Software business issues profit warning after weaker first half
Software and IT business Castleton Technology issued a profit warning this morning, blaming product and professional services revenue being lower than anticipated in the first half of the year.
The listed Sutton Coldfield-based firm, which supplies software and managed services to the public and not-for-profit sectors, said: “Trading in HY2019 (the six months to the end of September) has been behind expectations, primarily due to product and professional services revenue being lower than anticipated. The increase in recurring revenue has not been enough to offset the reduction in one-off revenue, and as a result of this, revenue, EBITDA and operating cash are lower than the strong comparable period last year.
“The company is confident that revenue, EBITDA and cash generation will show a material improvement in the second half of the year. This is not expected to be sufficient to meet current market expectations. Despite this, the board remains confident in the long-term prospects of the group with the anticipated effects of the merging of the company’s managed services and software divisions starting to come through.”
The company generated revenue of not less than £11.6m, adjusted EBITDA of not less than £2.9m and cash generation in the period of not less than 79% of adjusted EBITDA, facilitating a continued reduction in the company’s net debt compared to the prior year.
Recurring revenue has increased on an absolute basis and represented approximately 65% of total revenue in the period.
The interim results will be announced on 5 November.
Dean Dickinson, CEO of Castleton, said: “The second quarter of the financial year has been significantly weaker than we expected particularly compared to the strong comparable period last year. This is primarily due to revenues of a one-off nature. Whilst this is difficult in the short term it highlights the importance of transitioning away from one-off revenues and focusing our efforts on growing our recurring revenues.
“In the first quarter of the year we reorganised the group to streamline our sales and delivery functions. Embedding this has both taken longer and been more disruptive than we anticipated, however it positions the group well for the longer term. Despite these short term challenges, we are confident that the move to ‘One Castleton’ will enable us to offer customers better service and drive future growth.”
