined and implementation commenced

§ account management rollout underway and in its early stages

Commenting on the results, Steve Vaughan, Chief Executive of Phoenix, said

'It has taken no small amount of energy, but the first phase of our three year plan for Phoenix is complete. Over the past twelve months a significant amount of work has been done to stabilise our financial performance, revitalise our go-to-market approach and bring greater rigour to the way in which we work, serve and partner with our customers. Those efforts are just the first part of our plan for the Group, but it is gratifying to see them translate into our results. It is also encouraging to start to see some customers, some new, some long-held, respond well to the improvements we are making to our service portfolio.

Following the offer for the Group from Daisy Intermediate Holdings, announced on May 27, the whole Board has taken the view that this represents the best option for Phoenix in the future. The price offered recognises the progress made in the first phase of the strategy, and the potential of future phases. A combined Daisy/Phoenix group will be well placed to exploit the converging IT and telecoms requirements of mid-market customers.'

Enquiries
Phoenix IT Group plc	Tel: [phone]
Steve Vaughan	Chief Executive
Jane Aikman	Chief Financial Officer & Chief Operating Officer
FTI Consulting, LLP	Tel: [phone]
Matt Dixon
James Melville-Ross
Adam Davidson

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 macroeconomic, 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.

Chairman's Statement

I am pleased to open this year's report: a report which charts the successful completion of the first phase of our new strategy for Phoenix. We have achieved a great deal this year. Our team is more focused and better energised; our operations are much more efficient and the quality of our service is higher; and, as we enter the second year of our plan, our Group is more stable and better placed to succeed.

The year saw the Group return to an annual profit on a statutory basis combined with the lowest year-end debt for eight years. Revenue has declined to £212.4m for the year ending 31 March 2015 from £233.4m in the prior year. The prioritisation of profit over revenue has yielded an underlying profit before tax of £9.6m (2014: £12.6m) and an underlying EBITDA of £27.1m (2014: £30.5m), which are in line with our initial expectations. The reduction in non-recurring items resulted in a profit before tax of £8.8m against a loss of £29.2m in 2014. Our progress in managing down our debt continued better than we expected, with year-end net debt significantly reduced at £49.0m (2014: £56.1m).

It is clear that the value represented by this renewed financial stability and focus - and indeed the long-term value potential of our Group - has been clearly recognised by Daisy Intermediate Holdings in the recommended cash offer announced on 27 May 2015. While the successful execution of our current strategy has the potential to create significant value, the success of this plan is not without risk. This offer, if approved by shareholders, would represent an opportunity for existing Phoenix shareholders to crystallise the value of their holdings at a significant premium and thus realising much of this future benefit without the attendant risks. At the same time, this transaction will create a larger, stronger combined organisation better able to capitalise on the fast-emerging opportunities in the UK IT marketplace, and thus represents an excellent option for our employees and customers alike.

Dividend

Further to the terms of the recommended cash offer referred to above, the Board does not propose the payment of a final dividend at this time.

Employees

A great deal of hard work has been undertaken this year and as ever, it is our employees across all parts of the Group who have carried out these tasks. On behalf of the Board I would like to thank our employees for the energy and enthusiasm they have shown this year.

Annual General Meeting

The Annual General Meeting of the Group will be held on 24 September 2015 and will be held at Lakeside House, The Lakes, Bedford Road, Northampton NN4 7HD.

Outlook

The first phase of our strategy is successfully complete. Notwithstanding the possibilities represented by the recommended cash offer currently under consideration, our attention as a Group now turns to the roll-out of phase two. As ever, there is much work to be done, but the success of phase two will be proven as greater cross-selling, better margins and sales of our newest service lines begin to show through.

Peter Bertram

Non-Executive Chairman

5 June 2015

Chief Executive's review

I am pleased to report on a successful close to the first year of our turnaround strategy for Phoenix IT Group. Twelve months ago, I set out a three year, three phase plan to take advantage of the Group's strengths. I made it clear that in our first year we would need to restore stability to the Group, moving from uncertainty and drift, to consistent delivery on our commitments. I am pleased to say that we have achieved this stability and are benefitting from it. There is still much to do, however.

Our strategic path

Our strategy is based upon one key principle: our Group's key asset is its existing customer base. If we can engage with those customers and help them achieve their business objectives, by offering well organised services with clear business relevance, we will add value and share in their success.

Our mission, therefore, is:

To become an essential ingredient in our customers' success by providing scalable, resilient, forward looking IT managed services.

By being essential to our customers we will add to those customers who see us as their trusted adviser. We have proved that trust, once earned, allows us to grow relationships by selling additional relevant services. Our strategy, designed to win this trust, has three phases, each with a distinct focus.

The focus for year 1 has been stability, efficiency and quality.I believe this phase has been confidently completed. We have devoted a considerable amount of effort during the past twelve months to bring stability to the Group and confidence to our team. This achievement creates a strong platform from which to target the aims of year 2.

The focus for this coming year is account management and standardised services.Disciplined account management is the best way to develop relationships with our customers and sell them more. To achieve this we need a standardised set of services. It makes us easier to do business with. We have already made good progress in building these services, as described in the 'What we do' section, based crucially on the major technology developments we see driving the market, which we set out in the 'Marketplace' section.

The focus for year 3 will be integrated services.With an account management model in place, we will be able credibly to build a business that offers customers greater value than our competitors. We hope to win more customers where we manage or provide their whole infrastructure, based on the Cloud.

Year 1 achievements

This has been a busy year. I made it clear in my last annual report that many of the indicators of progress in year 1 would be non-financial, because improvements in financial performance would take longer to show through. Nonetheless, we are able to point to a number of important trading and financial indicators that are developing in an encouraging way.

First, the balance sheet has been considerably strengthened. Year-end Net Debt is at an eight year low of £49.0m (2014: £56.1m). Underlying EBITDA of £27.1m (2014: £30.5m) is in line with the expectation we set at the start of the year: a great improvement in forward visibility which is an important component of our re-stabilised position. A significant reduction in non-recurring charges has also, in turn, transformed our profit before tax performance at £8.8m (2014: loss before tax of £29.2m). These improvements have been made without extensive restructuring, and this clear, financial discipline will continue.

With stability achieved, our focus must next turn to reviving growth. Our Order Book and Annual Contract Value are both lower, year on year: partly expected as we exited low-return business. With cash and profit now stable, phase 2 will see us begin efforts to reverse these trends. This task will benefit from the major operational changes we've made this year. Multiple change projects, each designed to reinstate basic disciplines and processes to the business, have yielded results.

In twelve months, much of our core business system infrastructure has been replaced to provide better management information, including customer profitability. Significant enhancements have been made to our service delivery quality and efficiency. This has produced tangible improvements to the way we work, such as increasing mobile engineer visits per day from 2.7 to 3.7 and reducing the number of contractors in the Partner business by about 100. We have instilled a simpler structure and clearer accountability to business processes and customer relationships and incentivisation has been focused completely on profit and cash to drive the right behaviours. We have also simplified the business to focus only on areas we really need. For example, we have now outsourced our entire spares repair and network equipment maintenance activities, transferring about 60 staff. Together, each of these improvements adds up to a stable, more efficient firm, delivering better service to its customers: our goal for phase 1.

Greater customer value

However it is in our relationship with customers that we have seen the first evidence that our plan can deliver long term value. At the start of the year I tasked us with moving Partner contracts away from resource basis towards a service level with higher value services; winning new Managed Services customers; accelerating take-up of our Cloud services; and proving our ability to join up Managed Services and Business Continuity. Each of these things we have begun to deliver.

In BC, for example, we can now count Shop Direct, the UK's leading multi-brand online retailer whose digital department store brands include Very.co.uk and Littlewoods.com, as a new customer. Our higher-value CloudSure service now has 15 customers live or in implementation, with our largest-ever CloudSure customer taking the form of a three-year deal with a newly formed Joint Venture business involved in improving the National Infrastructure. Two of our most significant Partner customers have agreed to transition to a Service Level relationship, and Redmayne-Bentley, already a Hosting customer, has expanded its Managed Service relationship with us.

These are each early indicators and there is more to do. But they prove to me and my team the validity of our strategy and the potential we have if we keep up this good momentum.

Moving to phase 2

Our focus now turns to our service portfolio and the implementation of account management. The service portfolio is already emerging as a more focused and coherent whole. Investment is lined up behind these considered plans, which align with our view of the current big technology trends, notably the Cloud.

Our account management structure is now mostly in place. Many of the precursors and enablers are there - management development training is under way, account profitability is being measured, incentivisation methods are now correct. In the end though, it's about behaviour change across the Group. This should become evident in the more systematic emergence of cross-selling, improving margins and growth of our flagship service lines. It's the start of building a strong company on the strong foundations we have laid this year.

Steve Vaughan

Chief Executive

5 June 2015

The marketplace

Phoenix delivers IT Managed Services to customers in the UK. We address two different types of customer, but in many cases their requirements are similar. Our Partner business acts as subcontractor to some of the biggest IT outsourcers in the market, and is building relationships with other types of outsourcer such as telecoms and facilities management. Our Managed Services and Business Continuity segments deal with medium-sized companies and public bodies. We define medium sized as between 100 and 5000 IT users.

The majority of our services relate to our customers' spending on IT Infrastructure services. According to a Gartner survey in April 2015, global IT spending is set to grow by 3.1% in constant currency terms, but the share spent on infrastructure is set to decline. This shows in some clear changes in buying behaviour - equipment replacement cycles are extending, customers are buying Software-as-a-Service (SaaS) such as Microsoft 365 to expand their capabilities, and product spend is falling, especially on PCs.

As a technology business, Phoenix must take account of these changes in the technology landscape. We have identified five significant trends that we need to reflect in our service development programme. The five trends, which form a key part of our Account Managers' interactions with their customers, are:

The Cloud- Buying infrastructure as a recurring service from a third party who operates, maintains and fully manages the environment off the customer site. The customer usually pays only for those resources required, which might fluctuate widely. Fast implementation of new environments, and changes in existing ones, are key requirements.

Software-defined- The architecture of many parts of IT infrastructure is changing so that the design of individual components is simplified, but the way they work is defined by software. This will increase the need for effective remote monitoring and control, and reduce the role of up-front expensive architects and fixed, difficult to modify system designs. Service will take over from implementation as the key driver in these environments.

Mobile everything- Customers increasingly require support for their employees and business processes in mobile environments, on multiple devices, in a seamless and secure way. Customers must maintain integrity of their infrastructures even with the growth of employees bringing their own devices into work. Infrastructure services and Business Continuity must both handle this effectively.

Big Data- The amount of data in our customers' businesses is increasing exponentially and all are seeking ways to unlock value in that data. We are seeing storage requirements expand tremendously, with knock-on effects on in data security, Business Continuity plans, backup strategies and network bandwidths.

SIAM integrators- The trend continues to end the era of large total outsourcing deals where one big service provider was contracted to provide all of a customer's IT. These deals are increasingly broken up and acquired in parts of a size Phoenix could bid for directly. In addition, we have a growing business in the Partner segment which provides the core service desk and call management layer to SIAM lead integrators: an important new type of Partner customer.

Our strategy will succeed where we equip our Account Managers with the knowledge needed to discuss these market shifts with our customers and sell to them relevant services which respond effectively to those shifts.

What we do

Phoenix reports on its business in three segments. However it is becoming increasingly clear that our customers don't think in the same, segmented way. Part of our plan for Year 2 is to develop a joined up set of services which are relevant to all our customers. We are investing time, effort and money to improve these services, and have removed some services which don't fit. Clarity on what we do helps drive our account management model to sell incremental services to our customers. We describe our services in seven, interlinked modules: our 'Essential Services'.

OurEssential Business Continuity Serviceshelp customers avoid significant disruption to their businesses when things go wrong. We provide back-up resources and alternative work locations that can be brought on-stream very quickly to keep their operations going. The main customers for Business Continuity are in the 'middle market' and the size of our operations fits this customer base well. We also offer dedicated seat recovery, which is a significant niche service, to much larger customers: notably financial services firms around London and Edinburgh. Although we continue to sell mobile disaster recovery services, these are declining and being replaced by 'Resilience as a Service' - protecting against disaster happening, rather than recovering from one once it has. One growth area for these services is consultancy on business continuity plans, often supported by our ShadowPlanner software product, which has been completely revamped during the year.

OurEssential Hosting and Cloud Servicesprovide computing resources to our clients from our own infrastructure. These services sit at the centre of our Cloud offerings, with Private Cloud (customer-dedicated environments in our facilities fully managed by us), Public Cloud via our CloudSure UK platform (we own and manage the environment which customers buy space on) and Hybrid Cloud (a mixture, sometimes including multiple Public Cloud providers such as Azure and AWS). We have provided Cloud services for some time, delivering in aggregate about £28m pa of revenue. Our CloudSure UK offering is newer and gaining strength. After a slower than expected start we now have 15 customers live or in implementation, with an average revenue of £98.7k and a strong pipeline. This growth is accelerating in part because of our membership of the select group of companies in the Microsoft Cloud Solutions Provider programme, which enables us to sell Office 365 and eventually other Microsoft Cloud services, bundled into our CloudSure UK package. Private or Hybrid Cloud services are also increasingly being adopted by BC customers, deciding to locate part of their infrastructure on site with work area recovery, managed by us. This is an important mechanism for moving BC customers towards Managed Services and we are seeing a significant increase in demand: so much so we have decided to invest in expanding some of the data centre space close to several of our regional recovery centres (notably Bristol, Nottingham and Glasgow) to accommodate it.

OurEssential Data Servicesare a fast-growing part of our portfolio. They address a key issue for many of our customers: the exponential growth of data and the need to use it more effectively. This imposes enormous new demands on infrastructures and on Business Continuity plans. Our Cloud Backup and Recovery service has been growing since it was launched, and now generates £2.1m of revenue per year. It is often the first service added to a BC customer, moving them more towards Managed Services. We are now launching Storage as a Service (based on Netapp) and Archive as a Service (based on HP) to complement Cloud Backup and Recovery: both designed to help customers host more of their data in our Phoenix Cloud.

OurEssential Workplace Servicesprovide on-site deskside support to IT users, often in dispersed and difficult to reach locations. We have been working to modernise this people-intensive service in to one more suited to modern customer needs. This means more access to help and service through online portals; a more consumer style of support; the handling of heterogenous environments with many different device types, many of them mobile; and increasingly handling Bring Your Own Device. The investment in these services is centred around a redevelopment of our Service Desk. Taking over responsibility for a customer's Service Desk allows us to improve workplace services, and to improve service levels by 'Owning the Call' right the way through the process. We have selected LANdesk software to help us do this.

OurEssential Remote Management Serviceslook after customer infrastructures from our central control centres, monitoring the performance and taking proactive and reactive measures to keep them going and optimise their performance. These services will become increasingly crucial as infrastructure components become dominated by software defined components. Remote management services will be at the heart of the way we support these customers, and we regard Phoenix provision of the customer managed Wide Area Network as one objective to achieve this.

OurEssential Engineering Servicesprovide hardware break fix services to customer sites large and small. These are delivered by mobile staff controlled by a central call management team which also manages the spares logistics. These services remain an important part of our customer requirements and during the past year we have completely reshaped how they are delivered. Efficiency has been improved by around 30% and costs have become more variable by outsourcing elements of the process so we respond much better to changing volumes. For future delivery of these services, the most important change has been to split the team into three, reflecting the fact that we support three quite different types of hardware estate - conventional IT, retail sites and ticket vending. We believe that in future these three teams, employing delivery methods tailored to their specific environments, will represent a better quality solution to our customers at a better price than a one-size-fits-all approach. Retail environments in particular are a very strong capability for us, and a significant focus for our sales efforts in the coming year.

OurEssential Professional Servicesare concerned with the improvement and transformation of customer infrastructure to meet changing business requirements. We add the most value where we can effect change and improvement in IT services, rather than simply take over an existing implementation. As such, highly skilled technical advisers and architects, and the implementation teams behind them, are an important component of propositions to our customers.

Our business model

The foundation of our business model is long term contracts with a wide range of customers. The significant majority of our business in FY15 (73%) came from contracts of one year or more, with the most common duration being three years. This base of contracted revenue gives us longer term visibility of revenue and profit and is also a good basis for growing the breadth and depth of our customer relationships.

Incremental revenue opportunities stem from two main sources: project implementations and additional services. One of our main strategic goals is to drive growth in revenue and profit from the sale of additional services (also on a long term contract basis) to our existing customers. Our account managers are now specifically incentivised to grow profits associated with these recurring revenues, to ensure a focus on winning and retaining them.

Incremental project sales are often key to achieving additional service sales, and so are part of our offering throughout our business.

Product sales only make up a significant part of our revenue in the Managed Services segment, representing about £20m of revenue. Over time, we will seek to limit the role of this relatively low margin activity to the sale of product only as part of a larger relationship with a customer who also takes a key service from us.

The fundamental business model for the Group must be to expand the relationship and range of services sold to its existing customers. Of course, it will always be important to win new customers when we can, but our existing customers represent the best and largest source of opportunity for growth and improvement in quality of earnings.

Our strategy

A clearly articulated strategy

The strategy I outlined in last year's annual report remains unchanged and is designed to make the most of our largest, most valuable asset: our customer base. We approach our two channels to market - large System Integration partners and medium-sized companies & public bodies - by providing services that sit at the heart of our customers' businesses. We seek to become an essential foundation for our customers' successes, and build our own success by doing that. We have plenty of customers and our task now is to sell more to them in a profitable, cash generative way.

Our mission

The mission we have chosen is:

To become an essential ingredient in our customers' success by providing scalable, resilient, forward looking IT managed services.

By being essential to our customers, we will earn the status of trusted adviser. This is the best way to maintain a strong business, and make profits based on a high quality of service. Trust will be earned by responding to the key trends in the market and improving the value we deliver to customers. Our Managed Services and Business Continuity segments will converge as our middle market customers exploit Cloud-based services. In our Partner business, we want increasingly to move away from headcount-based provision towards service level agreements, and to expand the pool of available customers beyond IT outsourcers.

Underlying all of this, our key customer decision makers - CIOs - are focusing increasingly on making a difference to their businesses by delivering change, growth and collaboration, rather than just cost reduction. By finding ways to help CIOs deliver real transformation to their business, we will create a value-based, enduring proposition.

Delivering the strategy

Our plan to implement the strategy of 'becoming essential' runs for three years, each with a different focus. I have set out these three phases in my opening Chief Executive's review. We have successfully completed the first phase of the plan.

The outcome of the three year strategy should be effective account management which increases the share of infrastructure budgetcustomers spend with us. With the right service portfolio, our account managers can concentrate on developing strong account development plans with their customers. As these develop, we should see some customers beginning to place the majority of their infrastructure spend with us, trusting us to manage this for them. Top line growth should begin to drive profit growth as the number of customers buying many more than one service from us starts to increase. In the Partner segment, we are working to deepen relations with existing customers to add more value, and to expand the pool of available customers outside IT outsourcers and into sectors such as telecoms providers and Facilities Management companies.

Customers' success at the heart of what we do

We now have account managers in place for about 450 customers. This includes all of our largest relationships, but also a significant number where we believe our current relationship can expand significantly. These individuals lead the relationship with their customers, and develop a plan to sell more services based on an understanding of their business goals. This is a change in sales method from a historic one based largely on technology-driven initiatives and response to tenders. It should help us to price based on the value we add rather than just being the lowest price. To be effective, account managers must be able to draw effectively on supporting functions, such as finance, commercial and legal, so we have organised those supporting resources to be customer facing as well. In addition, we need our technical expertise to spend as much time in front of customers, in support of Account Managers. This needs to happen increasingly during the year.

Our ability to sell more services, however, is determined above all else by the quality and relevance of the services we are contracted to deliver. This means our service delivery team must place the customers at the heart of what it does as well. There will be considerable efforts to make this behaviour much more widespread than it currently is. We are an IT services business, but that should be service first and IT second.

Making Account Management happen

We now have the basic structure and individuals in place. This year will be about making Account Managers more effective. We are investing in considerable management development training and aligning incentives to drive the sort of long term business development behaviour we need. We are building our services and marketing to support an incremental sales model which will work best in this environment. We are setting great store by account development planning, and the involvement of senior management and the right technical advice to exploit incremental growth opportunities when they emerge. We have put a great deal of effort into improving the management information available to account managers, and more will be done, so that they have power to make better decisions. All of these things will drive the adoption of effective account management throughout the business.

Account Management will take time to implement. However there have been encouraging signs during the last twelve months that those who have become early adopters of this process have been successful. We have examples of Business Continuity customers adopting Managed Services, and in consequence our relationship with them has grown by up to eight times. We have examples of the pipeline for Partner relationships growing based on development of senior relationships and effective plans by strong Account Managers. We need to see a more systematic execution, but the principles are already showing through.

How we will we be able to tell that it is working

The key success factors for Phase 2 will be the growth of customer relationships, and the increasing take up of our integrated service portfolio. Indicators such as the number of BC customers expanding into Managed Services, the growth of CloudSure UK and other Cloud-based service lines, and the development of deeper, service-level-based Partner relationships will be crucial. We should also expect to complete an integrated set of services as I have described, so our sales efforts are backed by offerings which bring the key trends in technology into our customers' businesses. That will generate the momentum we will need for the successful delivery of Phase 3 - fully integrated services for our customers.

Operating Review

In this section, we seek to highlight some of the underlying non-financial metrics which indicate that the progress in the business we hoped to show has been delivered across a wide range of performance indicators.

Stabilising and expanding our customer relationships

This year, we have seen a number of important mandates successfully renewed, and have begun to see examples of selling additional Phoenix services into our existing customers.

Two important customer renewals, with Redmayne-Bentley and Costain, showed our ability to deliver a wide range of infrastructure services to significant medium-sized customers. In each case, we have managed to add further services to our contract, which now include Cloud and BC services. As far as new customers are concerned, our winning of the business to provide South West Yorkshire Partnership NHS Foundation Trust with a full range of IT services over a five year period is the highlight. This again shows our ability to join together a range of our services to provide a strong, infrastructure-wide service. In all three of these cases, we have further extended the relationship since the major award, for example by adding the Wide Area Network provision to Redmayne-Bentley.

Business Continuity was quieter than we had hoped in the first half, although we did successfully renew the segment's second largest customer to provide dedicated and syndicated seat recovery and other resilience services. There was better traction in the second half, with a new customer win with Shop Direct. A significant effort to sell Business Continuity consulting services on the back of the relaunch of our ShadowPlanner product produced good results, for example at AG Barr.

Since we have been clear that our principle asset is our customer base, it is reasonable to expect to see early signs of expanding customer contracts to include additional services. We are starting to see this happen in a few places. I can point to a manufacturing customer where we developed a £15k pa BC contract into a Managed Services relationship worth £128k pa. In the holiday and leisure sector, there is a customer where we have grown a £24k pa contract into Managed Services worth £88k pa. These are individually small examples, but show the potential if we can do this in a systematic way.

Building and selling the Phoenix Cloud

The Phoenix Cloud unites the offerings of Business Continuity and Managed Services. Our experience shows that it is best to move customers into the Cloud by separately addressing their computing and data requirements with specific service offerings. We have developed the majority of these stepping-stone services during the year.

Moving our customers' computing requirements to the Phoenix Cloud comes in various ways. We have a handful of examples of BC customers locating parts of their everyday infrastructure at our recovery centres - there are several examples of this adding 50% to the contract value. In essence, we are providing Hybrid or Private Cloud services to these customers, to a total value of about £21m in FY15. CloudSure UK provides a different, Public Cloud route, appropriate for smaller customers and the offering now has 15 customers live or in implementation. There were none at the start of the year. In February we were pleased to announce our largest CloudSure contract to date secured with a newly formed Joint Venture business. Speed of implementation was a key selection criteria here.

Moving our customers' data requirements to the Phoenix Cloud may well be the best Cloud opportunity for the Group, given the increasing reliance on data by our customers. Our Cloud Backup & Recovery service now boasts 97 customers. Phoenix Mirror, our second Cloud data service, has a few dozen. In the second half we completed the design of the remaining two Phoenix Cloud data services: Storage as a Service and Archive as a Service. These will be launched to the market in the coming few months and will complete the pathway for customers to move their data into the Phoenix Cloud.

Our Cloud credentials were confirmed by the Group's inclusion in the Microsoft Cloud Solution Provider Programme. This allows Phoenix to own the complete Microsoft customer lifecycle, allowing us to bundle Office 365 and Windows Intune subscriptions with Phoenix own Cloud services. We have now completed the packaging of all these offerings into a single proposition for fully variable, Cloud based Office IT proposition, a key product to sell to smaller customers in the coming year.

Reviving the Partner business

The last financial year has been one of major changes in our Partner business. We identified two main priorities for the year: improving the efficiency of the main accounts, and the migration of customers from a headcount-based revenue model to more value-added Service Level Agreements.

We are pleased with the progress made with the efficiency improvements. Contractor numbers have been reduced by about 100, with the work taken up by excess capacity in full time employees and some movement of project work to Field Engineering resources. We made this happen through introducing more sophisticated resource management across the whole workforce in Partner.

There has also been encouraging progress on moving customers towards a service-level, value-based relationship. Tata Consultancy Services (TCS) was the first customer to change the way it does business with us, and this was followed later in the year by IBM. A major expansion in business with another of our largest Partner customers was also based on a service-led engagement model: a big increase in that customer's level of committed business with us for the next three years. The heart of this evolution is the development of our Essential Workplace Services, and the associated investment in service desk process and technology. We have made good progress with Partner customers on remodeling onsite services to improve customer experience, and to extend the range of services into 'owning the call'.

Amongst the trends we highlight in our 'Marketplace' section above that particularly affects the Partner business is the growth of the Service Integration and Management (SIAM) model for large IT outsource requirements. Provision of the service integration layer for these large, primarily public sector, contracts has become a key growth area for us. In July, we announced an expanded agreement with BAE Systems Applied Intelligence. This relationship began as a master framework agreement in September 2013 as part a SIAM contract with the Foreign and Commonwealth Office. The scope has now been extended to cover two additional government agencies.

While we have been focusing on readying the Partner business for stages 2 and 3 of our plan, we have been less successful in winning significant new business here. Partner has seen the ending of historic business which was either never to be repeated, or alternatively delivered little or no margin. We are near the end of this 'tidying up' of the revenue. This, and the relative lack of major new customer wins in Partner (which are larger because of the nature of the business), have been major contributing factors to the reduction in ACV and Order Book during the year. However, implementation of account management has been completed in the Partner business faster than elsewhere in the Group, and we are seeing the pipeline of new business growing in this segment as a result. It will be an important indicator for FY16 to see the conversion of this pipeline to orders.

Making good decisions using good information

Our main efforts have been to expand the relationships with our customers, but we have also made great strides with our internal systems and processes, to address their quality and efficiency. Our management information needed to be considerably improved and used as the basis for making good business decisions. We have spent much time and effort to replace many of our core IT systems during the year to put us on a much stronger basis in this regard. The provision of rapid account profitability data, productivity and utilisation metrics across the business and good pipeline data have been the result. We would not have been able to achieve the benefits in Partner contractor utilisation without this information, for example, and account profitability data is at the core of account management.

The biggest area of attention in the engine room of the business has been in Field Engineering. It was clear at the start of the year that this area had suffered from pressure from changing markets and declining volumes, and lacked the systematic approach to process improvement that this type of operation needs. The team during the year has brought about a transformation, fueled in the main by better management information, and using this to make and execute good decisions. The engineer productivity has increased by 30% and there has been a major shift from fixed to variable costs. All this has been achieved with relatively low restructuring costs - a really big success.

The management of our fixed assets has also benefited from a more systematic, information led approach. We have a well established property strategy which has succeeded in exiting several properties we no longer required. We have a new clear vision for our data centre estate based on a root and branch review of our future needs and a make/buy analysis. This has produced a modest investment programme in regional data centre capacity alongside recovery centres which we are confident represents a strong return on investment. We have made good progress with our plan to accredit the whole Group to the ISO27001 information security standard, to cement further our reputation for high quality management of customer data.

All in all, it has been a year of very wide-ranging change in the business, which has been guided by a clear sense of direction, a good analysis of priorities, and a thorough execution based on good information. That is a great basis for stability for the rest of the plan.