Q4-16 FINANCIALS UPDATE. 5 April 2017

Transcription

1 Q4-16 FINANCIALS UPDATE 5 April 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 AUDITED FINANCIAL STATEMENTS ARE NOW PRESENTED UNDER EU IFRS, RATHER THAN LUXEMBOURG GAAP AS IN PREVIOUS YEARS. THE CONSOLIDATED FINANCIAL DATA INCLUDED ON THE FOLLOWING PAGES FOR THE YEAR ENDED 31 DECEMBER 2016 AND 2015 HAVE BEEN DERIVED FROM THE AUDITED ACCOUNTS, 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 ). FOR THE YEAR ENDED 31 DECEMBER 2015, THE EASYNET FINANCIAL DATA HAS ALSO BEEN DERIVED FROM UNAUDITED MANAGEMENT ACCOUNTS. THIS PRESENTATION ALSO CONTAINS REFERENCES TO CERTAIN NON-IFRS FINANCIAL MEASURES, INCLUDING EBITDA, EBITDA MARGIN, ADJUSTED EBITDA, ADJUSTED EBITDA MARGIN AND PRO FORMA 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 LUXEMBOURG GAAP OR 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 LUXEMBOURG GAAP OR 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 LUXEMBOURG GAAP OR 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 Appendix 3

5 FY-16 Highlights The combined group s financials presented today are under EU IFRS (rather than Luxembourg GAAP as presented in previous periods). - The impact is less than 1m on Adjusted EBITDA for both 2015 and 2016 FY revenue increased to 727.5m - Organic (i.e. excluding Easynet) recurring revenue growth of 3.9% y-o-y. Enterprise recurring revenue increase of 6.7%. FY Adjusted EBITDA increased to 146.7m vs m in FY-15. Integration activity is on track - Expected run-rate synergies of 31.9m FY (anticipated) synergy Adjusted EBITDA 1 of 164.1m Leverage ratio 2 of 3.9x at year end 4 Notes: (1) Includes anticipated synergies of 17.4m in addition to the 14.5m of synergies already realised in our LTM results ( 31.9m anticipated synergies in total) (2) Leverage ratio = Net Debt / Synergy Adjusted EBITDA

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

7 Q4-16 Business Update Interoute Q4-16 new contracts and renewals: New contracts worth 91.3m Renewals of 40.6m Large deals in Network Services include Iliad Italia /Free; Within Enterprise Services we signed IATA and Goodbaby amongst others. Easynet Q4-16 new contracts and renewals: New contracts worth 11.2m Renewals of 19.1m Large deals include Barry Callebaut, Anglian Water and Babcock. Large deals Achievements Achievements In Q4-16, Interoute won four industry awards and one award from a key customer Anglia Water Supplier Awards - Best Customer Service World Communications Awards Best Cloud Infrastructure Capacity Global Carrier Awards - Best Cloud Innovation, Best Strategic Acquisition (Easynet) and Best Wholesale Sales Team. 6

8 Q4-16 Integration Update Update on progress of integration of Easynet Area Actions Comments Sales integration and customer focus Staff synergies Infrastructure synergies Systems synergies Integrated Sales teams addressing immediate customer concerns as part of introducing Interoute s best-in-class client service procedures across the business Rationalisation of overlapping functions and centralisation and consolidation of those functions where efficiencies can be generated. Absorption of Easynet facilities. Expected rent, lease and power savings Migrate core business to a common Interoute systems stack All remaining customer support transferred from Shepton Mallet to Sofia. This area of work is now complete. 64 personnel were removed in Q4-16 bringing annualised net staff synergies to approximately 18.7m since the acquisition. The program is largely complete. Approximately 50% achieved (annualised). Migration of financial systems now complete. Operational systems to be completed by Q1-18. OLO, Suppliers, office and other synergies OLO reductions Continued progress in renegotiating and combining OLO contracts. Annualised savings to date of approximately 5m. 7

9 Table of contents 1. Executive summary 2. Business overview 3. Financials - Combined results Q&A Appendix 8

10 Consolidated business gross profit and Adjusted EBITDA Overview Comments ( in millions) Year ended Dec '15 Year ended Dec '16 Growth 2015 includes 2.5 months of Easynet s results. Total revenue % Sales related costs (182) (279) 53.6% Gross margin % Gross margin % 66.0% 61.6% Network costs (94) (105) 11.2% Operating costs (154) (197) 28.1% Adjusted EBITDA % Adjusted EBITDA margin 19.7% 20.2% Integration costs (4) (29) 625.0% Revenues increased 35.9% from 535.2m to 727.5m. Organic increase of 2.8%. Consolidated GM % was diluted as a result of the Easynet acquisition. Excluding Easynet, Interoute GM was flat. Network and Operating cost increase due to Easynet full year consolidation. Adjusted EBITDA of 146.7m, up 39.1% y-o-y. Organic increase of 0.6%. Benefit of synergy realisation positively impacting Adjusted EBITDA margin. Adj EBITDA margin up from 9 months ended Sep-16 (19.3%) to FY-16 (20.2%). Lower EBITDA margin in 2016 mainly due to integration costs. One-off adjustments (7) (8) 12.4% EBITDA % EBITDA margin 17.6% 15.1% 9

11 Consolidated quarterly results Significantly higher revenue in Q4-16 due to a number of transactional deals including fibre related revenues and a large Infrastructure equipment resell transaction. These deals positively contributed to the Adjusted EBITDA for 2016 and Q4-16 in particular. Adjusted EBITDA of 23% in Q Note: Quarterly trend has been adjusted in Easynet for some cost re-codes between sales related costs to other cost categories including network costs and administrative costs. This has no impact on the YTD figures reported per last quarter s Bondholder report and presentation.

12 Revenue by product and by type Revenue by type ( in millions) Revenue increased 35.9% y-o-y (37.2% excluding IFRS adjustment on 2015). (1) % 40.3% Recurring revenue increased to 686.6m up 40.3% y-o-y. Excluding Easynet, recurring revenue grew to 451m, up 3.9%. 6.7% growth in Enterprise Services recurring revenue driven particularly by strong growth in VPN & Security, Computing and Voice Year ended Dec '15 Year ended Dec '16 Recurring Transactional Revenue by segment 0.3% decline in recurring revenue in Network Services due to lower recurring Infrastructure revenues, partially offset by growth in Transport. ( in millions) % Growth in Enterprise Services y-o-y of 4.1% 4.1% y-o-y growth in Enterprise Services, mainly due to strong performance in VPN & Security and Computing, demonstrating strong growth in Interoute s core focus area Year ended Dec '15 Year ended Dec '16 4.1% Network Services continues to maintain a stable outlook. Increase in 2016 due to one specific equipment resell deal. Enterprise Services Network Services Easynet 11 (1) 2015 revenue of 530m is presented under Luxembourg GAAP. Under IFRS, revenues for 2015 increased by 5.0m (relating to the reversal of hedged FX rates in 2015). The 2015 revenue figures shown here are based on the Group s pre-ifrs policies (as the splits resulting from the reversal of the hedged exchange rates are not available).

13 Group KPIs Average new net monthly recurring revenue (MRR) (1) ( in thousands) (65) (84) Q4-15 Q1-16 Q2-16 Q3-16 Q4-16 Signed contracted value (2) 187* *Excluding the large Network Services cease, the average net monthly recurring revenue for Q3-16, for the group is 187k. ( in millions) 75* Q4-16 higher than Q4-15 and flat against Q3-16. Decline in Q4-16 average monthly net MRR compared to Q3-16 due to slightly lower amount of new wins. Q3-16 s MRR decrease was driven by management s decision to a cease a large, low single digit margin deal in Network Services. Excluding the Q3 cease, the average MRR was 187k. Q1-16 was impacted by the Easynet integration and one-off large ceases in Interoute Signed contracted value remained stable throughout the year Q4-15 Q1-16 Q2-16 Q3-16 Q 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) Defined as increase in revenue under contract as at the end of each period from either net new contracts signed or old contracts renewed during the relevant period.

14 KPIs (continued) Interoute average new net MRR and churn ( in thousands) Easynet average new net MRR and churn ( in thousands) Stable net MRR and churn. Churn increased for Network Services due to one off ceases but improved for Enterprise Services. Negative average new net MRR broadly in line with expectations in FY-16 churn of 1.4%, a slight improvement vs. 9 months to September of 1.5%. Churn for Q4-16 was 1.2% (see slide 15). 13 Easynet continued to experience relatively high ceases from the SME and channel businesses and certain dissatisfied enterprise clients carried over from previous ownership.

15 Interoute key KPIs (excluding Easynet) Quarterly Delivered Average Net MRR ( 000) (8) * 15 75* (60) Higher Q4-16 average net MRR than Q4-15, despite trend of year end ceases. Decline in average delivered net MRR in Q4-16 for Enterprise services due to slightly lower wins and higher ceases. Cross-selling and upselling offset price reductions in Enterprise Services. 14 Q4-15 Q1-16 Q2-16 Q3-16 Q4-16 Churn rate (1) 1.2% 1.2% 1.2% Enterprise Services Network Services * Excluding one off low margin cease in Q3-16 the delivered average net MRR would be 259k 0.9% 0.6% 1.0% 0.7% 0.6% 0.3% 0.9% 0.7% Q4-15 Q1-16 Q2-16 Adjusted Q3-16* 1.2% 0.8% 0.8% Enterprise Services Network Services Total * Excluding one off low margin cease in Q % Q4-16 Churn in Q4-16 was considerably lower than Q4-15, due to Enterprise ceases improving substantially. Network services churn increased compared to previous Q3-16 due to higher ceases. Total churn remained stable in Q4-16.

16 Easynet key KPIs Delivered average new net MRR ( 000) As expected the net MRR continued in negative territory in Q4-16 due to ceases in the SME and channel businesses. (82) (109) (72) (92) Churn rate (188) Q4-15 Q1-16 Q2-16 Q3-16 Q % 1.8% 1.3% 1.3% 1.2% Churn continues to improve. Q4-15 Q1-16 Q2-16 Q3-16 Q

17 Consolidated group capex & working capital Capital expenditure by type (1) (2) Net working capital 16 ( in millions) Year ended Dec '15 Year ended Dec '16 Maintenance capex Strategic growth capex Easynet Base capex Purchased Buildings Overall capex is lower than 2015 on a like-for-like basis (i.e. excluding Easynet and integration related capex). Like-for-like maintenance capex is similar to last year. Base capex in line with Strategic growth capex lower includes higher customer related spend and network/capacity upgrades. 7m of capex in Easynet FY-16 compared to the 2.4m in 2.5 months ended Dec-15. Notes: (1) Excludes 2.6m and 6.5m of integration capex in FY-15 and FY-16, respectively. (2) 2015 Capex under Luxembourg GAAP was 84.1m (excl integration) and under IFRS is 81.1m. 1 ( in millions) Dec-15 Dec-16 Stock 1 2 Provisions (22) (25) Trade & other debtors Prepayments and accrued income Trade and other creditors (196) (175) Deferred revenue (217) (197) Net working capital (243) (202) Structurally negative working capital primarily as a result of deferred revenue from long-term contracts Consolidated net working capital for the group increased by 41.1m in 2016 as 2015 was artificially low (without which the movement would be closer to 15m) due to: Increased creditor position at Dec-15 due to proactive management action at the end of 2015 which has unwound through 2016 Increased trade debtors position Deferred revenue balance has decreased mainly due to exchange rate impact in Easynet

18 Pro-forma 2015 vs Consolidated 2016 Financial Information (1) Dec-15 LTM Dec-16 LTM ( in millions) (Pro-forma) (Consolidated) Growth Revenue % Adjusted EBITDA % 2 Synergy Adjusted EBITDA % 3 Capex % Synergy Adjusted EBITDA less Capex % Foreign currency fluctuations, and in particular the weakening of sterling against the Euro, had a significant impact on the Group s activities in We estimate that on a constant currency basis, assuming 2015 exchange rates had continued into 2016, the Group s reported revenues would have been higher at approximately 750m+ (compared with 727.5m). However, Adjusted EBITDA would not be materially different, because the Group has significant operating costs in sterling as well as revenues. 17 Notes: (1) Shown under IFRS. Changes to FY 2015 to convert from Luxembourg GAAP to IFRS are as follows: revenue increased by 5m, Adjusted EBITDA increased by 0.9m (2) Underlying anticipated synergies of 17.4m in LTM Dec-16. As at 31 December 2016, we have realised approximately 14.5m (in our LTM results) of the 31.9m expected synergies. (3) Capex excludes integration capex.

19 Leverage development Combined leverage ( in millions) Amount Opening leverage xltm Dec-15 (Pro-forma) EBITDA Change Amount Current xltm Dec-16 (Consolidated) EBITDA Synergy Adjusted EBITDA (1) Cash and cash equivalents (99) (0.6x) 50 (49) (0.3x) Revolver ( 75m facility) Other indebtedness (2) x (16) x Fixed Rate Notes x x Floating Rate Notes x (240) Term Loan B x Net debt x x 18 Notes: (1) Underlying synergies of 24.4m in LTM Dec-15 and 31.9m at LTM Dec-16. (2) Other indebtedness as at Dec-15 includes 37.1m of vendor loans and 40.7m of finance leases and 9.4m of accrued interest. As at Dec-16, this includes 29.5m of vendor loans, 35.8m of finance leases and 6.7m of accrued interest.

20 19 Q&A

21 Table of contents 1. Executive summary 2. Business overview 3. Financials Q&A Appendix 20

22 Appendix: Luxembourg GAAP to IFRS The only IFRS change that had any impact on the Group s Adjusted EBITDA concerns foreign exchange ( in millions) Luxembourg GAAP IFRS Luxembourg GAAP IFRS gains/losses (under Administrative Costs). Total revenue Sales related costs (180.0) (181.8) (279.2) (279.2) Gross margin This led to change in Adjusted EBITDA of 0.9m in 2015 and 0.4m in Gross margin % 66.1% 66.0% 61.6% 61.6% Network costs (92.9) (94.2) (104.8) (104.8) Operating costs (152.8) (153.8) (196.5) (196.9) Adjusted EBITDA Reported EBITDA reduced on conversion due to various adjustments including expensed Easynet transaction costs, fair value of derivative financial instruments, share based payments and reclassification of unrealised foreign exchange losses. Adjusted EBITDA margin 19.7% 19.7% 20.2% 20.2% Integration costs (4.0) (4.0) (29.3) (29.0) One-off adjustments 0.6 (7.1) 1.3 (8.0) EBITDA EBITDA margin 19.1% 17.6% 16.4% 15.1% 21