Yesterday’s interim results from ServicePower Technologies (LON:SVR) reflected the firm’s strategic transformation with significant changes in its revenue mix, a cost-reduction programme and the recent broadening of its contract base through new business wins, according to house broker finnCap.
Revenues for the six months to the end of June were £6.5 million, compared with £10 million in H1 2010, but although turnover was lower than last year the firm has ditched a large amount of low-margin business in the UK that meant that it significantly increased its gross profit during the period. Gross profit was £3.7 million, compared with £2.3 million in H1 2010 while the firm’s adjusted pre-tax profit came in at £1.2 million (H1 2010: £0.3 million loss).
ServicePower is a software-led business that helps manufacturers and retailers manage the technicians who service their products in the field.
Speaking to Proactive Investors ServicePower’s chief executive officer Mark Duffin said that the firm is in the midst of a three-year turnaround strategy that has focused on developing recurring revenue streams so that the firm does not have to hire additional salesmen in order to increase its revenues.
“We’ve also got rid of all the low-margin business because it wasn’t in the best interests of the company,” he said.
Duffin believes that two products supplied by ServicePower represent a compelling proposition to businesses that need to deal with warranty claims and other field service issues from consumers. The firm’s service scheduling software enables companies to manage their field workforce, while its warranty and claims management product helps them find independent technicians.
ServicePower can now combine these two products in a way that it believes makes them far more attractive to clients. “We’ve been able to show clients that the two products connect together and deliver real value,” said Duffin.
An example he uses is in the home improvement sector, where retailers can make a sale more easily if they can offer to install the product at the consumer’s home and at his or her convenience. Duffin explains that, while Do-It-Yourself is still a popular way of carrying out home improvements, there is a growing trend among professional classes for a Do-It-For-Me service.
Duffin believes that ServicePower’s recent deal with Assurant Solutions will play also an important part in the firm’s future revenue growth. The two companies signed a multi-year licence and revenue share contract for ServicePower’s ServiceOperations software.
Assurant is one of the world’s leading speciality insurance providers and it has already used ServicePower’s software via it software-as-a-service offering for more than five years. As part of the deal Assurant is expanding its use of ServiceOperations but, more importantly, it is now providing access to the ServiceOperations software to its commercial customers, which include some of the world’s leading retailers and manufacturers. “They’ve got a listed of 60 clients that we’re targeting together,” said Duffin.
Broker finnCap pointed at that the first half had already been “transformational” for the company after a number of contract wins, including US food safety firm Steritech, UK home emergency and repair business HomeServe and UK hi-fi and TV retailer Richer Sounds.
In July, finnCap doubled its 2011 and 2012 forecasts and after yesterday’s interims these remain unchanged. For this year, the broker expects sales of £12.3 million with adjusted pre-tax profit of £0.8 million (translating to earnings per share of 0.4 pence) and for 2012 it is estimating £13.5 million sales with pre-tax profit of £1.2 million (EPS of 0.6 pence).
ServicePower’s share price was down 1.3 per cent at 9.5 pence at 9:05am today.