Q4 financials update. 28 April 2016

Transcription

1 Q4 financials update 28 April 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 TWELVE MONTHS ENDED 31 DECEMBER 2015 AND 2014 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 TWELVE MONTHS ENDED 31 DECEMBER 2015 AND 2014 FOR EASYNET HAVE ALSO BEEN DERIVED FROM UNAUDITED MANAGEMENT ACCOUNTS, INCLUDING THE NOTES RELATED THERETO. HOWEVER, THE FINANCIAL DATA OF EASYNET HAS BEEN DERIVED FROM THE EASYNET MANAGEMENT ACCOUNTS BASED ON IFRS. FOR PURPOSES OF PRO FORMA FINANCIAL DATA, THE FINANCIAL DATA OF EASYNET HAS BEEN CONVERTED TO LUXEMBOURG GAAP FOR ILLUSTRATIVE PURPOSES ONLY. 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 Solid performance across the business in a strategically important year for Interoute. Interoute s consolidated revenue increased to 530.1m in 2015 (1). Excluding the impact of the Easynet and Vtesse acquisitions, revenue growth is 6.6% y-o-y Adjusted EBITDA increased to 104.4m. Excluding impact of Easynet, adjusted EBITDA increased by 1.3%. Easynet performance is in line with our expectations. Assuming the acquisition of Easynet occurred on 1 January 2015, the full year pro forma revenue and pro forma (anticipated) synergy adjusted EBITDA (2) were 749.0m and 172.2m, respectively. Leverage ratio (3) of 3.4x at 31 December Notes: (1) Includes 2.5 months of Easynet revenue. (2) Includes anticipated synergies of 24.0m. As at 31 December 2015, we have realised approximately 0.4m of the 24.4 million previously disclosed expected synergies. (3) Leverage ratio = Pro forma consolidated Net Debt / Pro forma synergy adjusted EBITDA

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

7 Q4 Business Update (1 of 2) Interoute Q4 is the largest quarter for both the new contracts and renewals in Added new contracts worth 62.6m Renewals of 62.3m in the quarter Large deals in Network Services include Vodafone, Raiden and eunetworks; Within Enterprise Services we signed The Global Fund, Intertrust Group and Action Service & Distributie amongst others. Easynet Added new contracts worth 22.0m. Renewals of 41.3m. Large deals include Transport for London, Anglian Water and Vinci plc. Q4 churn was 1.4%. We anticipate that this trend will be replicated in H1-16. Achievements Following the acquisition, Gartner rated Interoute s enterprise network capability ahead of two of it s most significant competitors, Colt & ATT. Bill and Melinda Gates charity The Global Fund adopted Interoute s cloud VDC solution for their core infrastructure platform. Interoute signed Intertrust as part of a -multimillion digital transformation of it s IT infrastructure and applications using Interoute s digital enterprise platform comprising of VDC, VPN and ICC. Cloud VDC platform expansion continued with announcement of new markets being added in H1-16: Asian demand-led expansion in Singapore, expansion into the Nordics through a base in Stockholm and the creation of a hub in Istanbul. Large deals Gartner rating 6

8 Q4 Business Update (2 of 2) Update on progress of integration of Easynet Area Actions Comments Management Integration oversight Single Executive Management structure adopted at acquisition to manage the combined business Integration committees, with clear governance roles, established to manage the integration process Clients / retention New Executive team has met with over 100 customers in person to assess customer satisfaction Staff synergies Infrastructure synergies 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 Clear reporting lines throughout the business Clear list of responsibilities, timelines, and objectives for the integration and realising anticipated synergy benefits Positive customer reaction towards the new team and the evidential demonstration (assets and awards) in network, cloud and long term customer commitment Some client dissatisfaction with the old Easynet resulting in unavoidable client losses Consultations complete In-line with plan In-line with plan Suppliers, office and other synergies Improved position vs. suppliers Reduction of office related costs Opex In-line with plan By the end of 2015, 37 positions have been eliminated at an annualised cash saving of c. 4-5m. This began impacting our P&L in Q4-15. Interoute management is focussed on client management and retention, to bring Easynet into line with Interoute s best-inclass client service procedures and record. 7

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

10 Consolidated business gross profit and adjusted EBITDA Overview Comments ( in millions) Year ended Dec '14 Year ended Dec '15 Growth Total revenue % On 15 October 2015, Interoute completed the acquisition of Easynet. Sales related costs (130) (180) 38.2% Gross margin % The results presented on this slide are based on our audited accounts. Easynet s contribution to our results is for the 2.5 months period following acquisition in Gross margin % 69.4% 66.1% Network costs (82) (90) 10.5% Operating costs (123) (154) 25.3% Integration costs - (4) EBITDA % EBITDA margin 21.2% 19.2% One-off adjustments (1) 3 2 Adjusted EBITDA % Revenues increased by 24.8%, from 425m in 2014 to 530m in Organic revenues (i.e. excluding the impact of Vtesse and Easynet) increased by 6.6% from 418m in 2014 to 446m in Adjusted EBITDA of 104m, up 12.8% y-o-y. Organic Adjusted EBITDA growth of 1.3% y-o-y. Adjusted EBITDA margin 21.8% 19.7% 9 Notes: (1) One-off adjustments in 2015 include 4m for integration costs, 0.5m for restructuring costs, 0.8m for one off fiber breaks, 0.3m for Easynet related waiver and indemnity insurance costs and 0.2m costs for a one off project. This is offset by 0.3m for the valuation of dark fiber stock and 3.2m for dilapidation and onerous lease provision releases.

11 Consolidated group capex & working capital Capital expenditure by type (1) ( in millions) Net working capital Comments months Dec '14 12 months Dec '15 Maintenance capex Strategic growth capex Easynet Maintenance capex increased primarily due to one off projects in this category includes 3.1m for a non-cash accounting adjustment relating to a decommissioning asset. Base capex increased due to investment in the 500 Gb transport platform to enable the sale of 100 Gb channels Strategic growth capex decreased by 6.7m due to one off spend in 2014 relating to the expansion of fibre routes 2015 includes 2.6m of integration capex (mainly for Vtesse) and a further 2.4m of capex in Easynet (for 2.5 months ended 31 December 2015) Base capex Vtesse integration capex Non-cash decommissioning asset adjustment 2 3 ( in millions) Dec '14 Dec '15 Trade & other debtors Prepayments and accrued income Trade and other creditors (123) (195) Deferred revenue (153) (216) Net working capital (139) (220) Comments Structurally negative working capital primarily as a result of deferred revenue from long-term contracts working capital includes Easynet which has added to the trade and other debtors ( 41.9m), prepayments and accrued income ( 19.4m), trade and other creditors ( 52.5m) and deferred revenue ( 61.5m). Movement in consolidated net working capital for the group adjusted for the Easynet acquisition declined by 27.6m (2). In part due to proactive management action, which is expected to unwind through Q Notes: (1) Excluding capitalised building leases of 0.7m in the twelve months ended December 14. (2) 26m including movements in stock and provisions.

12 Unaudited Pro Forma Condensed Combined Financial Information ( in millions) Jun-15 LTM Dec-15 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 11 Notes: (1) Capex is on pro forma basis (i.e. on 12 months LTM basis). For Jun-15 LTM in Easynet, the May-15 LTM capex figures have been used. Underlying anticipated synergies of 24.4m in LTM June and 24.0m in LTM December. 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 31 December 2015, we have realised approximately 0.4m of the 24.4 million previously disclosed expected synergies (all related to staff costs). Such Anticipated synergies are expected to be comprised of (i) 16.4 million related to the removal of duplicative functions, consolidation of our government services team with Easynet s government services team and centralisation of hosting and data centre engineers 11 as well as the centralisation of back office and support functions; (ii) 1.1 million related to the shift of certain Easynet supplier leases to our network and combining ours and Easynet s overlapping network providers to leverage higher discounts from suppliers; (iii) 4.4 million related to expected rent, lease and power cost savings from the absorption of Easynet data centres into our current locations that are capable of assuming their utilisation; (iv) 1.1 million related to rent savings from the consolidation of Easynet s office properties into our office locations; and (v) 1.0 million related to savings from shifting activities in-house and the elimination of duplicative marketing events, sponsorships and other costs.

13 Leverage development Pro forma combined leverage ( in millions) Amount Opening leverage xltm June 15A EBITDA Change Amount Current xltm Dec. 15A EBITDA Pro forma synergy adjusted EBITDA (1) Cash and cash equivalents (79) (0.5x) (20) (99) (0.6x) Revolver ( 75m facility) Other indebtedness (2) x x Fixed Rate Notes x x Floating Rate Notes x x Net debt x (16) x Pro forma leverage of the combined entity of 3.4x at 31 December Notes: (1) Underlying synergies of 24.4m in LTM June-15 and LTM December-15. (2) Other indebtedness per June 15A includes 39.9m of Interoute equipment vendor loans, 36.5m of Interoute finance leases and 6.9m of Easynet finance leases that are rolled-over.

14 Table of contents 1. Executive summary 2. Business overview 3. Financials - Combined Results - Interoute - Easynet Q&A 13

15 Interoute key KPIs Average new net monthly recurring revenue (MRR) (1) ( in thousands) months Dec '14 12 months Dec ' %. (12.6)% Comments Overall strong positive growth in average net MRR from 2014 to Enterprise Services decrease primarily due to a one-off cease from Nokia. Excluding this loss, the Enterprise Services average net MRR would be 168k. Positive development in Network Services driven by growth in Transport sales. Churn Enterprise Network Abs. change Total churn was stable relative to Decline in Network Services churn resulting from higher customer retention rates. 1.1% 0.9% 0.7% 0.7% 0.6% 0.4% 12 months Dec '14 12 months Dec '15 (0.2)% 0.0% 0.2% Increase in churn rate for Enterprise Services due to one-off ceases for few customers. Enterprise Services Churn Network Services Churn Total Churn Strong development of key KPIs with higher net MRR and stable churn rates 14 Notes: (1) Average monthly amount calculated as annual amount divided by 12. 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.

16 Interoute revenue by product and by type Revenue by type ( in millions) 11.4% months Dec '14 12 months Dec '15 Recurring Transactional Revenue by segment (5.6)% 13.3% Comments In 2015 Revenue increased by 11.4% y-o-y. Organic revenue growth of 6.6% y-o-y. Strong increase in recurring revenue to 434.0m up 13.3% y- o-y. 9.6% growth in Enterprise Services recurring revenue driven particularly by strong growth in VPN & Security 19.0% growth in recurring revenue in Network Services due to revenue acquired with Vtesse. Organic increase of 5.8% ( in millions) Growth across both segments in % % 8.8% Enterprise Services increased by 8.8%, mainly due to strong performance in VPN & Security and Computing. 15.3% y-o-y growth in Network Services (includes the acquisition of Vtesse in September 14). Organic growth of 3.2% in this category. 12 months Dec '14 12 months Dec '15 Enterprise Services Network Services Strong revenue growth driven by Enterprise Services and Vtesse acquisition included in Network Services 15

17 Interoute gross margin and adjusted EBITDA Overview ( in millions) Year ended Dec '14 Year ended Dec '15 Growth Total revenue % Sales related costs (130) (151) 16.1% Gross margin % Gross margin % 69.4% 68.1% Network costs (82) (89) 8.5% Operating costs (123) (139) 13.1% EBITDA % EBITDA margin 21.2% 20.0% One-off adjustments (1) 3 (1) Adjusted EBITDA % Adjusted EBITDA margin 21.8% 19.8% Comments Gross margin increased by 27.6m, or 9.4%, to 322.5m in Enterprise Services increased by 11.5m, or 6.8%, to 179.5m, due to an increase in margin in all Enterprise product groups. Network Services 16.1m primarily due to Vtesse. Excluding Vtesse, Network Services added 0.3m to gross margin. Decrease in GM% for both Network and Enterprise Services. Network Services decrease is due to lower margin IRU sales Enterprise services is primarily lower due to lower margin on VPN as a result of increased customers with global requirements Network costs increased by 6.9m (of which 7.7m is due to Vtesse offset by a decrease in the dilapidation provisions). Operating costs increased by 16.1m. 10.3m is related to staff costs ( 3.2m attributable to Vtesse). Remaining increase is primarily due to additional headcount for delivery of increased revenue and to capture future growth. Adjusted EBITDA of 93.7m, up 1.3% y-o-y. Year end EBITDA higher than expected as some IRUs that were expected to be delivered in Q1-16 were actually delivered at the end of As stated in Q3, planned one-off headcount expansion led to a lower % adjusted EBITDA margin vs Increase in EBITDA driven by top-line growth 16 Notes: (1) One-off adjustments in the twelve months ended December 15 include 3.2m for dilapidation and onerous lease provision releases and 0.3m for the valuation of dark fiber stock offset by 0.5m for integration costs, 0.5m restructuring costs and 1.5m of other adjustments (including one-off fibre breaks and leased CPE costs).

18 Table of contents 1. Executive summary 2. Business overview 3. Financials - Combined Results - Interoute - Easynet Q&A 17

19 Easynet summary financials revenue in EUR Average new net MRR and churn ( in thousands) 1.1% Comments No historical information available for KPIs, as MDNX s acquisition of Easynet only took place in January 2014 Revenue ( in millions) n.a. (118) 12 months Dec '14 12 months Dec '15 Easynet average new net MRR Easynet churn 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 who had taken the decision to leave Easynet prior to the acquisition. Total revenue in EUR increased by 3% supported by stronger GBP vs EUR Revenues in GBP decreased by 7.4% driven by declining SME and channel business and Enterprise ceases We anticipate that these trends will continue into H1-16, as Interoute procedures and processes, care, customer focus and stability take time to take effect. 12 months Dec '14 12 months Dec '15 Easynet performance in line with expectations 18 Notes: Easynet summary financials based on Lux GAAP and converted from to based on average of 1 = 1.38 for 2015 and average 1 = 1.24 for Easynet churn rate now calculated by dividing the average monthly negative change to the average monthly billed recurring revenue (including net losses or increases to total recurring revenue resulting from the renewal of contracts and the sale of additional services or capacity to the same customer location) by the average monthly billed recurring revenue during the previous period (based on delivered data) to be consistent with Interoute. For the 9 months ended 30 September 2015 the average new net MRR is - 129k and churn is 0.9%.

20 Easynet summary financials profit and cash flows in EUR Adjusted EBITDA (1) ( in millions) Margin (%) 19.8% 16.7% Comments Improvement in adjusted EBITDA margin from 16.7% to 19.8% driven by cost savings from integration of Easynet and MDNX. Adjusted EBITDA in EUR increased by 22.1%, supported by a stronger GBP. 9.8% Adjusted EBITDA growth on a constant currency basis. 12 months Dec '14 12 months Dec '15 Adjusted EBITDA Capex ( in millions) Cash conversion (2) (%) 77.1% Improved adjusted EBITDA - CAPEX conversion to 77.1% % 42 Adjusted EBITDA-CAPEX in EUR increased by 49.0%, driven by improved EBITDA and lower capex. On a constant currency basis, this improved by 34.0%. 12 months Dec '14 12 months Dec '15 Improvement in adjusted EBITDA and sustained high cash flow conversion 19 (1) EBITDA to Adjusted EBITDA adjustments in the twelve months to December 2015 include 5.3m of restructuring costs, 3.5m redundancy costs, 3.9m for a settlement of a dispute and 0.4m for acquisition costs. Adjustments for the twelve months to December 2014 include 5.1m restructuring costs and 4.2m redundancy costs. (2) Defined as (Adj. EBITDA Capex) / Adj. EBITDA.

21 20 Q&A