Maintel offers three reasons for profits climb-down

Systems integrator and managed services provider offers up reasons for FY17 profit adjustment

Maintel has outlined three major reasons for the revision of its FY17 profit expectations.

The systems integrator and managed services provider issued a trading update stating that it had expected to recover the reduction in gross margin in the first half of this financial year, but "it is now evident that this will not happen", and then outlined three reasons for the revision.

The first centered on the acquisition of Azzurri Communications in May 2016 and Maintel highlighted two large legacy contracts that were due to wind down over the trading period up to the end of first-half 2018.

"Both of these contracts generated higher gross margins than the group's average contracts," said the firm.

"Both contracts have migrated away more quickly than expected and, as a result, less revenue than originally anticipated will be generated from these customers throughout the second half of full-year 2017 and the first half of 2018."

The second reason was that, as previously highlighted, managed services and technology performance has "been adversely impacted" by delays to customer installations as a result of the Avaya Chapter 11 process.

"The impact has been greater than expected due to prolonged delays in the resolution of the process. However, the bankruptcy court approved Avaya's reorganisation on 28 November, enabling Avaya to exit Chapter 11 by the end of 2017. In terms of Avaya, the group is pleased to report that ordering activity started to recover in November which will positively impact Q1 2018," the Maintel statement claimed.

The third reason concerned the integration of Intrinsic Technology, which is "going well", with all of the Intrinsic systems migrated onto one system on 1 December.

"The revenue contribution is in line with our expectations at the time of the acquisition although the gross margins achieved have been lower than anticipated," the firm stated.

Maintel now forecasts that it will have adjusted EBITDA in the range of £12.5 to £13m. That still represents a 12 to 18 per cent increase on the £11m adjusted profit before tax posted in FY16 after the acquisition of Azzurri Communications pushed revenue up 114 per cent to £108m.

"Maintel's ICON cloud services have seen good growth and the acquisition of Intrinsic Technology could inject as much as £50m of annual revenue into the business," said Martin Courtney, principal analyst at TechMarketView.

"We await the final FY17 numbers with interest, but note that management are confident that the full-year dividend is still on course to grow 10 per cent year on year in line with existing guidance."