Iomart set to end year at 'lower end' of guidance

The AIM-traded firm reported “strong” cash conversion, improved customer renewal levels, and continued momentum across its strategic areas, including the completion of the first acquisition under its new strategy.

Customer renewal levels had returned to long-term historic averages which, when combined with its “high levels” of recurring revenue, provided visibility over its full-year financial targets, and a “solid foundation” as it transitioned towards a secure hybrid cloud offering.

The board said that importantly, the recent volatility in energy markets had presented challenges for the sector, but its “robust” business model and customer arrangements ensured that additional energy costs were passed through to its customer base.

Against that backdrop, Iomart said it was looking at a “solid set” of financial results for the six months ended 30 September, showing revenue ahead of the prior period and an EBITDA performance reflecting both the revenue mix and its continued investment in the skills and capabilities of its workforce.

For the first half, the group said it was expecting to report revenue of around £52.5m, adjusted EBITDA of £17.8m, and adjusted profit before tax of £7.3m.

The mix of the business was still focussed on recurring cloud-managed service revenue, in line with management expectations.

Non-recurring revenue from hardware and software reselling activity had not yet recovered, while recurring revenue for the six months was 95% of total revenue, up from 93% year-on-year.

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 £48m at period end.

The group said its cash generation from trading was still “strong”, and consistent with past performance.

Looking ahead, Iomart said that as energy costs increased in the market, it had demonstrated that its business model and customer arrangements allowed it to flex its pricing.

The board said it was monitoring the inflationary environment “very closely”, and would seek to respond accordingly.

Revenue and profit in the second half were expected to be higher than the first half, but in the face of potential economic headwinds, it was not expected that margins would fully recover and that profit for the full year would likely be at the “lower end” of its original expectations.

“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,” said chief executive officer Reece Donovan.

“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.”

Donovan said the market for cloud computing solutions continued to offer long-term growth, with the firm’s strategic actions putting it in a “stronger position” to benefit from the opportunity.

“Our team, business model and strong financial position ensure we are well prepared for the year ahead.”

Iomart said it would announce its results for the six months ended 30 September in early December.

At 1546 BST, shares in Iomart Group were down 8.09% at 144.85p.

Reporting by Josh White at Sharecast.com.