Restore lowers profit forecast as technology segment slows

15th May 2023 12:45

(Sharecast News) - Digital and information management specialist Restore reported revenue of £92.8m for the first four months of the year in a trading update on Monday, representing growth of 4% year-on-year, though it also lowered its profit expectations amid a slower recovery in technology.

The AIM-traded company said that in the digital and information management segment, it successfully implemented substantial price increases at the start of the year.

That, combined with increased activity from new customers and ongoing cost-saving measures, had offset the absence of a large non-repeating public sector contract that benefited the digital business in the first half of last year.

Additionally, Restore's records management division saw positive developments, as the transfer of artefacts from the BBC contract - the largest in the company's history - started as planned in April.

The expected net box growth for 2023 remained strong, within the guided range of between 1% and 2%.

Looking at secure lifecycle services, Restore said its Datashred and Harrow Green divisions reported activity levels in line with management expectations.

The technology segment experienced strong demand for ultra-secure IT destruction and IT relocation projects, which together accounted for about 20% of technology revenue.

However, the recovery in hardware recycling volumes had been slower than expected, reflecting recent reports from the IT sector indicating a decline of 25% to 30% in new PC and laptop sales during the first quarter following a period of elevated pandemic demand.

To address the evolving market conditions, Restore said it was adapting its capacity and executing planned structural cost reductions.

The board said the reductions, amounting to about £3m, were progressing according to management expectations, and encompassing supplier rationalisation, cost of sales, and operating overheads.

Looking ahead, the directors said they expected Restore to achieve revenue and adjusted EBITDA growth exceeding 5% over the prior fiscal year.

The optimistic outlook was supported by the implemented price changes, increased organic activity, and effective cost control.

However, due to the ongoing reduced levels of volumes in the IT hardware market, the group's adjusted profit before tax was now expected to be below previous forecasts, within the range of £41m to £43m.

"We are successfully achieving our plans to implement price increases, execute cost reduction and provide consistent service delivery," said chief executive officer Charles Bligh.

"In a challenging environment, we are continuing to see increased activity across the majority of our businesses, especially in our digital and information management division.

"Whilst the unprecedented reduction in IT hardware sales is having an impact on technology in the short term, overall the group is on track to deliver growth in revenue and operating profits for the year and achieve a further reduction in debt."

Restore said it would announce its results for the first half on 26 July.

At 1223 BST, shares in Restore were down 10.37% at 263.5p.

Reporting by Josh White for Sharecast.com.