Maintel issues profit warning as it struggles to recover margin loss

Systems integrator and managed services provider Maintel Holdings updated the market on its trading for the year to 31 December on Wednesday, reporting that its ‘ICON’ cloud services have continued to grow strongly in the second half of 2017, boosted by ongoing investment in the platform.

The AIM-traded company said the success in its ICON cloud business was “very encouraging”, as the group continued to transform from a telecoms business to a fully-managed service provider in the enterprise space.

Its board said it had expected to recover the reduction in gross margin in the first half of the financial year by year-end, but confirmed it was now evident that would not happen for a number of reasons.

The first was that, following the acquisition of Azzurri Communications in May 2016, the group highlighted two large legacy contracts that were due to wind down over the trading period up to the end of first half 2018.

“Both of these contracts generated higher gross margins than the group's average contracts,” Maintel’s board explained in its statement.

“Both contracts have migrated away more quickly than expected and, as a result, less revenue than originally anticipated will be generated from these customers throughout the second half of full year 2017 and the first half of 2018.”

The second reason was that, as it had previously highlighted, performance in Maintel’s managed services and technology units was adversely impacted by delays to customer installations as a result of the Avaya Chapter 11 process.

“The impact has been greater than expected due to prolonged delays in the resolution of the process.

“However, the bankruptcy court approved Avaya's reorganisation on 28 November, enabling Avaya to exit Chapter 11 by the end of 2017,” the board said.

“In terms of Avaya, the group is pleased to report that ordering activity started to recover in November which will positively impact Q1 2018.”

Finally, the board said the integration of Intrinsic Technology was “going well”, and all of the Intrinsic systems were migrated onto one system on 1 December.

It confirmed revenue contribution was in line with its expectations at the time of the acquisition, but the gross margins achieved had been lower than anticipated.

The board said it now expected adjusted EBITDA for the year to 31 December would be in the range of £12.5m to £13m.

“Reflecting our confidence in underlying cash flows and the longer-term prospects for the group, we remain committed to our progressive dividend policy,” the board said in its statement.

“It is our current intention for the total full year 2017 dividend to grow 10% year on year, in line with existing guidance.”

Maintel said it would provide more detail on expectations for 2018 at the time of the preliminary results announcement in March, however at present, the board remained confident in delivering “substantial growth” in revenue and EBITDA in the full year to 31 December 2018.

“Growth will be driven by improvements in trading conditions, a recovery in Avaya installations, continued growth in the ICON cloud business and additional cost cutting and synergy realisation across the business.

“The board expects this recovery to accelerate into the first half of calendar year 2018.”