UK-based reseller Morse Plc. says IT services will represent 40% of revenue and 50% of profit in 2005 on the back of its acquisition of SAP consulting company Diagonal Plc in July 2004, according to CEO Duncan McIntyre.
It is absolutely key that we evolve away from being a reseller and towards being a technology integrator, McIntyre told ComputerWire on the announcement of the company’s full year 2003 results.
Morse has just reported positive results, with revenue growing at 11% to 390 million pounds ($703 million) for the year to June 30, 2004, on the back of a number of acquisitions in the UK and Germany. Excluding the acquisitions revenue grew at 3.6% to 363.9 million pounds ($655.8 million).
However, the company still recorded a net loss of 14.5 million pounds ($26 million), up from 17.4 million pounds ($31.4 million) in the previous year, due to aggressive write-downs on acquisitions, according to McIntyre. This would not have such a big effect on profits in 2005 he said.
On a regional basis Morse’s revenue grew fastest, by 57%, in Germany where additional revenue from the acquisition of Techsol contributed to revenue of 70.5 million pounds ($127 million) for the year. The buoyant Spanish market was the next best with 47% growth to 23.2 million pounds ($42 million) over the year. The UK registered modest seven percent growth to 256.5 million pounds ($462 million) over the year. However, it was France that failed to deliver with a 22.5% fall in revenue to 39.7 million pounds ($71.6 million) over the year. All countries registered a loss before interest and tax.
McIntyre says that increased management focus in France will be needed over the coming year to ensure a stabilization in the country, where he believes Morse underperformed the already tough market. Morse has appointed a new head of services in the country and is instigating closer ties between the French operations and those in the UK, Germany and Spain to increase cross-selling opportunities.
Morse is looking to expand its presence in Spain and Germany, where McIntyre says the company may look for acquisitions after Spring 2005, by which time the acquisition of Diagonal will be bedded down. Successfully integrating Diagonal is indeed core to the company’s strategy of increasing the services component of its sales. And it seems that the higher margins that services attract are the only hope to push the company back into net profitability.
Farnham, UK-based Diagonal was acquired for 50.2 million pounds ($90.5 million) in cash and shares in July 2004, bringing with it its SAP consulting, enterprise application integration, and secure networks divisions. McIntyre says that the two companies have agreed on a number of targets focused on increasing integration of sales and services lines over the coming year.
Morse acquired two other businesses over the 2004 fiscal year. In April 2004 Morse acquired management consultancy CSTIM Ltd. for an initial cash consideration of 5.85 million pounds ($10.5 million), with an additional 9.5 million pounds ($17 million) to be payable through to December 2008 dependent on certain targets. McIntyre says that Morse’s pure consulting revenue should hit 15 million pounds ($27 million) in 2005 with the combination of CSTIM with Diagonal’s consulting team.
German reseller and storage solution company, Systematics Technology Solutions GmbH (Techsol), was bought in December 2003 for one euro ($1.22). However the company required significant restructuring, the cost of which was the main contributor to the company’s 3.4 million pounds ($6 million) exceptional costs for the year. Techsol reported revenue of 88.8 million euros ($108 million) and operating losses of 7.9 million euros ($9.6 million) for the year to December 31, 2003.