Shares in Iomart closed eight per cent lower yesterday after the cloud computing firm warned that margins are not expected to “fully recover” and full-year profits will therefore be at the lower end of expectations.
Despite a slight increase in revenues during the first six months of the financial year, Glasgow-based Iomart expects a decline in both earnings and profitability when it reports its first-half results in December. Revenue and profit are expected to improve in the second half, though cost pressures will continue.
“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,” the company said. “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.”
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Revenues in the first half are expected to come in at approximately £52.5 million, up from £51.9m a year earlier. But earnings are likely to fall to £17.8m from £19.6m, with adjusted profit before tax of £7.3m versus £9.1m.
Chief executive Reece Donovan noted that the period under review covered the first acquisition under Iomart’s new growth strategy, which aims to broaden the company’s market reach while also enhancing its expertise within data management. This is backed by a £100m credit facility secured at the end of last year.
The deal in August to take over Yorkshire-based Concepta Capital included an initial cash consideration of £10.5m plus a further £4m dependent on future performance. The initial sum and repayment of £1.5m of acquired bank loans increased Iomart’s net debt to £48m, up from £41.3m.
READ MORE: Glasgow's iomart eyes up takeover targets to spur growth
In spite of market headwinds, Mr Donovan was bullish about the company’s performance and prospects. He said the team executed well in the first half of the year, “finding the correct balance between managing both the risks and opportunities” in the marketplace.
“We have maintained our tight control on costs and have successfully tested our business model in relation to energy pricing,” he added. “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.”
Shares in Iomart closed 12.6p lower yesterday at 147p.
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