Q1-17 FINANCIALS UPDATE. 23 May 2017

Transcription

1 Q1-17 FINANCIALS UPDATE 23 May 2017

2 Disclaimer THIS PRESENTATION IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY, AND IS NOT AN OFFER OR A SOLICITATION OF AN OFFER TO BUY OR SELL SECURITIES IN THE UNITED STATES OF AMERICA OR IN ANY OTHER JURISDICTION. BY VIEWING THIS PRESENTATION, YOU AGREE TO THE FOLLOWING: ANY INFORMATION IN THIS PRESENTATION THAT IS NOT A HISTORICAL FACT IS A FORWARD-LOOKING STATEMENT. SUCH STATEMENTS MAY INCLUDE OPINIONS AND EXPECTATIONS REGARDING INTEROUTE AND ITS FUTURE BUSINESS, THE STRATEGIES OF ITS MANAGEMENT AND ITS MANAGEMENT S EXPECTATIONS OF GLOBAL ECONOMIC AND REGULATORY TRENDS. BY THEIR NATURE, SUCH FORWARD-LOOKING STATEMENTS INCLUDE UNKNOWN AND KNOWN RISKS AND UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE INTEROUTE S ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS TO BE MATERIALLY DIFFERENT FROM THOSE EXPRESSED IN, OR IMPLIED BY, SUCH FORWARD-LOOKING STATEMENTS. WHILE INTEROUTE BELIEVES THAT ITS ASSUMPTIONS REGARDING FUTURE EVENTS ARE REASONABLE, THESE FORWARD-LOOKING STATEMENTS ARE ONLY PREDICTIONS AND, IN ADDITION TO BEING SUBJECT TO UNKNOWN AND KNOWN RISKS, UNCERTAINTIES, ASSUMPTIONS AND OTHER FACTORS BEYOND INTEROUTE S CONTROL, THERE ARE INHERENT DIFFICULTIES IN PREDICTING CERTAIN IMPORTANT FACTORS THAT COULD IMPACT THE FUTURE PERFORMANCE OR RESULTS OF INTEROUTE S BUSINESS. AS A RESULT, SUCH STATEMENTS SHOULD NOT BE REGARDED AS REPRESENTATIONS AS TO WHETHER SUCH ANTICIPATED EVENTS WILL OCCUR NOR THAT EXPECTED OBJECTIVES WILL BE ACHIEVED. ALL FORWARD-LOOKING STATEMENTS APPLY ONLY AS OF THE DATE HEREOF AND INTEROUTE UNDERTAKES NO OBLIGATION TO REVISE OR UPDATE ANY SUCH FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE. THE GROUP S FINANCIAL STATEMENTS ARE PRESENTED UNDER EU IFRS. THE CONSOLIDATED FINANCIAL DATA INCLUDED ON THE FOLLOWING PAGES FOR THE THREE MONTHS ENDED 31 MARCH 2016 AND 31 MARCH 2017 HAVE BEEN DERIVED FROM THE UNAUDITED MANAGEMENT ACCOUNTS AND UNAUDITED INTERIM FINANCIAL STATEMENTS, INCLUDING THE NOTES RELATED THERETO. THE FINANCIALS HAVE BEEN DERIVED FROM THE INTERNAL ACCOUNTING FORMAT BASED ON THE INTERNATIONAL FINANCIAL REPORTING STANDARDS AS ADOPTED BY THE EUROPEAN UNION ( IFRS ). THIS PRESENTATION ALSO CONTAINS REFERENCES TO CERTAIN NON-IFRS FINANCIAL MEASURES, INCLUDING EBITDA, EBITDA MARGIN, ADJUSTED EBITDA, ADJUSTED EBITDA MARGIN AND SYNERGY ADJUSTED EBITDA AS WELL AS CERTAIN LEVERAGE AND COVERAGE RATIOS THAT ARE NOT REQUIRED BY, OR PRESENTED IN ACCORDANCE WITH IFRS. SUCH MEASURES SHOULD NOT BE CONSIDERED AS ALTERNATIVES TO OTHER INDICATORS OF OPERATING PERFORMANCE, CASH FLOWS OR ANY OTHER MEASURE OF PERFORMANCE DERIVED IN ACCORDANCE WITH IFRS. IN ADDITION, THESE MEASURES ARE USED BY DIFFERENT COMPANIES FOR DIFFERING PURPOSES AND ARE OFTEN CALCULATED IN WAYS THAT REFLECT THE CIRCUMSTANCES OF THESE COMPANIES, THUS LIMITING THEIR USEFULNESS AS COMPARATIVE MEASURES. IN ADDITION, THIS PRESENTATION CONTAINS REFERENCES TO CERTAIN KEY OPERATIONAL METRICS USED BY INTEROUTE AND EASYNET, INCLUDING AVERAGE NEW NET MONTHLY RECURRING REVENUE AND CHURN RATE, WHICH ARE ALSO NOT CONSIDERED MEASUREMENTS OF FINANCIAL PERFORMANCE UNDER IFRS AND SHOULD NOT BE CONSIDERED AS ALTERNATIVES TO OTHER INDICATORS OF OPERATING PERFORMANCE, CASH FLOWS OR ANY OTHER MEASURE OF PERFORMANCE DERIVED IN ACCORDANCE WITH IFRS. IN PARTICULAR, THE METHODOLOGY USED TO CALCULATE THESE OPERATIONAL METRICS MAY DIFFER FROM THAT USED BY OTHER COMPANIES, THUS LIMITING THEIR USEFULNESS AS COMPARATIVE MEASURES. INTEROUTE OBTAINED CERTAIN INDUSTRY AND MARKET DATA USED IN THIS PRESENTATION FROM PUBLICATIONS AND STUDIES CONDUCTED BY THIRD PARTIES. WHILE INTEROUTE BELIEVES THAT THE INDUSTRY AND MARKET DATA FROM EXTERNAL SOURCES IS ACCURATE AND CORRECT, INTEROUTE HAS NOT INDEPENDENTLY VERIFIED SUCH DATA OR SOUGHT TO VERIFY THAT THE INFORMATION REMAINS ACCURATE AS OF THE DATE OF THIS PRESENTATION AND DOES NOT MAKE ANY REPRESENTATION AS TO THE ACCURACY OF SUCH INFORMATION. 1

3 Today s presenters Gareth Williams Chief Executive Officer Catherine Birkett Chief Financial Officer 2

4 Table of contents 1. Executive summary 2. Business update 3. Financials Q&A 3

5 Q1-17 Highlights Mar-17 LTM Adjusted EBITDA increased to 151m from 147m per FY Q1-17 Adjusted EBITDA up 12.4% y-o-y - Q1-17 EBITDA up 38.2% y-o-y - Q1-17 EBITDA of 35m converging with Adjusted EBITDA of 37m - Q1-17 Adj. EBITDA margin increased to 20.9% from 18.2% Continued y-o-y growth in Interoute - Revenue growth of 6.1% - Enterprise recurring revenue growth of 7.8% Easynet churn stable. Long term focus unchanged. Integration activity is on track - Run-rate synergies of 27.5m ( 19.5m realised in our LTM results) vs. final anticipated synergies of 31.9m (86% of target met) LTM synergy Adjusted EBITDA of 163.2m 1 4 (1) Includes anticipated synergies of 12.4m in addition to the 19.5m of synergies already realised in our LTM results ( 31.9m anticipated synergies in total)

6 Table of contents 1. Executive summary 2. Business update 3. Financials Q&A 5

7 Interoute s market positioning 2017 Enterprise Services Interoute s market for Connectivity, Communications and Computing infrastructure is c. 10bn 1 against an overall EMEA IT services market of c. 130bn 2 According to Gartner, >50% of all on premise workloads will transition into 3rd party service providers like Interoute over the next 4 years The market remains distributed and competitive. A unique sales proposition is required to stand out Interoute s Enterprise Digital Platform is just that. A unique interconnect or Cloud Fabric, offering a flexible platform which combines computing and SD-WAN technologies to provide a single view of an Enterprise s IT assets We estimate our share of the market is c.5% 3 Network Services Bandwidth demand continues to grow exponentially According to Cisco, global data center, IP and cloud traffic will more than double by Interoute has completed its build out of 100G: - capability is available on 98% of the network - short term capex is predominantly linked to client services not network capability Underlying demand and innovation in deployment continue to offset price pressure securing stable revenues Interoute s estimated share of the European bandwidth market is c.15% 4 In 2020, the gigabyte equivalent of all movies ever made will cross the Internet every 2 minutes. 6 (1) European Enterprise Services market defined as: Pan-European VPN and Computing & Communications market source Gartner and Frost & Sullivan (2) Global Data ( (3) Calculated based on FY Enterprise revenues of approx. 0.55bn of the 10bn market (4) Ovum European Wholesale Market Share : The Big Picture

8 Q1-17 Business Update New contracts and renewals Despite pan-euro geo-political uncertainty, we signed: New contracts worth 77.6m Renewals of 50.3m Large deals in Network Services include; Apple, KNG Karnten Netz and Danish Crown Large deals in Enterprise Services include; Gefco, Hansgrohe and Ivoclar Vivadent Large deals Achievements Interoute recognised as a top 4 Network Provider, in the Gartner Critical Capabilities for Network Services, Pan-European report, Published: 15 March Interoute Edge Access solution beat Oracle and Infoempresa to be named Best ICT product in the Network category, at the 9 th Comunicaciones Hoy Awards in Spain. New customer validations published for Spacemetric, Monin And AO.com. Interoute launches innovative Managed Container Platform at Cloud Expo Europe in London March Achievements 7

9 Q1-17 Integration Update Realised cost synergies in LTM period ( in millions) 20.9 ( 2.6m) Sep-16 LTM Dec-16 LTM Mar-17 LTM Final anticipated Headcount Non-Headcount Run-rate cost synergies 8 Successful execution of our synergy programme 27.5m run-rate cost synergies as end of Mar m realised in Mar-17 LTM Of the 5.7m of Non-Headcount realised synergies, 3.4m relates to OLO/local tails. Approximately 35m of integration costs from start of project. 1 (1) Includes 35m of integration costs per the P&L from 2015, 2016 and Q1-17, 8m integration capex, less 6m related to non-cash onerous lease/dilapidation provisions and 2m received for sale of a data centre.

10 Table of contents 1. Executive summary 2. Business overview 3. Financials Q&A 9

11 Consolidated business gross profit and Adjusted EBITDA Overview ( in millions) Q1-16 Q1-17 Growth Total revenue (2.1%) Sales related costs (69) (67) (3.0%) Gross margin (1.5%) Gross margin % 62.1% 62.4% Network costs (27) (27) (1.0%) Operating costs (52) (47) (10.6%) Adjusted EBITDA % Adjusted EBITDA margin 18.2% 20.9% Integration costs (4) (2) (49.3%) One-off adjustments (4) (0) (89.9%) Comments Revenues increased by 0.7% on a constant currency basis. Improvement in Gross Margin % by 0.3% points. Operating costs significantly lower than Q m lower staff costs (as synergy benefit is realised); and - 1.9m lower non-headcount operating costs (resulting from lower establishment costs and foreign exchange movements). Adjusted EBITDA of 37.0m, up 12.4% y-o-y. EBITDA of 35m, up 38.2% y-o-y with lower one off adjustments. - Adjusted EBITDA and EBITDA converging. Adj EBITDA margin increased to 20.9% and EBITDA margin increased to 19.6%. EBITDA % EBITDA margin 13.9% 19.6% 10

12 Revenue (1 of 2) Revenue by segment ( in millions) Q1-16 Q % 7.0% (17.0)% Easynet Revenue Q4-16 to Q1-17 ( in millions) Q4-16 Q1-17 Easynet Enterprise Services Network Services Total group revenue up on constant currency basis by 0.7%. Encouraging Easynet Q1-17 revenue performance, stable vs. Q4-16. Easynet declined 11.0% vs. Q1-16 on a constant currency basis. 11

13 Revenue (2 of 2) Revenue by type ( in millions) ( in millions) Recurring revenue by segment % 3.8% (4.5)% (17.0)% % Q1-16 Q1-17 Q1-16 Q1-17 Easynet IRT Recurring IRT Transactional Interoute recurring revenue grew to 115m, up 3.8%. - Driven mainly by Enterprise recurring growth of 7.8%. Increase in total Network Services revenue driven by transactional revenues. 12

14 Gross Margin Gross Margin % by Quarter 80% Consistent Gross Margin % by quarter 70% 60% 50% 62% 63% 63% 59% 62% Q was impacted by a large, low margin hardware resale transaction. 40% 30% 20% 10% 0% Q Q Q Q Q

15 Group KPIs Average new net monthly recurring revenue (MRR) (1) Churn rate (2) ( in thousands) 1.8% 1.5% % 1.2% 1.3% 1.3% 1.2% 1.2% 1.2% 1.1% (84) 0.6% 0.3% 0.8% 0.7% 0.5% Q1-16 Q1-17 Q1-16 Q2-16 Q3-16 Q4-16 Q1-17 Easynet IRT Network IRT Enterprise Substantially higher Q1-17 average net MRR than Q1-16: - Net MRR increase driven by Enterprise. - Q1-16 included a large volume of churn in Easynet. Lower churn in Q1-17 against prior quarter. Easynet churn stable. 14 Notes: (1) Average monthly amount calculated as quarterly amount divided by 3. Calculated using incremental additional revenue from new sales delivered during a month and that will recur on a monthly basis, excluding any usage-based revenue and net of any churn. (2) Internet Access and Internet Transit products are now grouped under Enterprise services (previously in Network Services).

16 EBITDA converging with Adjusted EBITDA Adjusted EBITDA 2016 FY 147m Q m 2.4m adjustments, of which: Strong convergence of Adj. EBITDA and EBITDA - Q1-17 EBITDA of 35m against Adjusted EBITDA of 37m 37m adjustments, of which: - 29m integration related; 20.8m HC, 8.2m Non-HC - 8m other adjustments 35m - 2m integration related; 1.6m HC, 0.4m Non-HC other adjustments EBITDA now 94% of Adj. EBITDA vs. 75% in 2016 Lower one off / exceptional adjustments We expect integration costs to be significantly lower in 2017 as we reach the end of the Easynet integration EBITDA 110m 15

17 Consolidated Group Capex Capital expenditure by type (1) ( in millions) Q1-16 Q1-17 Maintenance capex Base capex Strategic growth capex Purchased Buildings Base and Strategic capex split Capex 'm Q1-16 Q1-17 Base Of which Network Services Of which Enterprise Services Total Base Strategic Growth Of which Network Services Of which Enterprise Services Total Strategic Growth Total capex is lower than Q1-16 by 22.9%. Maintenance and Strategic Capex are stable compared to Q1-16 Lower Base spend results from : - Network Services spend was reduced in the quarter due to investment in capacity during Enterprise Services spend in Q1-16 was high due to cost related to the renewal of two large Enterprise customers. Integration related capex in Q1-17 is 1.6m. 16 Notes: (1) Excludes 1.0m and 1.6m of integration capex in Q1-16 and Q1-17, respectively.

18 Working Capital Working Capital Movements (1) 'm (10) (20) (30) (40) (50) (41.6) (5.2) 26.2 (9.8) (41.9) (40.8) (10.4) 11.2 (14.1) (30.8) Q Q Q Q Q Current Assets Provisions Payables Deferred income Total net working capital movement Net working capital movement excluding large hardware resale deal and integration Working capital negatively impacted in Q1-17 by one-off items: - Movements associated with the large hardware resale deal (mainly for payment of costs in Q1, 8.4m) and integration ( 2.8m) - Short term widening of days outstanding of receivables and payables due to integration; and - Delayed invoicing of two large assets deals to later in the year (negatively impacting deferred income vs. our expectations for Q1-17). We are targeting a net WC capital movement of 25m for Notes: (1) Values as presented in graph exclude the large hardware resale deal and integration. (2) Current assets include inventory, receivables and prepayments/accrued income.

19 Mar-17 LTM Financial Information and Leverage Mar-17 LTM ( in millions) (Consolidated) Revenue 724 Adjusted EBITDA Synergy Adjusted EBITDA 163 Capex 2 80 Synergy Adjusted EBITDA less Capex 83 Mar-17 xltm Mar-17 EBITDA Cash and cash equivalents (24) (0.1x) Revolver ( 75m facility) Other indebtedness x Fixed Rate Notes x Term Loan B x Net Debt x 18 Notes: (1) Underlying anticipated synergies of 12.4m in LTM Mar-17. As at 31 March 2017, we have realised approximately 19.5m (in our LTM results) of the 31.9m expected synergies. (2) Capex excludes integration capex. (3) Other indebtedness as at Mar-17 includes 34.2m of vendor loans, 34.9m of finance leases and 13.1m of accrued interest.

20 19 Q&A