eServGlobal plummets into the red

Stuart Corner
Wednesday, 26 August 2009 12:26

IT Industry - Strategy

eServGlobal (ASX: ESV), a specialised supplier of large-scale telecoms network software and services to telecoms carriers around the world, has turned a net profit in FY08 of $10.4m into a loss of $34.7m in FY09.

Revenue was down to $147.2m from $177.9m and EBITDA $2.4m compared to $24.2m, without factoring in restructuring costs. When these were included EBITDA plunged to a negative $5.3m. The company said that a goodwill impairment charge of $12.5m and a tax expense of $5.4m recognised in FY09 had contributed to the loss.

CEO Richard Matthews said: "2009 was a challenging year for eServGlobal customers and subsequently for eServGlobal, given the difficult market conditions faced right around the world. However despite this, the company has continued to secure new customers and introduce innovative products, which will help to drive our long-term recovery.

"The recent introduction of a new management team (CEO, COO, CTO), a 13 percent reduction in headcount [the loss of more than 100 staff], the continuation of cost control measures for the foreseeable future and a laser focus on new business opportunities, are all key elements of our future strategy."

The company admitted that a headcount build up prior to the global financial crisis had been ill-timed and said " The time consuming personnel reduction process due to complex and convoluted employment regulations," had contributed to its poor performance, along with "the distraction [of] acquisition discussions and due diligence."

eServGlobal announced in March that it had discontinued discussions with potential acquirers of the business because it did not believe any such deal would maximise shareholder value. However earlier statements talking up these discussions suggest they went well beyond the preliminary stage.

In January chairman Ian Buddery told shareholders that "a formal process, through a committee of independent board members is now in process with a short list of investors and we expect to make further announcements in due course."

In the wake of these plans coming to naught the company in June appointed a two man team comprising Matthews as CEO and Craig Halliday as COO to turn the company around. Prior to joining eServGlobal, Mathews had been CEO of Mincom, a global enterprise software company and Halliday its COO. Announcing their appointment eServGlobal credited them with having "turned around Mincom's business, increasing its share price by over 250 percent before steering the sale of the company to a private equity group."

Shortly afterwards Buddery announced that he would relinquish the chairmanship in favour of longstanding board member, David Smart.