Iomart flags decent results, warns of lower-than-expected renewals

(Sharecast News) - Secure cloud service provider Iomart said in an update on Thursday that, despite a challenging economic environment, it expected to deliver a robust set of full-year results for the 12 months ended 31 March. The AIM-traded firm said revenue was expected to show growth of 10% to £127m, compared to £115.6m in the 2023 financial year.

Adjusted EBITDA was projected to increase 4% to around £37.5m, with adjusted profit before tax reaching £15m, compared to £14.8m a year earlier.

That increase in profit was partially offset by higher interest expenses, totaling about £4.3m compared to £2.9m in 2023.

Recurring revenue remained strong, comprising around 91% of group revenue.

The group said its cash generation remained robust, with year-end net debt expected to be £43m, up from £39.8m in the prior year, primarily due to merger and acquisition-related cash payments totaling £15m.

That translated to a net debt-to-adjusted EBITDA ratio of 1.1x, consistent with the prior year.

Iomart said it saw significant growth in order bookings within its managed services business, driven by positive responses from existing customers and prospects to its expanded solution set and renewed focus on customer service.

However, lower-than-expected customer renewal rates in the second half, particularly among smaller customers, had restrained the overall financial impact.

That, the board said, was influenced by heightened sensitivity to energy price rises experienced towards the end of the 2023 financial year.

As the group expanded its portfolio of managed service offerings, it said it anticipated a reduction in the impact of potential lower renewal rates among smaller customers and in more commoditised business areas.

The integration of Extrinsica, acquired in June last year, had bolstered the group's Microsoft-based capabilities and contributed to year-on-year revenue growth.

However, delays in some larger orders from existing customers had led to the conclusion that none of the earn-out consideration for the acquisition would be payable.

The integration process of Extrinsica within the group was said to be progressing well, enabling existing customers to access the enhanced Microsoft capabilities.

Additionally, Accesspoint Technologies, acquired in December, was performing as expected.

"I am pleased with the progress achieved in the year, with the increasing strength of our offering reflected in good order growth," said chief executive officer Lucy Dimes.

"Our resilient financial results, extensive customer base and deep technical expertise continue to provide a solid platform for enhanced revenue growth over the medium term, from extended product solutions, focused sales and marketing activity and complementary mergers and acquisitions."

Dimes said the company's three most recent acquisitions all added recurring revenue growth, with the firm seeing continued merger and acquisition activity as an "important part" of strengthening its capability and market growth plans.

"We continue to be active in the identification of targets which add skills, experience and capability to enhance our proposition, as we drive the business to be the UK's leading secure cloud services provider."

At 1438 BST, shares in Iomart Group were down 3.91% at 135p.

Reporting by Josh White for Sharecast.com.