Mixed fortunes lead Crimsonwing to post net loss

Crimsonwing Malta had an "extremely busy" financial year last year, as the company serviced 70 clients from its Marsa solutions centre, including six new local customers, managing director James Bonello told The Sunday Times.

The financial year to March 31 has been one of mixed fortunes for the Malta-listed European IT solutions provider as it registered a net loss of €499,932 (down from a profit of €823,752 in 2008), the company's preliminary profit statement posted on July 29 showed.

The consolidated statements cover all Crimsonwing subsidiaries, including Crimsonwing (Malta) Limited, Crimsonwing Limited, Crimsonwing BV, Crimsonwing Promentum Holdings BV, and Crimsonwing VDA, which was fully acquired on July 1 last year.

The board has not recommended the payment of a final dividend. A net interim dividend of €0.01 per nominal €0.10 share was paid on September 1, 2008. The annual general meeting will be held on October 1. Shareholders number around 330. Between them, they own 25 per cent of the equity with the vast majority being local investors - one-third are Crimsonwing employees.

In spite of the difficult economic climate in mid-2008, revenues in 2008/2009 rose by 26 per cent year-on-year to over €12 million, Mr Bonello pointed out.

"This was mainly due to organic growth of around seven per cent for the full year and a further 19 per cent growth through the acquisition of VDA during the nine months from July to March," he explained.

Crimsonwing VDA, the 16-year-old Dutch IT software and services business formerly known as VDA Informatiebeheersing BV, was acquired for €1.9 million. Despite an excellent client base in the media and publishing sector, the business was losing money but the directors turned it around in a matter of months.

"VDA derives the majority of its revenues from professional services but also generates substantial revenues from licences and maintenance of its proprietary enterprise resource planning solutions," Mr Bonello said.

"The Crimsonwing BV directors, who took ownership of the running of VDA, restructured its overhead base successfully and today Crimsonwing VDA is profitable, reaping the benefits of its valuable software assets and associated revenue streams."

All Crimsonwing's target markets - the US, the UK and the Netherlands - went into recession during the autumn, causing the company to suffer project delays, cancellations and payment setbacks. Mr Bonello pointed out that GDPs in markets like the UK and the Netherlands are down by around 4.5 per cent with short-term recovery difficult to predict.

"However, IT nearshoring - offshore outsourcing to neighbouring countries - is on every chief investments officer's agenda and will form a key trend for 2009/2010 as companies react to the pressures caused by the economic downturn. This will create opportunities for Crimsonwing since it is our core business."

Another factor Mr Bonello said contributed to the year-end loss was the decline in sterling value against the euro which had a "significant" impact on consolidated turnover. Crimsonwing holds inter-company currency balances which are revalued annually. Despite the increase in euro revenues, sterling balance revaluation resulted in a further €280,000 write-down.

The high profile failure of travel and logistics company Fraser Eagle cost Crimsonwing €140,000 in bad debts, after administrators ruled out any possibility of Crimsonwing recovering the money.

Asked to describe the nature of Crimsonwing's relations with Fraser Eagle and how the Maltese arms of both organisations were involved, Mr Bonello explained that Fraser Eagle (UK) had commissioned Crimsonwing (UK) to develop an enhanced operational IT system, including the implementation of a back-end Dynamics enterprise resource planning system.

"This project, which cost in excess of €1 million, was developed, implemented and supported in its entirety by Crimsonwing Malta. A substantial part of the solution was also used by the Fraser Eagle call centre which operated from Malta," Mr Bonello explained.

In the past few months, Crimsonwing implemented a series of cost-cutting measures with the top brass leading by example. Chief executive officer David Walsh and chairman Philip Crawford have both declined any salary since December. Other employees have also made cost-saving contributions.

Significant savings have also been made with three office moves and all UK units are based together in London. The three Dutch businesses are now housed within a single office in Hilversum. Meanwhile, the Malta subsidiary has drastically re-engineered the business processes around the delivery of round-the-clock support services.

Crimsonwing is striving to spread its business to reduce dependency on top clients, increase its euro revenue base, and gain critical mass in its markets. Mr Bonello stressed that Crimsonwing Malta had been the largest software services exporter for several years and will continue to build on its experience and invest in its people.

"Our strategy is to continue to make significant investments in technical training to support our existing clients and exploit new initiatives," he said.

The Malta headcount peaked at 157 in the last financial year - nearly 30 members of staff celebrated their 10th anniversary of employment with Crimsonwing last year. In January, the quality management system passed the annual external ISO audit with zero non-conformities for the fifth consecutive year. In the 12 months to March, Crimsonwing Malta also strengthened relations with local representative offices of its key vendor platforms, Microsoft and Oracle.

In its financial statement, Crimsonwing plc said it had made positive steps to ensure future profitable performance and that apart from reducing overheads, very good opportunities had emerged for selling its solutions across the combined client base. Its impressive current client list includes names such as Safeway, Morrisons, Tom Tom, Lloyd's Register, and DHL.