Symphony House Bhd - 2007

MARC has affirmed the ratings of MARC-2ID /AID to Symphony House Berhad’s (Symphony) RM100.0 million Islamic Commercial Papers/Medium Term Notes (CP/MTN) Programme. The ratings carry a developing outlook. The affirmed ratings are based on the average business risk profile of Symphony, in particular that of its main earnings contributor, Business Process Outsourcing (BPO) operations, and the positive outlook for the BPO industry. The rating also reflects the consistent revenue performance of Symphony’s present core business in the BPO and its moderate financial flexibility which is supported by its cash balance of RM64.4 million as of June 2007. The developing outlook is premised on MARC’s expectation of further changes in the business and financial risk profile of the Group in coming years with the recent rationalization exercise and arising from its pursuit of growth strategies and acquisitive orientation.

The activities of Symphony group are segregated along two main divisions: Technology Services and Managed Services.  Technology Services encompass the provision of solutions & application development for the wealth management segment, and software and consultancy services related to cheque processing.  Managed Services comprise BPO services, share issuance and registration services, corporate secretarial services and outward cheque processing services. 

In March 2007, Symphony underwent an internal restructuring which entailed the disposal of its technology services business units namely Symphony Global Group (SGSB), Symphony Global Technology Sdn Bhd (SGT) and its corporate advisory company, Symphony Capital Sdn Bhd (SymCap). With the scaling down of IT services business, Technology Services is expected to contribute approximately 29% of revenue and 22% of Symphony’s pre-tax profit in FY2007. Symphony’s remaining businesses have been streamlined into 6 core business units, namely Contact Management Solutions, Human Resource Solutions, Financial Solutions, Corporate Secretarial, Share Issuance & Registration and Outward Cheque Processing.

Despite a 10.5% increase in revenue, consolidated profit before tax plunged by approximately 90.0% to RM1.9 million, largely arising from the losses incurred by the IT services division. The deterioration in IT services performance was caused by a lengthy sales cycle, thinner margins, delays in project commencement and higher finance costs. The Group’s debt to equity ratio increased to 0.4x in FY2006 (FY2005: 0.3x) following  the drawdown of RM35.0 million from the  Islamic CP/MTN  Programme.

Symphony’s interim results for 1H FY2007 showed significant improvement in revenue and operating margin with a 57% increase in revenue and widening in its operating margin from 3.3% in FY2006 to 9.1% in 1H FY2007 on the back of higher contributions from its BPO business. Symphony’s core businesses are expected to generate stable cashflow to fund its operating costs and debt service obligations.

Major Rating Factors

Strengths

• Favourable demand fundamentals for Business Process Outsourcing (BPO);
• Well-diversified customer base in respect of its corporate services and BPO operations; and
• Substantial cash balance relative to obligations under the CP/MTN Programme.

Challenges/Risks:

• Evolving business profile arising from Symphony’s acquisition orientation; and
• Competition in the BPO business from more established players.