Shares of Glasgow-based cloud computing firm Iomart Group fell about 8% on Tuesday after it warned in a trading update that its profit for the full year is “likely to be at the lower end of the board’s original expectations.”
In a trading update for the six months ended September 30, 2022, Iomart said it performed well through the first six months of the year with strong cash conversion, improved customer renewal levels, and continued momentum across all strategic areas, including the completion of its first acquisition under its new strategy.
Iomart expects to report first-half revenue of £52.5 million, up slightly from £51.9 million, but the firm warned that margins are not expected to fully recover.
“Importantly, the recent volatility in energy markets has presented challenges for the sector, however Iomart’s robust business model and customer arrangements have ensured that additional energy costs have been appropriately passed through to our customer base,” said Iomart.
“Against this backdrop, the board is pleased to report a solid set of financial results, showing revenue ahead of the prior period and an EBITDA performance that reflects both the revenue mix in the period and our continued investment in the skills and capabilities of our workforce.
“For the six months to 30 September 2022, the group expects to report revenue of approximately £52.5 million (H1 FY22: £51.9 million), adjusted EBITDA of approximately £17.8 million (H1 FY22: £19.6 million) and adjusted profit before tax of approximately £7.3 million (H1 FY22: £9.1 million).
“The mix of the business continues to be focussed on recurring cloud managed services revenue, which is in line with management expectations.
“Non-recurring revenue from hardware and software reselling activity has not yet recovered. Recurring revenue for the six months was 95% of the total revenue (H1 FY22: 93%).
“As announced on 15 August 2022, we successfully completed the first acquisition under our new strategy, acquiring Concepta Capital Limited, a holding company for the ORIIUM and Pavilion IT brands, for an initial cash consideration of £10.5m.
“With a long track record and strong reputation across the indirect channel, the acquisition allows Iomart to broaden our market and customer reach whilst enhancing our product expertise within the data management service layer. Concepta’s trading since the acquisition has been in line with management’s plan.
“With the acquisition of Concepta and the £1.5m repayment of the acquired bank loans just ahead of the half year, group net debt increased as expected to approximately £48.0 million at 30 September 2022 (31 March 2022: £41.3 million).
“The group’s cash generation from trading continues to be strong and consistent with past performance.”
In its outlook, Iomart said: “As we see increases in energy costs in the market, we have demonstrated that our business model and customer arrangements allow us to flex pricing.
“We continue to monitor the inflationary environment very closely and will seek to respond accordingly.
“Revenue and profit in the second half of the year are expected to be higher than the first half, however, in the face of potential economic headwinds, it is not expected that margins will fully recover and that profit for the full year is therefore likely to be at the lower end of the board’s original expectations.”
Iomart CEO Reece Donovan said: “Our team has executed well in the first half of the year, finding the correct balance between managing both the risks and opportunities that we see in the marketplace.
“We have maintained our tight control on costs and have successfully tested our business model in relation to energy pricing.
“The strength of our recurring revenue base, strong profit margins and cash generation, give us the ability to continue carefully investing in our skills and capabilities to support the execution of our strategy.
“The market for cloud computing solutions continues to offer long-term growth and our strategic actions puts us in a stronger position to benefit from this opportunity.
“Our team, business model and strong financial position ensure we are well prepared for the year ahead.”