Q2-17 FINANCIALS UPDATE. 10 August 2017

Transcription

1 Q2-17 FINANCIALS UPDATE 10 August 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 SIX MONTHS ENDED 30 JUNE 2016 AND 30 JUNE 2017 HAVE BEEN DERIVED FROM THE UNAUDITED MANAGEMENT ACCOUNTS AND UNAUDITED CONDENSED 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 ( EU 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 Q2-17 Highlights Jun-17 LTM Adjusted EBITDA increased to 157.6m from 150.8m per Mar-17 LTM. - H1-17 Adjusted EBITDA up 16.0% y-o-y - H1-17 EBITDA up 45.0% y-o-y - H1-17 integration costs 9.9m (or 73%) lower than H H1-17 Adj. EBITDA margin increased to 22.5% from 19.0% in H1-16 Continued y-o-y growth in Interoute - Revenue growth of 5.8% - Enterprise recurring revenue growth of 8.1% Easynet integration activity is on track - Run-rate synergies of 31.2m ( 24.1m realised in our LTM results) vs. final anticipated synergies of 31.9m (98% of target met) LTM synergy Adjusted EBITDA of 165.4m 1 4 (1) Includes anticipated synergies of 7.8m in addition to the 24.1m 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 Q2-17 Business Update New contracts and renewals Q2-17 new contracts and renewals: New contracts worth 78.8m Renewals of 43.7m Large deals in Network Services include; Sprint, Core BackBone and Facebook Large deals in Enterprise Services include; Solar, Haribo and Erteco a division of DB Schenker Large deals 6 Achievements Interoute recognised as a Leader, in the Gartner Magic Quadrant for Managed Hybrid Cloud Hosting, Europe, published June Interoute continues its leadership position for Enterprises bringing together their legacy IT infrastructure and combining it with more agile cloud based infrastructure. Interoute is one of only 14 companies worldwide recognised by Gartner as having a Global IaaS Cloud offering in Magic Quadrant for Cloud Infrastructure as a Service, Worldwide, published June Interoute is the only European provider recognised as having a Global Cloud offering. New customer validations published for Worldhotels, Gard and ifusion Analytics. Interoute launches new SDN carrier services at International Telecoms Week in Chicago, May. Achievements Enterprises will find Interoute appealing, particularly as Interoute has integrated network capabilities into its Virtual Data Centre (VDC) hosting platform and promotes free data-transfers between regions.

8 Q2-17 Integration Update Realised cost synergies in LTM period ( in millions) 20.9 ( 2.6m) Sep-16 LTM Dec-16 LTM Mar-17 LTM Jun-17 LTM Final anticipated Headcount Non-Headcount Run-rate cost synergies 7 Successful execution of our synergy programme 31.2m run-rate cost synergies as end of Jun m realised in Jun-17 LTM Of the 7.3m of Non-Headcount realised synergies, 4.1m relates to OLO/local tails. 1 Approximately 39m of integration costs incurred from start of project. (1) Includes 36.7m of integration costs per the P&L from 2015, 2016 and H1-17. Also includes 10.1m integration capex, less 6.1m related to non-cash onerous lease/dilapidation provisions and 2.0m received for sale of a data centre.

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

10 Consolidated business gross profit and Adjusted EBITDA Overview ( in millions) Q2-16 Q2-17 Growth H1-16 H1-17 Growth Total revenue (1.9%) (2.0%) Sales related costs (67) (63) (6.9%) (136) (129) (4.9%) Gross margin % (0.3%) Gross margin % 62.7% 64.6% 62.4% 63.5% Network costs (26) (25) (3.7%) (53) (52) (2.3%) Operating costs (52) (47) (9.3%) (104) (93) (10.0%) Adjusted EBITDA % % Adjusted EBITDA margin 19.8% 24.1% 19.0% 22.5% Integration costs (10) (2) (82.1%) (14) (4) (72.8%) One-off adjustments (1) (3) 163.3% (5) (4) (28.6%) EBITDA % % EBITDA margin 13.7% 21.2% 13.8% 20.4% Comments H1-17 revenues increased by 0.7% on a constant currency basis. Improvement in H1-17 Gross Margin % by 1.1% points. - Margin benefits from a one-off OLO rebate. Excluding this both H1-17 and Q2-17 GM% would be 62.4%. Operating costs significantly lower than H m lower staff costs (as synergy benefit is realised); and - 3.2m lower non-headcount operating costs (resulting from lower establishment and IT costs and foreign exchange movements). Adjusted EBITDA of 80m, up 16.0% y-o-y. EBITDA of 72m, up 45.0% y-o-y with lower one off adjustments. - Adjusted EBITDA and EBITDA converging due to significantly lower integration costs. Adj EBITDA margin increased to 22.5% and EBITDA margin increased to 20.4% % and 19.3% respectively excluding OLO benefit 9

11 Revenue (1 of 2) Revenue by segment ( in millions) H1-16 H % 4.9% (16.6)% Total Easynet Revenue Q4-16 to Q2-17 ( in millions) Q4-16 Q1-17 Q2-17 Easynet Enterprise Services Network Services Total group revenue up on constant currency basis by 0.7%. Growth in revenues for both Enterprise and Network Services. Easynet declined 10.8% vs. H1-16 on a constant currency basis. Encouraging Easynet revenue performance on recurring basis. Recurring revenues relatively stable at 53.3m for Q2-17 vs 53.7m for Q

12 Revenue (2 of 2) Revenue by type Recurring revenue by segment ( in millions) ( in millions) % 4.0% (4.5)% (16.6)% % H1-16 H1-17 H1-16 H1-17 Easynet IRT Recurring IRT Transactional Interoute recurring revenue grew to 231m, up 4.0%. - Driven mainly by Enterprise recurring growth of 8.1%. - Lower Network Services recurring revenues impacted by one particular cease. Increase in total Network Services revenue driven by transactional revenues. 11

13 Gross Margin Gross Margin % by Quarter 80% Consistent Gross Margin % by quarter 70% 60% 50% 62% 63% 63% 59% 62% 65% Q was impacted by a large, low margin hardware resale transaction. Q includes a one off OLO rebate, excluding which the Q margin would be 62%. 40% 30% 20% 10% 0% Q Q Q Q Q Q GM% 12

14 Group KPIs Average new net monthly recurring revenue (MRR) (1) ( in thousands) (84) * Q1-16 Q2-16 Adjusted Q3-16* * 143 Q4-16 Q1-17 Adjusted Q2-17* *Excluding a large low margin Network Services cease in Q3-16 and Q2-17, the average net monthly recurring revenue for the group is 187k and 194k. Churn rate (2) 1.8% 1.1% 0.7% 0.6% 1.2% 1.3% 0.9% 0.3% 1.5% 1.3% 1.2% 1.2% 1.1% 1.2% 1.0% 0.8% 0.8% 0.7% 1.1% 0.9% 0.5% Q1-16 Q2-16 Q3-16 Q4-16 Q1-17 Q2-17 Combined IRT Enterprise IRT Network Easynet 1.5% 1.4% 1.0% 0.9% 0.5% IRT Network Services adjusted for removal of large low margin cease. Minimal impact on combined churn; excluding this cease Q3-16 churn is 1.0% and Q2-17 is 0.9% Increase in Q2-17 average monthly net MRR compared to Q1-17 due to higher new wins and higher renewals for the combined business. - Lower cease volume in Easynet compared to prior year. Increase in churn in Q2-17 for Network Services and Easynet due to a few particular large ceases. Combined churn stable. 13 Notes: (1) Average monthly amount calculated as net amount to date divided by 6. Calculated using incremental additional revenue from new sales delivered during a month and that will recur on a monthly basis, excluding any usagebased revenue and net of any churn. (2) Internet Access and Internet Transit products are now grouped under Enterprise services (previously in Network Services).

15 EBITDA converging with Adjusted EBITDA Adjusted EBITDA 2016 FY 147m 37m adjustments, of which: - 29m integration related; 20.8m HC, 8.2m Non-HC - 8m other adjustments H m 72m 7.5m adjustments, of which: - 3.7m integration related; 2.6m HC, 1.1m Non-HC other adjustments Strong convergence of Adj. EBITDA and EBITDA - H1-17 EBITDA of 72m against Adjusted EBITDA of 80m EBITDA now 91% of Adj. EBITDA vs. 75% in FY At Q1-17 EBITDA was 94% of Adj EBITDA as it included a credit relating to the valuation of dark fibre stock some of which has reversed in Q2 as the related fibre has been delivered. 3.8m of other adjustments in H1-17 include: - 1.8m derivatives fair value change and share based payments - 1m restructuring costs - 0.4m for valuation of dark fibre stock - 0.6m other one offs EBITDA 110m Significantly lower integration costs We expect integration costs to continue to decline during 2017 as we reach the end of the Easynet integration 14

16 Consolidated Group Capex Capital expenditure by type (1) Base and Strategic capex split ( in millions) H1-16 H1-17 Capex 'm H1-16 H1-17 Base Of which Network Services Of which Enterprise Services Total Base Strategic Growth Of which Network Services Of which Enterprise Services Total Strategic Growth Maintenance capex Strategic growth capex Base capex Purchased Buildings Total capex is lower than H1-16 by 16.5%. Maintenance and Strategic Capex are both slightly lower compared to H1-16 Lower Base spend results from : - Network Services spend reduced in H1-17 due to investment in capacity during Enterprise Services spend in H1-16 was relatively high due to cost related to the renewal of a large Enterprise customer. Integration related capex in H1-17 is 3.6m. 15 Notes: (1) Excludes 2.7m and 3.6m of integration capex in H1-16 and H1-17, respectively.

17 Working Capital Working Capital Movements (1) 'm (41.6) (5.2) 26.2 (9.8) (41.9) (40.8) (10.4) 11.1 (14.3) (32.3) Total net working capital movement Net working capital movement excluding large hardware resale deal and integration 10 - (10) (20) (30) (40) (50) Q Q Q Q Q Q Current Assets Provisions Payables Deferred income Overall negative movement in working capital since Dec-16 mainly impacted by a decrease in trade payables (including payment for a large hardware resell deal) and a reduction in payable days. Positive working capital movement in Q2-17 mainly due to movement in prepayments, receivables and inventory. 16 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.

18 Jun-17 LTM Financial Information and Leverage Jun-17 LTM ( in millions) (Consolidated) Revenue 720 Adjusted EBITDA Synergy Adjusted EBITDA 165 Capex 2 78 Synergy Adjusted EBITDA less Capex 87 Jun-17 xltm Jun-17 EBITDA Cash and cash equivalents (31) (0.2x) Revolver ( 75m facility) Other indebtedness x Fixed Rate Notes x Term Loan B x Net Debt x 17 Notes: (1) Underlying anticipated synergies of 7.8m at Jun-17. As at 30 June 2017, we have realised approximately 24.1m (in our LTM results) of the 31.9m expected synergies. (2) Capex excludes integration capex. (3) Other indebtedness as at Jun-17 includes 35.0m of vendor loans, 33.9m of finance leases and 9.2m of accrued interest.

19 18 Q&A