Financial

posted on 08 August 2008 09:50

In a financial report issued in London archive product company Plasmon said its Q1 fy09 sales were about 20 percent less than expected, precipitating a need for fresh capital.

This will be most unwelcome to the investors who have had two calls on their wallets already and who have previously instigated board and management changes. New CEO Steve Murphy is finding market conditions tough. He has re-positioned the company as an archive solutions provider providing virtualized archive platform services to data generating and capture applications.

A Plasmon statement said: “Legacy and component products have declined faster than anticipated and the sales cycle for new Archive Solutions is proving longer than anticipated.” UDO optical product revenues are not good and the company isn't making money fast enough with its new archive platform products.

The statement added: “The group requires additional financing and the board has engaged in a process to secure this within an appropriate timescale.”

Plasmon's situation has worsened since it reported reduced losses for its fy08 year. Then Plasmon expected to achieve a positive cash flow in the second half of the 2009 financial year (ending March 31). Now it sees that the point at which it will achieve a positive cash flow has been pushed back by one to two quarters.

It looks then as if Plasmon needs a two quarter revenue bridge. Having come so far, the investors may feel it prudent to come up with the cash, as Steve Murphy has revitalized and restructured the company and its products significantly. He now has to struggle against adverse economic conditions but will be saying that the company's product and sales strategy is right. Give him time ... and give him cash to tide the company over.

The next two quarters will be critical, desperate even, and this may be the last time that the investors will be willing, if they are willing, to put in more money.

The share price plunged by 56 percent in London, going from 1.63p/share to 1.25p.

Update

Here is Plasmon's statement:

Plasmon Plc, a leader in professional archival solutions, has today issued its first interim management statement for the year ending 31 March 2009 and an update on trading.

The overall strategy outlined in February 2008 is being executed, with several key elements on track or ahead of plan. In particular, the market opportunity for the Group’s Archive solutions has been validated and continues to be highly attractive; the new direct Sales team has been recruited, trained and is focusing on 8 specific segment opportunities; a major partnership agreement has been reached with NetApp and a new solution has been launched with FileNet, these significantly broaden the scope of our business solutions offer. As a result, the pipeline of sales opportunities has doubled in recent weeks to an unprecedented level, which is promising for the 2nd half of FY2009 and beyond.

However, the sales performance in the first quarter was disappointing, and approximately 20% below the Board’s expectations. Legacy and component products have declined faster than anticipated and the sales cycle for new Archive Solutions is proving longer than anticipated. This is reflected in the growth of the future sales pipeline whilst actual sales in recent months have been relatively weak. In particular, during the current market and financial uncertainty, customers have been deferring capital expenditure on solutions such as ours which, whilst essential to the medium-term storage infrastructure of many businesses, may not be essential in any given month or quarter.

Consequently, the Board has reduced its overall sales expectations for the year and initiated a further programme of cost reduction and financial restructuring. The Board continues to expect that the Group will attain a positive adjusted EBITDA run rate in Q4 of FY2009, but not a positive cash generation until FY2010. The Board remains confident that Plasmon has a compelling solution in a highly attractive market, and has the view that current economic conditions are delaying the ‘inflexion point’ of the Group’s turnaround by 1-2 quarters. However, in light of this, the Group requires additional financing and the Board has engaged in a process to secure this within an appropriate timescale. A further announcement in respect of the financing process will be made in due course.

^{[Chris Mellor.]}