Redcentric downgrades 2019 expectations

IT service management company Redcentric downgraded its expectations for 2019 on Friday, citing the loss of some public sector hosting business, recent sales softness and the upfront costs of the Yorkshire and Humber public sector network programme.

Redcentric revised its expectations for FY19 revenues down by around 5% versus its previous forecasts, while its expectations for earnings before interest, taxes, depreciation and amortisation were cut by around 10%.

"This reflects a continuing transition as the business is transforming its operating model to capture the opportunity of customers' adoption of the cloud, and delivering the financial benefits of its health and social care network contracts. The board continues to be confident of the medium-term prospects and performance of the company."

The group said it expects to report FY18 revenue of £100m - around 87% of which is recurring - and EBITDA of 18.1m.

In the hosting services business, the company saw the cancellation of some public sector hosting contracts, in line with a trend across the sector, as these customers decided to move out of Redcentric's data centres into government-backed facilities. In addition, it highlighted some weakness in new business in recent months.

"The company has already invested in its product functions and sales leadership to drive additional revenues from new and existing services, although the revenue and profit contribution from these initiatives are not expected to make up for the reductions in profit in FY19 from hosting services and recent slower sales. Mitigation of some of these negative effects through cost reductions and other operating efficiencies is possible and actions are already under way."

As for the Yorkshire and Humber public sector network contract announced in April, Redcentric said that as is common for these types of contracts, upfront investment and mobilisation costs will be front-end weighted with revenue expected to build significantly over the four-year initial term.

At 1535 BST, the shares were down 7.8% to 92.20p.