Telecity Group plc (‘TelecityGroup’, ‘the Group’ or ‘the Company’), a European provider of carrier-neutral data centres, today issues the following trading update for the third quarter of 2015.
- Year to date organic currency neutral(1) (‘OCN’) revenue growth of 7.2%, with underlying(2) revenue growth of 9.7%, driven by an improvement in the UK’s revenue growth on both an OCN and underlying basis through 2015
- A further improvement in the underlying revenue growth rate in Q4 is expected which, along with the significant reduction in prior year non-recurring items in that period, results in full year revenue growth guidance being reiterated
- Stable adjusted(3) EBITDA(1) margin of 46.9% (Q3 2014: 46.9%)
- Strong adjusted(3) free cash flow(1) generation due to continued capital discipline
- Year to date churn(1) down materially year-on-year, led by a significant improvement in the UK, and at the lower end of the guidance range
- Good level of net order wins across the Group
- Q3 2015 sold power percentage(1) increased 420bps to 75.9% (Q3 2014: 71.7%), adjusting for new capacity delivered during the nine month period, the sold power percentage was 80.0%
- Group pricing remained stable on a like-for-like basis
- At the end of Q3 2015 available customer power(1) was 121.1MW, up 9.4MW from the start of the year versus 10.0MW net power sold in the same period
- FY2015 interim dividend totalling £10.2m paid on 18 September 2015
- The Directors confirm that the 2015 full year guidance remains valid on the basis of the profit forecast assumptions stated*, with FY2015 revenue growth expected to be towards the lower end of the guided revenue growth range
- 8% - 10% revenue growth on an OCN basis
- Stable EBITDA margin with slight downside pressure from investment
Recommended cash and share offer for TelecityGroup by Equinix, Inc (‘Equinix’)
- On 24 September 2015 Equinix notified its proposed acquisition of TelecityGroup to the European Commission for merger control approval
- On 23 October 2015 TelecityGroup confirmed that the European Commission has entered into a period of market testing based upon commitments proposed by Equinix and TelecityGroup
- TelecityGroup and Equinix continue to progress the recommended transaction announced on 29 May 2015 with completion expected in H1 2016
(1) A full glossary of terms is contained on page 26 of the Half Year Report 2015.
(2) Adjusted to exclude acquisitions, currency movements and non-recurring items.
(3) Adjusted to exclude, where relevant, intangible asset amortisation, other financing items and exceptional items.
John Hughes, Executive Chairman Telecity Group plc, said:
“The Group has performed well this quarter; it is pleasing to see the improvement in underlying revenue growth in the UK in addition to the continued good performance in the Rest of Europe. Incremental capacity is being delivered, including the first phase of Dublin 4 and the imminent opening of Amsterdam 6. At the same time the year-on-year sold power percentage has increased. Whilst further improvements in the UK revenue growth rate and a continuation of strong underlying profitable growth in the Rest of Europe is expected, the FY2015 revenue growth rate is likely to be towards the lower end of the previously guided revenue growth range. The Board maintains its positive view on the trajectory for the Group going forward.
We continue to work to progress the recommended transaction with Equinix. We have confirmed that the European Commission has entered into a period of market testing based upon commitments proposed by Equinix and TelecityGroup with a view to obtaining EU Commission Phase I clearance. We continue to expect to complete the transaction in the first half of 2016.”
Commentary on the nine months ended 30 September, 2015
The Group continues to see attractive levels of demand across all TelecityGroup markets. Good gross order win levels have been achieved, with the majority of this growth coming from the existing customer base. Group pricing remained stable on a like-for-like basis and we continue to see the majority of our growth coming from the newer sites in our portfolio.
Movements in foreign exchange rates and the effect of prior year non-recurring items continue to impact the reported revenue growth rate, the effects of which are shown in the table below.
|Year to date year-on-year revenue growth||Group||United Kingdom (‘UK’)||Rest of Europe (‘RoE’)|
Year to date OCN revenue growth increased to 7.2% and continues to be in line with the expected phasing of revenue growth through 2015.
Underlying revenue growth has also increased since H1 2015 and is now 9.7%, reflecting the investment made in our sales organisation including the key accounts programme. As noted previously, this growth rate excludes the impact of foreign exchange rate movements and prior year non-recurring items, both of which have significantly suppressed the reported revenue growth rates, and thus provides a truer reflection of our operating performance. The vast majority of the effect of the prior year non-recurring items ceased at the end of Q3 2015 which, together with an expected further improvement in growth in underlying revenue, results in management reiterating its full year guidance of 8 – 10% revenue growth on an OCN basis. Based on forecast FX rates this equates to £354m to £361m for the year.
Churn management continues to be a major operational focus for the Group. Continued success of churn mitigation measures implemented over the last year, along with the fact that the Group is now in a period where the number of contract renewal points is lower, have significantly reduced churn rates year-on-year. On a year to date basis they remain towards the lower end of the FY 2015 guidance range.
Year to date group adjusted EBITDA margins are stable at 46.9% (Q3 2014: 46.9%). Previously announced investments, particularly in the UK, are being offset by continued strong performance in Amsterdam, further improving margins in Helsinki and improvements in procurement.
The UK’s investment in people, processes and systems continues to yield positive results. Year to date gross order wins have been good, and with materially reduced year to date churn rates compared to the prior period, a significant increase in net order wins has been achieved. As forecast, year to date reported revenue growth has improved through the year to 2.1%, representing a marked improvement as the year has progressed. The quarterly underlying revenue growth in the UK increased year-on-year from 4.7% in Q1 2015 to 6.0% in Q2 2015 and to 9.4% in Q3 2015.
Performance in the Rest of Europe continues to be strong with year-on-year underlying revenue growth of 12.1% and OCN revenue growth of 11.3%, with the latter moderately impacted by the cessation of non-core, low margin, operations in Helsinki. Growth has continued to be particularly strong in Amsterdam, Helsinki, Stockholm and Dublin, with Dublin achieving its highest ever monthly order wins in August.
Further to the previously announced capacity additions in H1 2015, during the quarter 1.8MW of net sellable power was added through the first phase of the new Dublin 4 site, 1.9MW was added in Helsinki, the majority of which was in response to an existing signed customer contract in Helsinki 4, and 0.3MW of capacity was delivered in Warsaw. This brings total period end available customer power for the Group to 121.1MW (Q3 2014: 110.9MW). The period end sold power percentage has increased to 75.9% (Q3 2014: 71.7%) at the same time as delivering this incremental capacity, predominantly led by the RoE. Adjusting for the effect of capacity delivered during the nine month period, the sold power percentage increased to 80.0%.
As previously noted, there will be important capacity additions during Q4 including the imminent delivery of the first phase of Amsterdam 6 and the next phases of the London Docklands expansion and Paris 3 expansion.
On 24 September 2015 Equinix notified its proposed acquisition of TelecityGroup to the European Commission for merger control approval.
On 23 October 2015 TelecityGroup confirmed that the European Commission has entered into a period of market testing based upon commitments proposed by Equinix and TelecityGroup.
These commitments have been proposed with a view to obtaining EU Commission Phase I clearance of the previously announced offer by Equinix for TelecityGroup (the “Offer”).
As a result of this development, the European Commission’s Phase I review timetable is automatically extended by 10 working days to 13 November 2015.
Whilst there can be no assurances, as a result of these commitments TelecityGroup is of the view that there is a good prospect that the proposed transaction will be cleared by the European Commission during its Phase I review. If that happens the pre-conditions to the Offer will be satisfied and the relevant shareholder and scheme of arrangement votes will be sought from TelecityGroup shareholders thereafter. Although there can be no assurances, this would allow the Offer to close in line with the previously communicated guidance of H1 2016.
Conference call details
TelecityGroup will host a conference call today for analysts and investors at 8.30AM GMT. Details are as below and available at www.telecitygroup.com/investor.
Conference call number: +44(0)20 3427 1913
Conference call code: 4785284
For further information please contact:
Rosie Wilkins +44 (0)20 3229 1138
James Tyler +44 (0)20 7001 0076
Brunswick: Sarah West / Aideen Lee +44 (0)20 7404 5959
Profit Forecast Assumptions
* The Directors confirm that the full-year guidance for 2015 has been properly compiled on the basis of the assumptions set out below and that the basis of accounting used is consistent with TelecityGroup’s accounting policies.
Assumptions within TelecityGroup’s control
- There is no material change in the operational strategy of TelecityGroup from the date of this announcement.
- There will be no acquisitions or disposals which will have a material impact on the results.
- There are no material strategic investments over and above those currently planned.
- There will be no major changes in the share capital of TelecityGroup other than those currently planned.
Assumptions which are not within TelecityGroup’s control
- There will be no material macroeconomic change in the principal markets and regions in which TelecityGroup operates.
- There will be no material adverse events which will have a significant impact on TelecityGroup’s financial results.
- There will be no changes in interest rates, bases of taxation or legislation that have a material impact on TelecityGroup.
- There will be no material changes in customer demand or the competitive environment in which TelecityGroup operates.
- There will be no business disruptions that materially affect TelecityGroup or its key customers or suppliers.
- There will be no significant and sustained weakening of the pound sterling against the currencies of the major territories in which the TelecityGroup operates.
Notes to Editors
TelecityGroup provides data centres, operating facilities in city locations across Europe.
TelecityGroup’s data centres provide secure and connected environments for the IT and telecoms equipment that powers the digital economy. Its data centres are enabling environments in which the separate networks that make up the internet meet and where bandwidth intensive applications, content and information are hosted.
TelecityGroup’s customers are the networks and providers of content, applications and data that make up the internet. Customers choose TelecityGroup because of its high-quality infrastructure and service standards, connectivity options and capacity to support their future growth.
Telecity Group plc is listed on the London Stock Exchange (LSE: TCY).
Neither the content of the website referred to in this announcement nor the content of any other websites accessible from hyperlinks on that website is incorporated into, or forms part of, this announcement.
Directors’ responsibility statement
The Directors of TelecityGroup accept responsibility for the information contained in this document. To the best of the knowledge and belief of the Directors (who have taken all reasonable care to ensure that such is the case), the information contained in this document is in accordance with the facts and does not omit anything likely to affect the import of such information.
Cautionary note regarding forward-looking statements
This announcement contains statements which constitute "forward-looking statements". Forward- looking statements include any statements related to the proposed transaction and the expected benefits or estimated synergies resulting from a transaction with Equinix and are generally identified by words such as ‘believe’, ‘expect’, ‘anticipate’, ‘intend’, ‘estimate’, ‘will’, ‘may’, ‘continue’, ‘should’, and other similar expressions. Forward-looking statements are subject to various risks and uncertainties, many of which are difficult to predict and generally beyond the control of TelecityGroup, that could cause actual results and developments to differ materially from those expressed in, or implied or projected by, the forward-looking statements.
In addition, there can be no assurance that the proposed transaction with Equinix will be completed in a timely manner, or at all. TelecityGroup does not undertake to update any of the forward-looking statements after this date to conform such statements to actual results, to reflect the occurrence of anticipated results or otherwise, except to the extent legally required.
Other than where expressly indicated, no statement in this announcement is intended as a profit forecast or profit estimate and no statement in this announcement should be interpreted to mean that earnings per TelecityGroup or Equinix ordinary share for any period would necessarily match or exceed the historical published earnings per TelecityGroup or Equinix shares.
Note on unaudited financial information
The financial information that this statement is based on relates to the period from 1 January 2015 to 30 September 2015 and is based partly on unaudited management accounts.