Glasgow cloud computing firm Iomart bullish on recession impact despite fall in profit and dividend

Iomart, the Glasgow-headquartered cloud computing group, believes it can ride out the “expected economic pressures” triggered by a recession after posting a sharp fall in first-half profits.

Chief executive Reece Donovan said the firm, which operates data centres across the UK, had experienced a period of “considerable operational activity”, against a backdrop of ongoing macro-economic challenges. While revenues nudged up 1 per cent to £52.6 million in the six months to the end of September, adjusted profit before tax fell 19 per cent to £7.4m. Adjusted underlying earnings were down 9 per cent at £17.8m. The figures were in line with guidance provided in an October trading update.

Donovan said: “The steps we have taken to strengthen our capabilities and offering, increase effectiveness of our sales activities and our clear focus on execution gives us a stronger foundation to accelerate growth. We believe the diversity and limited concentration of our customer base, high level of recurring revenue and strong cash flow generation should shelter us from the worst of the expected economic pressures as the UK enters a recessionary period. The critical nature of the infrastructure and digital services we provide in a growing cloud market will allow us to support businesses well into the future.”

He added: “Our stronger customer retention levels provide an improved backdrop as we see pipeline growth from our wider product offering, and the board remains confident in the outlook for the long-term prospects for the group.”

The group declared an interim dividend of 1.94p per share, down 20 per cent on a year earlier. Iomart pointed to a number of operational highlights during the period, including the acquisition of IT provider Concepta, noting that the deal was an important step in strengthening its indirect routes to market, while extending the group’s “products, skills and capabilities”. The takeover of Concepta Capital, a holding business for a group of companies that includes the Leeds-based Oriium and Sheffield-based Pavilion IT brands, was announced in August. Chief financial officer Scott Cunningham said the firm was “continuing to look at bolt-on acquisitions”.

Iomart said a new regional sales leadership team had “reshaped the sales structure to align resources with the market opportunities”, while a new group website will “support improved online presence and opportunity capture”.

The group stressed that the second half of the year would include the full extent of energy price uplifts passed onto customers. As a result, the board expects revenues for the year ending March 31, 2023 to be ahead of original expectations. Full-year profits are expected to be in line with expectations, with the second half profit showing progress on the first half. Cunningham noted that the firm had tackled energy price hikes by fixing costs and hedging.

Martin O’Sullivan, an analyst with brokerage Shore Capital, said: “Whilst there are no surprises in the results or outlook, we see the latter as incrementally positive around retention levels and pipeline growth. Over the medium term, we see Iomart building upon its core foundations: executing on core portfolio organic growth, complementary acquisitions, new services and geographies and protecting the existing base of run rate revenue and Ebitda (earnings before interest, taxes, depreciation and amortisation),” he added.