Q2-16 financials update. 10 August 2016

Transcription

1 Q2-16 financials update 10 August 2016

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 HISTORICAL CONSOLIDATED FINANCIAL DATA INCLUDED ON THE FOLLOWING PAGES FOR THE SIX MONTHS ENDED 30 JUNE 2016 AND 2015 FOR INTEROUTE HAVE BEEN DERIVED FROM THE UNAUDITED MANAGEMENT ACCOUNTS, INCLUDING THE NOTES RELATED THERETO. THE FINANCIALS HAVE BEEN DERIVED FROM THE INTERNAL ACCOUNTING FORMAT BASED ON LUXEMBOURG LEGAL AND REGULATORY REQUIREMENTS RELATING TO THE PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS ( LUXEMBOURG GAAP ). LUXEMBOURG GAAP DIFFERS IN SIGNIFICANT RESPECTS FROM INTERNATIONAL FINANCIAL REPORTING STANDARDS AS ADOPTED BY THE EUROPEAN UNION ( IFRS ). THE HISTORICAL CONSOLIDATED FINANCIAL DATA INCLUDED ON THE FOLLOWING PAGES FOR THE SIX MONTHS ENDED 30 JUNE 2016 AND 2015 FOR EASYNET HAVE ALSO BEEN DERIVED FROM UNAUDITED MANAGEMENT ACCOUNTS WHICH HAVE BEEN CONVERTED TO LUXEMBOURG GAAP (FOR PURPOSES OF PRO FORMA FINANCIAL DATA). THIS PRESENTATION ALSO CONTAINS REFERENCES TO CERTAIN NON-LUXEMBOURG GAAP AND 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, LUXEMBOURG GAAP OR 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 3

5 Executive summary Interoute s consolidated revenue increased to 361.4m in the six months ended 30 June Organic (i.e. excluding Easynet), revenue growth of 4.0% y-o-y. H2-16 Adjusted EBITDA increased to 68.9m against 42.2m in H2-15. Easynet performance in line with expectations. Integration activity and savings remain on track. LTM pro forma revenue and pro forma (anticipated) synergy adjusted EBITDA 2 of 747.0m and 167.5m, respectively. Leverage ratio 3 of 3.8x at 30 June Notes: (1) Includes 6 months of Easynet revenue in Easynet not included in six month period ended 30 June 2015 as acquisition took place in October (2) Includes anticipated synergies of 19.6m in addition to the 4.8m of synergies already realised in our LTM results ( 24.4m of synergies expected in total as previously disclosed). (3) Leverage ratio = Pro forma consolidated Net Debt / Pro forma full run rate synergy Adjusted EBITDA

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

7 Q2-16 Business Update Interoute For Interoute new contracts and renewals: New contracts worth 67.4m Renewals of 33.2m Large deals in Network Services include Telecom Italia and Claranet; Within Enterprise Services we signed Rheinmetall and Eriks N.V. amongst others. Easynet Q2 new contracts and renewals: New contracts worth 22.7m Renewals of 44.4m Large deals include SCR-Sibelco NV and Barry Callebaut. Achievements Interoute continued to gain recognition in Enterprise Digital transformation and adoption featuring as a Leader for the 3 rd year running in the coveted 2016 Gartner Magic Quadrant for Managed Hybrid Cloud Hosting see table opposite. One of our larger Enterprise customers is UEFA. We successfully hosted without incident their public and private facing IT infrastructure throughout the European Championships, hosting approximately 136m visits to the website, mitigating sustained DDOS attacks against their website. Large deals Analyst Recognition 6

8 Q2-16 Integration Update Update on progress of integration of Easynet Area Actions Comments Integration management and oversight Project programs and plans identified 22 integration projects closed in Q2 with 77 still active Sales integration and customer focus Staff synergies Infrastructure synergies Systems synergies OLO, Suppliers, office and other 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 OLO reductions. Improved position vs. suppliers due to size. Reduction of office related costs. Sales offices in Paris and London consolidated All Service Delivery workload transferred from Easynet s Shepton Mallet operations centre to Interoute s prime operations centre in Sofia, Bulgaria 70 Easynet positions removed in Q2 bringing realized annualized staff synergies to c. 13.3m. Easynet European backbone network now running on top of the Interoute network allowing cancellation of third party (OLO) bandwidth Milan DC building closed after move of customers and opening of a new office on the site of Interoute s colocation centre 1 st countries (Netherlands, Switzerland, Germany) migrated to Interoute s Oracle financial system High level planning completed for test migration of 1 st country to Interoute s CRM, Inventory and NMS platforms in Q3 First OLO contracts signed to benefit from improved pricing and discounts. Annualised savings of c. 0.5m realised to date including backbone network OLO 7

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

10 Consolidated business gross profit and Adjusted EBITDA Overview Comments ( in millions) 6 months Jun '15 6 months Jun '16 Growth Total revenue % YTD results presented on this slide include 6 months of results for Easynet in Sales related costs (70) (140) 100.4% Gross margin % Gross margin % 69.2% 61.4% Network costs (45) (50) 12.0% Operating costs (70) (102) 47.0% Integration costs - (14) EBITDA % EBITDA margin 18.8% 15.4% One-off adjustments (1) (0) 13 Revenues increased by 59.6%, from 226.4m in H1-15 to 361.4m in H1-16. GM at 61.4% reflecting the combination with Easynet. Adjusted EBITDA of 68.9m, up 63.4% y-o-y. Lower EBITDA margin in 2016 due to high amount of integration costs. Adjusted EBITDA margin higher in Adjusted EBITDA % Adjusted EBITDA margin 18.6% 19.1% 9 Notes: (1) One-off adjustments in 2016 include 13.6m for integration costs.

11 Combined KPIs Average new net monthly recurring revenue (MRR) (1) Comments 169 Data combines the results for Interoute and Easynet (Easynet included in 2015 as well). (65) (84) Q4-15 Q1-16 Q2-16 Improvement in Q2-16 delivered average monthly net MRR over Q4-15 and Q1-16 (mainly due to a number of new large deals delivered). Signed contracted value (2) Q1-16 was impacted by a number of large ceases in Easynet, while Q4-15 included large ceases for a few customers in Interoute. Signed contracted value shows improvement in Q2-16 over Q Q4-15 Q1-16 Q Notes: (1) Average monthly amount calculated as quarterly amount divided by 3. 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) 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.

12 Consolidated group capex & working capital Capital expenditure by type (1) ( in millions) Net working capital Comments months Jun '15 6 months Jun '16 Maintenance capex Base capex Strategic growth capex Purchased Buildings Easynet 1 ( in millions) Dec-15 Jun-16 Stock 1 0 Provisions (23) (23) Trade & other debtors Prepayments and accrued income Trade and other creditors (195) (171) Deferred revenue (216) (196) Net working capital (242) (188) Comments Maintenance capex lower as H1-15 included 1.9m non cash decommissioning asset adjustment. Base capex increased from 13.3m to 14.5m in Base capex for Network Services decreased. However, it increased for Enterprise Services due to one offs related to the renewal of specific Hosting and VPN customers, DDoS security costs and CPE. Strategic growth capex decreased by 2.4m mainly due to spend for laterals and the Juniper capacity spend in H1-15. Offset by higher investment in VDC platform in H also includes 1.1m of purchased buildings and a further 5.4m of capex in Easynet. Structurally negative working capital primarily as a result of deferred revenue from long-term contracts. Consolidated net working capital for the group increased by 54.1m (2). Partially due to natural working capital movement of the company and also due to proactive management action at the end of 2015, which is unwinding through H1-16. Lower deferred revenue balance due to exchange rate impact in Easynet and delay in some billing due to the Easynet migration. There is also one large quarterly recurring invoice billed in Dec-15 (for Q1-16 revenue) but invoiced in July-16 (for Q2-16 revenue). Remaining variance due to a customer that is billed twice a year (July and November). 11 Notes: (1) Excludes 0.8m and 2.3m of integration capex in H1-15 and H1-16, respectively. (2) Also 54.1m when excluding movements in stock and provisions.

13 Unaudited Pro Forma Condensed Combined Financial Information ( in millions) Jun-15 LTM Jun-16 LTM Growth Pro forma Revenue % Pro forma Adjusted EBITDA % Pro forma Synergy Adjusted EBITDA % Pro forma Synergy Adjusted EBITDA less 1 Capex % Pro forma combined financials include the contribution of Easynet for 12 months. Solid growth of the business on the Pro forma combined basis 12 Notes: (1) Capex is on LTM pro forma basis. For Jun-15 LTM in Easynet, the May-15 LTM capex figures have been used. From Q2-16 reporting, integration capex has been excluded for Interoute. Underlying anticipated synergies of 24.4m in LTM June-15 and 19.6m in LTM Jun-16. Anticipated synergies, as previously disclosed which are expected to be realised within 24 months after the Completion Date, with a substantial portion expected to be realised within 18 months. As at 30 June 2016, we have realised approximately 4.8m of the 24.4m previously disclosed expected synergies. 2.8m of this is realised in Q2-16

14 Leverage development Pro forma combined leverage ( in millions) Amount Opening leverage xltm June 15A EBITDA Change Amount Current xltm June 16A EBITDA Pro forma synergy adjusted EBITDA (1) Cash and cash equivalents (79) (0.5x) 55 (24) (0.1x) Revolver ( 75m facility) Other indebtedness (2) x (6) x Fixed Rate Notes x x Floating Rate Notes x x Net debt x x Pro forma combined leverage of 3.8x at 30 June Notes: (1) Underlying synergies of 24.4m in LTM June-15 and LTM June-16. (2) Other indebtedness as at June 15 includes 39.9m of vendor loans and 43.4m of finance leases. As at June 16, this includes 30.7m of vendor loans, 38.3m of finance leases and 8.7m of accrued interest.

15 Table of contents 1. Executive summary 2. Business overview 3. Financials - Combined Results - Interoute - Easynet Q&A 14

16 Interoute revenue by product and by type Revenue by type ( in millions) 4.0% months Jun '15 6 months Jun '16 13 (7.4)% 4.7% Comments Total revenue increased by 4.0% y-o-y. Strong increase in recurring revenue to 222.5m up 4.7% y-o-y. 6.4% growth in Enterprise Services recurring revenue driven particularly by strong growth in VPN & Security, Computing and Voice. 2.2% growth in recurring revenue in Network Services due to growth in Transport. Recurring Revenue by segment Transactional ( in millions) Growth in Enterprise Services y-o-y of 7.4%. 4.0% (1.0%) 7.4% 7.4% y-o-y growth in Enterprise Services, mainly due to strong performance in VPN & Security and Computing. 1.0% y-o-y decline in Network Services driven by reduction in Infrastructure due to lower one-off IRU revenues YTD and the renewal of a specific deal at a lower recurring revenue amount offset by increase in Transport. 6 months Jun '15 6 months Jun '16 Enterprise Services Network Services 15

17 Interoute key KPIs Average new net monthly recurring revenue (MRR) (1) ( in thousands) months Jun '15 6 months Jun '16 Enterprise Network (58.0)% (12.4)% Comments Improvement in Q2-16 average net MRR over Q1-16 (see next slide). H1-16 new delivered services are in line with the prior year, but ceased services are slightly higher for both Enterprise and Network Services. The most significant cease for Network Services relates to an off-net sale to Gibraltar in Q1-16, excluding which the average net MRR would be in line with the prior period. Churn 0.9% 1.0% 0.6% 0.6% 0.3% 0.4% Abs. change (0.1)% 0.0% (0.1)% Total churn for H1-16 is in line with H1-15. Slight increase in churn rate for Enterprise and Network Services due to one-off ceases for a small number of customers. 6 months Jun '15 6 months Jun '16 Enterprise Services Churn Network Services Churn Total Churn 16 Notes: (1) Average monthly amount calculated as quarterly amount divided by 3. 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.

18 Interoute key KPIs (continued) Quarterly Delivered Average Net MRR ( 000) (8) Q2-15 Q3-15 Q4-15 Q1-16 Q2-16 Enterprise Services Network Services Churn rate (1) 1.2% 1.2% 1.2% 1.0% 0.9% Q2-16 was the highest delivered on new MRR for the last five quarters. Ceases improved for both Network and Enterprise services. Positive erosion in Enterprise services as cross selling and upselling offset any price reduction. Negative erosion in Network services is due to one particular customer (cease & reprovide order with the reprovide delivered in Q1 and cease in May - net impact is zero). 0.8% 0.6% 0.6% 0.5% 0.5% 0.4% 0.6% 0.7% 0.6% 0.3% Total churn rate improved over Q4-15 and Q1-16 returning to more normalised levels. Q2-15 Q3-15 Q4-15 Q1-16 Q2-16 Enterprise Services Network Services Total 17

19 Interoute Gross Margin and Adjusted EBITDA Overview ( in millions) 6 months Jun '15 6 months Jun '16 Growth Comments Profitability impacted by support costs for Easynet (including audit and insurance fees). Total revenue % Gross margin decreased 1.6m or 1.0%, to 155.1m. Sales related costs (70) (80) 15.3% Gross margin (1.0%) Gross margin % 69.2% 65.9% Network costs (45) (46) 2.3% Enterprise Services increased by 2.6m, or 2.9%, to 91.5m, driven by increase in Computing and VPN & Security sales. Offset by lower margins in Communications due to lower Video hardware sales. Network Services decreased by 4.2m due to lower one-off on-net IRU revenue, a renewal of a specific deal with a lower recurring margin and also because there was a one off benefit from a cost accrual release in 2015 relating to prior periods. In addition, there is a run off of deferred revenue that was acquired from the Vtesse business. Operating costs (70) (70) 0.5% Integration costs (4) EBITDA (16.2%) EBITDA margin 18.8% 15.1% One-off adjustments (1) (0) 3 Decrease in GM% for both Network and Enterprise Services. Network Services lower (as above). Enterprise Services primarily lower due to lower margin on VPN as a result of increased customers with global requirements and one off Hosting licence resells. Network costs increased by 1.0m mainly due to a movement in the onerous lease and dilapidation provisions in H1-15 (reversed in Adjusted EBITDA). Operating costs increased by 0.4m. Adjusted EBITDA (7.7%) Adjusted EBITDA margin 18.6% 16.5% 0.7m relates to headcount needed for delivery of increased revenue and capturing future growth. 0.6m of non-headcount Opex in support of Easynet offset by a 1.0m lower bad debt charge in H1-16. Adjusted EBITDA of 38.9m, down y-o-y, as explained above. As previously stated planned one-off headcount expansion led to a lower % adjusted EBITDA margin against prior year. 18 Notes: (1) One-off adjustments in 2016 include 3.9m for integration costs.

20 Table of contents 1. Executive summary 2. Business overview 3. Financials - Combined Results - Interoute - Easynet Q&A 19

21 Easynet summary financials Average new net MRR and churn ( in thousands) 1.6% 0.8% (151) (149) 6 months Jun '15 6 months Jun '16 Easynet average new net MRR Easynet churn Comments Churn at 1.6% has improved from 1.8% in Q1-16. Negative average new net MRR broadly in line with expectations due to relatively high ceases from the SME and channel business and certain dissatisfied enterprise clients carried over from previous ownership (as previously discussed). Total revenue in EUR decreased by 8.1%. Revenues in GBP decreased by 4.0% driven by declining SME, channel business and Enterprise ceases. We anticipate that these trends will continue into H2-16, as Interoute procedures and processes, care, customer focus and stability take time to take effect. Revenue (using constant currency) ( in millions) Revenue ( in millions) months Jun '15 6 months Jun '16 6 months Jun '15 6 months Jun '16 Easynet performance in line with expectations 20 Notes: Easynet summary financials based on Lux GAAP.

22 Easynet summary financials profit and cash flows in EUR Adjusted EBITDA (1) ( in millions) Margin (%) 23.8% 19.9% Comments Improvement in Adjusted EBITDA margin from 19.9% to 23.8% driven by cost savings from integration of Easynet. Adjusted EBITDA in EUR increased by 9.9%. 14.7% Adjusted EBITDA growth on a constant currency basis. 6 months Jun '15 6 months Jun '16 Adjusted EBITDA Capex ( in millions) Cash conversion (2) (%) 81.9% 72.5% Improved Adjusted EBITDA - CAPEX conversion to 81.9% driven by higher Adjusted EBITDA and lower capex in H1-16. Adjusted EBITDA-CAPEX in EUR increased by 24.2%, driven by improved EBITDA and lower capex. On a constant currency basis, this improved by 29.7%. 6 months Jun '15 6 months Jun '16 Improvement in adjusted EBITDA and sustained high cash flow conversion 21 (1) EBITDA to Adjusted EBITDA adjustments in the six months to June 2016 include 2.7m of restructuring costs, 1.9m redundancy costs and 5.2m for adjustments related to dilapidation and onerous leases. Adjustments for the six months to June 2015 include 1.3m restructuring costs, 1.3m redundancy costs, 0.4m for dilapidation and onerous lease provisions and 3.9m related to a settlement of a dispute. (2) Defined as (Adj. EBITDA Capex) / Adj. EBITDA

23 22 Q&A