Problems fixed

Iomart back on growth track after ‘dropping ball’

Reece Donovan

Reece Donovan: identified problems

Cloud computing firm iomart said it had fixed some of the problems that had led to a loss of some customers and was now on track to restore revenue and profit growth.

Chief executive Reece Donovan said problems that caused a churn in customers, reported in a profits warning in October, were now resolved.

“We identified what was causing the problem and made some changes to our systems and restructured the way we deal with customer requests,” he said in a call with Daily Business.

“The initial results of that are positive. We are good at complex things but we were dropping the ball on some smaller things.”

Adjusted pre-tax profit for the half year to the end of September was 7% lower at £9.1 million (2021: £9.8m) but in line with the board’s expectations and profit before tax was unchanged at £6m. Revenue was 8% lower at £51.9m (2021: £56.3m) due to customer churn.

The Glasgow-based company refinanced earlier this month and now has a £100m credit facility, providing some “firepower” for mergers and acquisitions said CFO Scott Cunningham.

He said the company had a list of potential bolt-on acquisition targets in the £10m revenue area, but there was nothing active at the moment.

In a statement with the results, Mr Donovan, said: “We are energised by our refreshed strategy, new brand and clear focus. The early customer wins from the new sales campaigns are excellent signs that the strategy is on track and starting to deliver tangible results. 

“iomart’s high level of recurring revenue remains a considerable strength, providing good visibility for the remainder of the year. Current trading is in line with the board’s expectations for the full year.”

In October shares in the Glasgow-based firm plummeted after it issued a profits warning following a fall in some revenue streams.

It said it was just a few months into a refreshed strategy and the expected success of the transition of the business will take time to flow through into its results.

Following today’s figure, analysts at in-house broker Peel Hunt, said: “Clearly the medium-term focus is on growth, where recent competitive wins provide signposts to the good progress been made.

“We make no changes to forecasts for now. Overall, iomart is tracking slightly ahead in terms of strategic milestones.”

They noted a number of new contracts, such as a Scottish housing association, won against some key peers. Systems and tools now in place should avert some of the attrition in managed services, through better resource allocation, resulting in faster responses.

Investec analysts Roger Phillips and Julian Yates said in a note: “The outlook for complex hosting is encouraging, with pipeline build across new service lines and initial competitive new customer wins. Forecasts are unchanged, but H2-on-H1 looks conservative.”

They retain a Buy recommendation.

The shares were 1.6p higher at 147p after the first hour of trading.

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