TSG directors upbeat despite the firm slipping into the red

Newcastle firm TSG has taken action after posting an operating loss of £830,000

David Stonehouse, chief executive of TSG
David Stonehouse, chief executive of TSG

The chief executive of leading IT services company TSG said he feels positive for the firm’s future despite seeing the business slip into the red.

Latest accounts for Newcastle-headquartered Technology Services Group (TSG) show turnover fell by 2.9% in the year ended March 2014 to £38.85m, while gross profit also decreased 4.6% to £15.3m.

Last year’s operating profit of £154,000 fell to a loss of £830,000 – a result of fixed costs being too high for the firm to cope comfortably with reduced gross margins, which fell by 5%.

Chief executive David Stonehouse said the figures were disappointing, but that action has been taken to aid the firm’s return to operating profit, predominantly involving a focus on lowering the fixed costs of the business.

Overall headcount decreased from an average of 473 to 441, through reduction of some leadership and back-office roles.

Meanwhile, two directors left the firm following the year end and Mr Stonehouse said their roles, within sales and finance respectively, will not be replaced.

The changes made to the cost base has so far led to savings of £1m a year on fixed salaries.

An analysis of the regional offices within the company, owned by former Sage director Graham Wylie, has also taken place, in which office size will be reduced at some offices, after recognising that many sales consultants prefer to work from home.

Meanwhile, the smaller office spaces at some of the bases will be revamped to deliver more modern “cafe culture” style working zones. A new office will also be opened in London and expansion will take place in the Basingstoke base.

Mr Stonehouse said: “The world is changing and more and more people now want to work from home, and consultants are generally in and out of the office most of the time anyway, so we are generally looking at more flexible space, such as hot desking.

“And what we need is generally to up the quality of the offices, to make them look and feel more like a cafe environment.”

Part of the loss was also attributed to an annual commitment to pumping £1m a year into a recently-founded research and development team, which is spearheading a raft of new products, and telephony.

The R&D team was set up with the aim of cementing its expertise in its chosen markets and in June the firm launched Tribe, membership software which was its first product built from scratch and its biggest launch in a decade.

Mr Stonehouse said both the R&D and telephony areas were beginning to contribute positively to the current financial year, following an investment in the accounts period of around £1.3m.

No income from tribe has been recognised as yet but a total of £500,000 of orders have been taken in advance of shipment, meaning sales should start to show through in the 2015-16 financial year.

Mr Stonehouse said: “We are taking our time with Tribe – it’s our first proper shot at development and we don’t want to go in gung-ho.

“In general, I would say it has been a disappointing year. Certain things haven’t progressed as well as I would like, but certain things – such as Tribe and the telecoms business – have done very, very well.

“I’m very pleased with progress so far into the current financial year and I’m positive for the future.”

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