Iomart, the cloud specialist, reports signs of growing confidence.

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Via Kristy Dorsey

As the first half of its fiscal year almost exactly coincided with the outbreak of the pandemic in the U.K., iomart’s profits dropped by almost a third, leading customers to delay work on higher-value digital transformation initiatives.

New Chief Executive Reece Donovan, however, said several clients are now dreaming about certain projects being revived. While it will take a while for these talks to “bear fruit,” there are signs that trust is returning.

“When [the pandemic]first hit, no one wanted to change anything or cause any more disruption than had already happened,” Donovan said. They were just just trying to work, and they had to work remotely, so they were just trying to close some immediate holes.

“Now that they have everything secured and everything is working, they’re figuring out what to do next.”

Iomart’s latest broom focuses on “tweaks” for future development.

As the Glasgow-based business gained from two acquisitions – private cloud infrastructure providers Memset and ServerChoice – at the end of the last fiscal year, revenue for the six months to the end of September grew 2 percent to £ 56.3 million. It also posted a high level of recurring revenue, which accounted for 90 percent of total revenue, up from 87 percent previously.

Although projects from established controlled cloud clients remained “reassuringly” in line with the same time last year, lower margins on this work resulted in a decrease in profits of £ 1 million.

Profit before tax dropped by a hefty 29 percent to £ 6 million, down from £ 8.4 million a year ago. This represented higher depreciation and amortization, in which around half resulted from the purchase of assets from the acquisitions of Memset and ServerChoice.

Profits dropped just 4 percent to £ 20.8 million on an underlying basis.

After the increase in earnings, Glasgow could see computer specialists defend dividend policies

Mr. Donovan said he was pleased with the “robust” success of iomart, which he believes puts the business in a strong position while the economy is starting to recover. The opinion was shared by Shore Capital analyst Martin O’Sullivan.

In terms of outlook, iomart, given its high recurring sales and its mission-critical services, is shielded from the worst of the expected economic pressures in the period ahead,” O’Sullivan said. “Indeed, the outlook could be characterized as increasingly positive, with signs of ‘improved trust among new and existing customers’ towards the end of the period.

“Recent signs that business confidence may be returning are noted, as is a ‘growing number of new business conversations’ whose benefits, if secured, would feed into revenue growth in the years ahead.”

The firm, which operates nine U.K. data centers, will retain its 2.6 pence per share interim dividend. This follows its decision in June to announce a reasonably generous final dividend when such payments were stopped by most other companies to save cash.

The decision was based on a 4% rise in full-year earnings and the fact that during the pandemic, the company did not use government funds to lay off 400 workers.

Veteran Iomart Angus MacSween retires

Mr. Donovan, who in October assumed the position of chief executive of longtime iomart founder Angus MacSween, is now leading the “one iomart” initiative of the company to simplify its business structure. This is likely to result in the rebranding, by the end of the current fiscal year, of three legacy acquisitions.

In addition, a project is under way to make the services of iomart more comprehensible to a broader audience. The aim is to reduce needless jargon so that clients can better understand how strategies from iomart can help them solve their company challenges. In the coming months, more information on this are planned.

“We did some presentations on this today, and I think it was well received,” Mr. Donovan added.

A dedicated management security service has also been introduced by the organization, which has attracted both new and current clients and offers active protection against intrusions such as denial-of-service (DDOS) attacks.

Iomart’s shares closed yesterday more than 7 percent lower, down 24.5p at 315p.

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