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Iomart Group ends year well as it faces coronavirus unknowns

Fri, 3rd Apr 2020 15:51

(Sharecast News) - Cloud computing company Iomart Group updated the market on its trading for the year ended 31 March, as well as the impact of the Covid-19 coronavirus pandemic on Friday, saying it expects to deliver another year of revenue growth, "strong" profitability and cash generation, in line with expectations.
The AIM-traded firm said that due to the timing of its year-end, it had experienced minimal impact on trading in the financial year from the effects of the pandemic.

It said it was expecting to report revenue of about ?112m, up from ?103.7m, adjusted EBITDA of around ?43m, rising marginally from ?42.2m, and adjusted profit before tax of approximately ?22.5m, down from ?25.5m year-on-year.

The organic growth rate within its cloud services division increased to 6% in the year, from 2%, which the board said benefitted in particular from a "strong" performance by its hardware reseller team.

It added that the mix in revenue in the year, and increased investment primarily in the sales organisation, had resulted in a lower adjusted operating profit margin of about 22%, compared to 25.7%, although it claimed that still remained higher than the industry average.

Around 86% of group revenue in the year was recurring in nature, providing Iomart with high levels of revenue visibility as it entered the 2021 financial year.

"iomart is strongly cash generative, with high levels of contracted recurring revenue and low levels of debt," the board said in its statement.

Net debt at year-end, after recognising the funding of its two recent acquisitions, was in line with expectations at ?58m, or ?40m pre-IFRS 16 lease liabilities, compared to ?39m pre-IFRS lease liabilities in the 2019 financial year.

In line with its stated strategy to complement organic growth with acquisitions, Iomart completed two acquisitions during the second half.

On 28 February, it acquired the managed private cloud division of privately-owned ServerChoice for an initial consideration of ?2.1m, with a further maximum consideration of ?0.9m.

After that, on 13 March it completed the acquisition of Memset for an initial consideration of ?3.3m, with a further maximum consideration of ?0.9m.

Iomart described Memset as a "well-established business" providing "dedicated and virtualised" private cloud infrastructure to around 2,000 customers.

Both acquisitions were expected to be immediately earnings-enhancing.

On the impact of Covid-19, the company said its current focus was on the wellbeing and health of its staff, while continuing to support customers.

"Our business continuity plans have been successfully implemented and remote working facilitated across our operations," the board said.

"Each of our data centers remains operational to high standards of security and resilience and all customer support has been maintained."

As of Friday, Iomart said it had seen "minimal change" to its business levels, adding that it took "great comfort" from the resilience of its business model, especially the diversity and limited concentration of its customer base.

It said it was not significantly exposed to industries that were suffering the worst effects.

The vast majority of its customers were trading or operating online, and could experience an increase in demand for their products and services over the coming months, the board suggested.

It explained that, while uncertainty existed over how the 2020 calendar year would unfold, with some IT investment decisions likely to be delayed in the short-term, it was "clear" that technology and the cloud would not lose relevance, with Iomart's directors suggesting the work-from-home situation being faced by a vast number of firms possibly reinforcing the switch to the cloud.

However, the eventual impact on the company's customer base remained unknown at the current time.

The board said it was continuing to monitor the situation closely as it developed, and said it would provide a further update on trading at the time its audited financial results.

"At this time, our priority is to see our staff and all our customers through this emergency situation as unscathed as possible," said chief executive officer Angus MacSween.

"I am proud of how the team have responded and how well our business continuity has functioned."

MacSween said the company remained committed to doing all it could to "help each other" through the crisis.

"While we may potentially see an impact on our customer base and trading in the coming months, overall the group benefits from high levels of recurring revenue, strong levels of cash generation, a strong balance sheet and a wide and large customer base."

At 1548 BST, shares in Iomart Group were down 3.16% at 280.83p.

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