TPXimpact warns of flat revenue amid government spending freeze

10th Sep 2024 14:41

(Sharecast News) - TPXimpact warned in a trading update on Tuesday that revenue growth for the 2025 financial year was now expected to be flat due to challenging market conditions, particularly in its core central government client sector, which accounted for 65% of revenue in 2024.

The AIM-traded firm put the slowdown largely to spending restrictions imposed by the government following the July announcement of a £22bn deficit.

It expected those measures to remain in place until at least the conclusion of the government's spending review in October.

Despite the challenges, TPXimpact maintained its 2025 adjusted EBITDA target of £7m to £8m, supported by operational efficiency improvements projected to save over £3m annually, with half of that expected to benefit the 2025 financial year.

One-off restructuring costs were anticipated to be around £1m.

First-half revenues were expected to decline by between 8% and 10%, but the company forecast a return to growth in the second half.

New business wins in the early months of the second quarter reached £17m, up from £9m in the first quarter, demonstrating resilience despite the difficult environment.

Looking ahead, the company expects revenue growth to resume in 2026, targeting like-for-like growth of 10% to 15% and an adjusted EBITDA margin of 10% to 12%, as opportunities in digital transformation and responsible AI continued to expand.

"The July general election promised stability in the second half of the year and we were encouraged by the alignment between our service offerings and the new government's manifesto pledges," said chief executive officer Björn Conway.

"However, it has become increasingly evident that the current public sector focus on budget constraint and spending controls will persist until after the conclusion of the government's spending review and autumn budget statement on 30 October.

"Our response is to ensure the capabilities and services we offer, and our cost base, is correctly aligned with our revenue expectations and the execution of our three-year strategy."

Conway said while it was a difficult time for the company's people, it was "very important" that it maintained a sustainable business model for all stakeholders and continued to deliver positive impact for clients while providing a supportive environment to its teams in line with its B-Corp principles.

"As ever, I am grateful to the professionalism and dedication of all our people in these challenging times.

"The board remains very confident that the services we offer, founded upon the breadth and depth of talent within our businesses, will continue to be an attractive and value-added proposition for our clients.

"Irrespective of the short-term market factors at play, we firmly believe that digital transformation will continue to be a major part of central government strategy, and public services more widely, for the foreseeable future."

At 1245 BST, shares in TPXimpact Holdings were down 9.07% at 40.01p.

Reporting by Josh White for Sharecast.com.