By Kristy Dorsey

Profits at iomart fell by nearly a third as the first half of its financial year coincided almost perfectly with the onset of the pandemic in the UK, leading customers to delay work on higher-value digital transformation projects.

However, new chief executive Reece Donovan said many clients are now talking about reviving such projects. Although those discussions will take a while to “come to fruition”, there are signs that confidence is returning.

“When [the pandemic] first happened, no one wanted to change anything or cause any more disruption than was already happening,” Mr Donovan said. “Everyone just wanted to work, and they needed to work remotely, so they just wanted to plug any immediate gaps.

“Now that they have secured everything and it is all working, they are looking at what happens next.”

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Revenues for the six months to the end of September were 2 per cent higher at £56.3 million as the Glasgow-headquartered company benefited from two acquisitions – private cloud infrastructure providers Memset and ServerChoice – at the end of the previous financial year. It also reported strong levels of recurring revenues, which accounted for 90% of the total, up from 87% previously.

Though projects from existing managed cloud customers remained “reassuringly” level with the same period a year earlier, the lower margins on this work resulted in a £1m hit to earnings.

Pre-tax profits fell by a heftier 29% to £6m, down from £8.4m previously. This reflected higher depreciation and amortisation charges, about half of which were generated from absorbing the asset base from the Memset and ServerChoice acquisitions.

On an underlying basis, earnings were down just 4% at £20.8m.

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Mr Donovan said he was pleased with iomart’s “resilient” performance, which he believes will put the company in good stead as the economy starts to recover. Analyst Martin O’Sullivan at Shore Capital echoed those sentiments.

“In terms of outlook, iomart is sheltered from the worst of the expected economic pressures over the coming period given high recurring revenues and its business-critical services,” Mr O’Sullivan said. “Indeed, the outlook could be described as incrementally positive given signs of ‘improved confidence within new and existing customers’ towards the end of the period.

“Recent signs that business confidence may now be returning are also noted, and a ‘growing number of new business discussions’, the benefit of which, if secured, would flow through to revenue growth in future years.”

The company, which operates nine data centres across the UK, will maintain its interim dividend payment at 2.6p per share. This follows its move in June to declare a relatively generous final dividend at a time when most other firms were axing such payments to conserve cash.

That decision was based on a 4% increase in full-year profits, along with the fact that the company has not taken government money to furlough any of its 400 employees throughout the course of the pandemic

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Mr Donovan, who took over the chief executive’s role from long-serving iomart founder Angus MacSween in October, is now overseeing the company’s “one iomart” programme to simplify the business structure. This is expected to result in the re-branding of three legacy acquisitions by the end of the current financial year.

In addition, a project is also underway to make iomart’s services more understandable to a wider audience. This aims to strip out unnecessary technical jargon so customers can better understand how iomart solutions can help them meet their business challenges. Further details on this are expected in the next few months.

“We have done some presentations around that today, and I think it has been well-received,” Mr Donovan added.

The company has also launched a dedicated management security service that has attracted several new and existing customers and provides active protection against intrusions such as denial of service (DDOS) attacks.

Shares in iomart closed more than 7% lower yesterday, down 24.5p at 315p.