Restore confident despite rise on cost of borrowing

22nd Nov 2022 08:35

(Sharecast News) - Document management and digital service provider Restore said in an update on Tuesday that its recent trading continued the positive momentum it reported in the first half, with "significant" contract wins and an expansion in activity levels.

The AIM-traded firm said revenue was performing "strongly", with the second half to-date tracking "well ahead" of the same period in 2021.

EBITDA was also showing strong growth despite the macroeconomic pressures of inflation and the uncertain commercial environment.

The board said Restore Technology was also growing "strongly", although at a lower rate than planned due to a slowing in the IT equipment market, associated with current global supply chain issues.

For the full 2022 financial year, Restore said it still expected "strong growth" in EBITDA despite inflationary pressures across the business and an impact of the lower-than-planned expansion of refurbished asset sales in Restore Technology resulting from IT market headwinds, which it expected to improve "substantially" in 2023.

Higher borrowing rates meant that interest expenses for 2022 were now anticipated to be £5m, up from £2.5m in 2021, although following its acquisition and the restoration of the dividend, its leverage was expected to be "comfortably within" the target range of 1.5 to 2x pro forma EBITDA at the end of the year.

Looking to 2023, the group said it still saw substantial growth potential across its organic and acquisition strategies, with opportunities to improve margins further through pricing and cost synergies.

Restore said it anticipated that net boxes-under-management would continue to grow strongly within the guided range of 1% to 2% for 2022 and 2023, as a result of reported new wins and organic growth from existing customers.

The group said it anticipated that its pricing in 2023 would reflect the cost inflation seen in 2022, with price negotiations "fully recovering the cost increases incurred" across people and other operating expenses.

In response to the inflationary environment, the group said it was targeting further cost reductions of at least £3m in 2023, spread across supplier rationalisation, cost of sales and operating overheads, with £1m of those savings already actioned.

The interest expense for 2023 would increase, the board added, despite an expected reduction in debt levels before any further acquisitions.

Restore said its acquisition pipeline for next year was "strong", with acquisition price levels expected to reduce reflecting the macroeconomic environment and the increasing cost of capital.

"Restore has achieved strong commercial momentum in 2022 and, whilst the current economic environment creates challenges, we are winning new business and are confident that we will continue to expand in 2023 with organic growth, complementary acquisitions, and a continued focus on costs," said chief executive officer Charles Bligh.

"I am delighted with the recent landmark wins by records management for the BBC and the Department for Work and Pensions, which together have a total contract value of over £30m and both of which were previously unvended opportunities that demonstrate that the underlying market continues to grow."

Bligh said that while recycled IT asset sales were growing more slowly than planned in the second half, it was a "near-term supply chain issue", with forecasts for PC shipments to grow in 2023 and onwards.

"The group is well-positioned to navigate the current macroeconomic uncertainty and with our highly cash generative business model that delivers essential services and saves customers money, we will emerge as an even larger and stronger business."

At 0818 GMT, shares in Restore were down 2.86% at 340p.

Reporting by Josh White for Sharecast.com.