|By Business Wire||
|August 12, 2013 09:21 AM EDT||
euNetworks Group Limited (SGX: 5VT.SI), a unique Western European provider of bandwidth infrastructure services, announced results for the three months ended 30 June 2013 and for the first half of 2013. The Group reported steady improvement, with strong performance in gross margin, Adjusted EBITDA1 and proxy cash flow.
Recurring revenue increased 6% year over year, to €24.5m in 2Q 2013 and by 7% from 1H 2012 to 1H 2013. Adjusted EBITDA was €6.0m in 2Q 2013, improving 140% from 2Q 2012 and 5% from 1Q 2013. For 1H 2013, Adjusted EBITDA was €11.7m, increasing from €4.6m in 1H 2012.
Gross margin for the quarter was 72.0%, increasing from 67.1% in 2Q 2012. Year on year improvement reflected the Group’s continued focus on high margin new sales. Gross margin on new sales were between 78% and 82% in recent months, reaching 80% for the 1H 2013.
Discretionary capital investment was higher in 2Q 2013 than 1Q 2013, but still lower than investment levels in 2012. euNetworks plans to increase capital investment over the balance of the year, utilising the debt raised on 8 May 2013. This will further enable connections to data centres and strategic network developments, delivering more bandwidth infrastructure services to growing in-place and new customers in the future.
“Our proxy cash flow position significantly improved through the last year, reflecting the benefits of the continued scaling and progress toward our goal of having a lean production system,” said Brady Rafuse, Chief Executive Officer of euNetworks. “With capital investment set to increase through the remainder of the year, this will have an effect on our proxy cash flow, but this investment is being undertaken to grow the business organically.”
“As well as driving the business forward commercially and operationally towards scale, it has also been a busy quarter for corporate activity. The 2013 Convertible Bond matured on 1 April 2013, with 98.4% of the Convertible Bonds converted to shares on 3 April. A consolidation of 50 existing shares into one ordinary share was approved by shareholders on 24 April and completed on 31 May, signifying a first step in simplifying the Company’s capital structure. Finally, we secured a debt funding commitment on 8 May, with those funds now being invested to stimulate organic growth, as I have mentioned above, and supporting our effort to grow inorganically should opportunities surface.”
Performance Highlights for the Second Quarter and First Half 2013
Sales performance improved through the quarter compared to 1Q 2013, with an increase in total new customer contract value secured. Performance was in line with that of 2Q 2012. Colocation sales were higher in 2Q 2013, as they were in 2Q 2012, which accounted for the uplift in average contract term for new customer contracts of 52 months in 2Q 2013. This was up from 22 months in 1Q 2013 and 45 months in 2Q 2012.
As with 1Q 2013 and in line with the sales strategy through 2013, euNetworks continued to gain new sales from its existing customer base, with these accounting for 91% of signed orders, up from 87% in 1Q 2013. As with previous quarters, more than 94% of sales were within the Company’s core product portfolio of Fibre, Wavelengths, Ethernet, Colocation and Internet, with sales of non-core products remaining at 6%.
euTrade and Wavelengths products were key performers in the euNetworks portfolio this quarter. Demand for high volume Long Haul Wavelengths remained strong, particularly from online content providers and Internet Service Providers (ISPs). The investment in euNetworks’ transport platform in 2012 continues to deliver growth for the business. This also fits with the market trend in capacity demand, from 10 Gigabit to 100 Gigabit and now Terabit, primarily within intercity backbones. The Metro Wavelengths product also continued to perform well through 2Q 2013.
euNetworks’ euTrade service portfolio continued to deliver strong growth throughout 1H 2013, despite technical pressures from microwave technologies. Whilst some disconnections did occur, demand for euNetworks’ fibre based solution remained and exceeded expectations in 2Q 2013. The Company continues to monitor this market, investing in line with customer demand.
While euNetworks is focused on driving new sales from its existing customer base, expanding the number of products and services sold to customers, the Company’s marketing effort has focused on refining solution propositions by segment and their evolving bandwidth needs. This provides sales with the necessary tools to work with customers more effectively and is now reflected in the company website.
euNetworks continues to focus on delivering bandwidth infrastructure to enterprises on or near its fibre footprint, with its new location finder tool enabling customers to quickly see how close they are to the network in each operating city. euNetworks will continue to develop tools that assist customers in gaining bandwidth services quickly and efficiently.
Churn was 2.8% in 2Q 2013 which was higher due to a known Colocation disconnection. Excluding this anticipated disconnection, churn was 1.8% in the quarter, increasing from 1.2% in 2Q 2012 and 1Q 2013. The primary sources of churn for euNetworks remain the same – the end of term customer contracts for non-core SDH and IP VPN services in Germany, as well as expired euTrade customer contracts which generally related to strategy changes by some Financial Services customers. Higher churn is anticipated in 3Q 2013 as well, which will impact revenue growth. euNetworks is focused on improving this metric, with a customer account strategy implemented to do so.
Network investment included the addition of 40 new buildings to the Company’s network in 2013, exiting the quarter with 985 on-net buildings and an additional 50 buildings in the process of being connected. On 30 July, euNetworks connected its 1000th building to the network, a significant milestone for the Company.
With debt funding secured, euNetworks is focused on developing its network infrastructure to drive growth in the coming quarters, benefitting customers in the future. The Company will provide further detail on these network development projects as they develop.
Capital expenditure was €4.9m in the quarter, down from €8.2m in 2Q 2012, and up from €3.6m in 1Q 2013. As with 1Q 2013, 72% of capital expenditure in 2Q 2013 was allocated to success based (customer sales) investment. This compares to 64% in 2Q 2012. On average, incremental committed sales enjoyed 5.8 month payback periods in 2Q 2013. For the 1H 2013, capital expenditure was 48% lower than in 1H 2012. euNetworks plans to increase capital expenditure in line with network development projects referenced above.
Proxy cash flow reflected the benefits of the continued scaling of the business, improving to €1.1m in 2Q 2013 from €(5.7)m in 2Q 2012. For the 1H 2013, proxy cash flow was €3.2m, improving from €(11.7)m in 1H 2012.
2013 Convertible Bond: The Convertible Bonds matured on 1 April 2013. In advance of the maturity date, the Company received valid Put Option Notices in respect of S$1,373,298 in aggregate principal amount of Bonds. Payments of principal and premium were made on 1 April 2013 to bondholders who had validly exercised their Bondholders Put Option.
Approximately 16,694,514 Mandatory Conversion Shares (or 333,890 Mandatory Conversion Shares on a post-Share Consolidation basis) were issued pursuant to the mandatory conversion of S$263,874 in aggregate principal amount of Bonds. These Mandatory Conversion Shares were listed for quotation on Catalist on 3 April 2013, with trading of these commencing that day.
A Consolidation of 50 existing shares into one ordinary share (“Share Consolidation”) was approved by shareholders at an Extraordinary General Meeting held on 24 April 2013 and completed on 31 May 2013. The Share Consolidation was the first step to be taken in simplifying the Company’s capital structure, and reduced the total number of shares in issue from 22,568,636,177 to 451,372,723, including treasury shares.
Debt Funding Commitment was secured and announced by the Company on 8 May 2013. Under the secured six-year term loan facilities, Barclays Private Credit Partners Fund L.P. committed funding of €30m which may be expanded to €45m.
euNetworks Group Limited (SGX: 5VT:SI) is a bandwidth infrastructure provider, owning and operating 13 fibre based metropolitan networks across Europe connected with a high capacity intercity backbone covering 38 cities in 9 countries. The Company offers a portfolio of metropolitan and long haul services including Colocation, Dark Fibre, Metro Wavelengths, Wavelengths, Ethernet, and Internet. Enterprise and carrier customers benefit from euNetworks’ unique inventory of fibre and duct based assets that are tailored to fulfil their high bandwidth needs.
euNetworks Group Limited is headquartered in London and publicly listed on the Singapore Stock Exchange. For further information please visit www.eunetworks.com.
(1) Adjusted EBITDA means EBITDA before the deduction of share option expense.