TELECITY GROUP PLC
4 August 2014
TELECITY GROUP PLC
Telecity Group plc results for the six months ended 30 June 2014
TelecityGroup delivers strong first half results and confirms its full year organic growth outlook
Telecity Group plc ('TelecityGroup', 'the Group' or 'the Company'), Europe's industry-leading provider of premium carrier-neutral data centres, today announces its results for the six months ended 30 June 2014.
Highlights
· Revenue up 9.3% to £174.1m (H1 2013: £159.3m)
· Organic FX neutral(1) revenue growth of 9.5% (H1 2013: 7.9%)
· Adjusted(2) EBITDA(1) up 10.7% to £81.6m (H1 2013: £73.8m)
· Adjusted EBITDA margin up 60bps to 46.9% (H1 2013: 46.3%)
· Adjusted EBITA(1) margin up 80bps to 33.0% (H1 2013: 32.2%)
· Adjusted diluted earnings per share up 12.0% to 19.6p (H1 2013: 17.5p)
· Sold power percentage(1) increased 130bps to 72.4% (H1 2013: 71.1%)
· ROCE(1) up 30bps to 15.4% (H1 2013: 15.1%)
· Interim dividend up 28.6% to 4.5p per share (H1 2013: 3.5p)
Statutory equivalent
The above highlights are based on the Group's adjusted results. A full reconciliation between the adjusted and statutory results is contained in note 5. Where different, the statutory equivalents of the above results are as follows:
· Operating profit up 14.8% to £54.8m (H1 2013: £47.8m)
· Diluted earnings per share up 15.4% to 18.7p (H1 2013: 16.2p)
Michael Tobin, TelecityGroup CEO, said:
"I am pleased with the growth that we have delivered in the first half of 2014, which represents an improvement over 2013 and has improved further in Q2 2014 versus Q1. Demand across the European data centre market is strong and our order wins continue to be encouraging. Our Rest of Europe division is delivering very pleasing growth and whilst our growth levels in the UK have been held back by the anticipated churn during the period, the order intake of that business has improved. We maintain our guidance of 9% to 11% organic FX neutral revenue growth for the full year. We are focused on creating value for our customers by building and running the most highly-connected data centre infrastructure in Europe, and for our shareholders through delivering sustainable growth with good returns on capital. I am delighted to have Eric Hageman joining as our new CFO, on 1 September 2014, to help drive this."
(1)A glossary of terms is included in note 20.
(2) Adjusted to exclude, where relevant, intangible asset amortisation, other financing items and exceptional items (note 5).
For further information, please contact:
TelecityGroup:
Investors
Matthew Springett +44 (0)20 7005 6337
Media
James Tyler +44 (0)20 7001 0076
Brunswick:
Sarah West/James Olley +44 (0)20 7404 5959
Notes to Editors Telecity Group plcTelecityGroup is the leading provider of carrier-neutral data centres in Europe, operating highly-connected facilities in key cities.
These data centres are the places in which the separate networks that make up the internet meet and where bandwidth-intensive applications, content and information are hosted. As such, they are the key network hubs, or enabling environments, of the European digital economy. TelecityGroup's customers take advantage of the highly-connected facilities to operate, store, share, distribute and access digital media, IT applications and information effectively and efficiently.
Telecity Group plc is listed on the London Stock Exchange (LSE: TCY).
www.telecitygroup.com/investor
The content of the Telecity Group plc website should not be considered to form a part of or be incorporated into this announcement.
Cautionary note regarding forward-looking statementsThis announcement includes statements that are forward-looking in nature. All statements other than statements of historical facts could be deemed to be forward-looking statements. By their nature, these forward-looking statements involve numerous assumptions, uncertainties and opportunities, both general and specific. Accordingly, the actual results, performance or achievements of the Company may be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements, due to known and unknown risks, uncertainties and other factors. Except as required by the Listing Rules and applicable law, Telecity Group plc undertakes no obligation to update or change any forward-looking statements to reflect events occurring after the date such statements are published.
This announcement is neither an offer to sell nor a solicitation of an offer to buy any securities in the United States, or any other jurisdiction. The Company's shares have not been registered in any U.S. jurisdiction and, in particular, will not be registered under the U.S. Securities Act of 1933, as amended, or any applicable state securities laws.
Operating Review
Group overview
TelecityGroup has experienced good trading conditions in the first half of 2014, driving solid financial results, with significant growth in revenue, adjusted EBITDA and adjusted EPS.
The Group remains focussed on optimising returns on its investments and has made good progress around efficient deployment of investment capital expenditure, together with market and product development.
The acquisitions made during 2013 have been integrated within the Group. The close business fit of the Polish and Bulgarian acquisitions has resulted in swift integration and the Group's plans to further develop the colocation capabilities of the Turkish business have moved forward with additional capacity being delivered there during the period. Having established its desired geographic footprint through the acquisitions made in 2013, the Group does not expect further M&A activity in the short term.
In terms of product development, good progress is being made with Cloud-IX, a platform which brings users and providers of cloud based services together in a cost effective, resilient and secure manner.
Demand trends
Demand for premium highly-connected data centre capacity is strong across Europe as internet usage continues to grow and as applications migrate towards data centres, including cloud based platforms located in these. TelecityGroup experienced incremental demand from a broad base of customer sectors, with the strongest demand coming from connectivity, content and cloud customers. As in previous years, the majority of TelecityGroup's organic order book growth was driven by new orders from its existing customer base.
The Group increased year-on-year available customer power(1) 18.1% to 106.3MW (H1 2013: 90.0MW). In the first half of 2014, the Group opened the final 5.0MW of capacity at its flagship Amsterdam 5 site and 2.4MW at its Frankfurt 1 site. Total announced customer power(1) increased 8.6% year-on-year to 153.1MW (H1 2013: 141.0MW), remaining unchanged from the 2013 year-end position.
Strong sales during the period increased sold customer power by 5.9MW (H1 2013: 3.4MW) resulting in an increased sold power percentage of 72.4% (H1 2013: 71.1%).
The Group has managed its capital investment in an increasingly efficient manner resulting in an improvement in utilisation rates. The Group aims to ensure optimal returns on its asset base by working to increase occupancy levels of existing inventory, while allocating its incremental capital spend effectively through phased investment in new capacity. New capacity is brought online in markets where existing capacity is approaching full occupancy and where there is a good pricing and demand outlook. At the period end the Group's sold power percentage(1) had increased 130bps from the same period last year to 72.4% (H1 13: 71.1%).
As expected, customer churn levels in the UK were higher in the period than experienced in prior years, but are expected to reduce significantly in the second half of 2014. In Rest of Europe, customer churn levels have already decreased from last year. Mature customer churn is typically of a higher value than prevailing entry level customer revenue, which builds over time. However margins have been maintained through operational efficiency and substantial gross order wins throughout the Group.
Revenue and EBITA per sold kW
Revenue per sold kW(1) decreased 8.6% to £4,682 (H1 2013: £5,124). This decrease included the effects of FX movements, geographic mix of new business, the planned disposal or discontinuation of certain non-core businesses with no associated kWs, and sales mix which included the effect of the high-value churn mentioned above. The remainder of the sales mix effect is due to good sales performance in the newer sites, including in the less mature Helsinki market. On a currency neutral basis, revenue per sold kW decreased 6.5%. The impact of discontinued business in Helsinki and the loss of sub-lease revenue in London, both of which provided revenue with no associated kW, was £2.1m. Therefore, on a currency neutral and underlying basis the decrease in revenue per kW was 5.2%.
EBITA per sold kW(1) decreased 6.3% to £1,545 (H1 2013: £1,648). On a currency neutral basis EBITA per sold kW decreased 3.8%. The remaining decrease related to geographic mix, including the effect of acquisitions made in H2 2013, and new order wins with an initial lower profitability per kW than the installed order book, particularly in the Amsterdam, Dublin and Helsinki markets.
(1)A glossary of terms is included in note 20.
The market pricing environment across Europe has remained largely stable over the last year due to market barriers to entry resulting in a limited supply of new premium capacity and the strong volume of demand for data centres that is currently being experienced. While the Group expects some further mix dilution as new markets grow, it expects overall pricing and profitability trends to continue to remain robust, particularly as churn falls and recent new order wins build in profitability.
Segmental performance
United Kingdom ('UK')
TelecityGroup's UK business encompasses leading positions in London and Manchester. London is one of the world's primary internet hubs and Manchester is the UK's second-largest internet hub.
Demand trends
The Group has made good progress in H1 2014 in its UK division, with gross order wins significantly up on previous periods.
As previously forecast, churn(1) levels in the UK were elevated in the first half of 2014 and are expected to reduce significantly in the second half. The first half churn was largely attributable to the closure of a small data centre in London (Prospect House) and to certain customers with underutilised capacity, due to factors including previous over-ordering and consolidation/M&A, making reductions at contract renewal points. Whilst this first half churn will suppress revenue growth rates in H2 2014, management expects the division's order book to improve in the medium term as gross wins remain at solid levels and churn rates are forecast to reduce.
An analysis of the UK contract renewal pipeline indicates that medium-term churn levels should be substantially lower than the raised, albeit forecast, levels experienced in H1 2014 which included a number of one-off issues. This order book growth is expected to be reflected in improving revenue growth in 2015.
Revenue increased 3.3% to £73.5m (H1 2013: £71.1m) and adjusted EBITA increased 5.5% to £26.4m (H1 2013: £25.1m). During the period, the Group has closed Prospect House and the full period effect has been felt of certain sub-leases for office space forming part of the Harbour Exchange site, which began to expire in H2 2013. These discontinued activities accounted for £4.1m of revenue in H1 2013, reducing to £2.8m in H1 2014.
Excluding this discontinued business, underlying revenue growth was 5.5%. Further Harbour Exchange sub-leases with an annual value of £3.3m are due to expire in the second half of the year.
Operational metrics
TelecityGroup's UK available power increased 3.1% to 36.8MW (H1 2013: 35.7MW), with the additional capacity that was brought on in Powergate during H2 2013 being partly offset by the previously announced closure of the 0.4MW Prospect House site. Announced customer power for the UK division was 55.9MW (H1 2013 58.0MW) with the reduction relating to the closure of Prospect House and the change in planned power density of the London Powergate site described in the 2013 Annual Report.
At the period end, 67.9% (H1 2013: 67.1%) of available customer power was sold to customers. Revenue per sold kW decreased 1.9% to £5,918 (H1 2013: £6,035), while EBITA per sold kW increased 0.2% to £2,129 (H1 2013: £2,125). On an underlying basis, adjusting for the £0.3m reduction in sub-lease income, revenue per sold kW decreased 1.5%. The decrease in underlying revenue per sold kW reflects the mix-shift due to stronger growth at the Group's London Powergate site, which has somewhat lower pricing than the order book average.
Rest of Europe ('RoE')
TelecityGroup's RoE business encompasses market positions in Amsterdam, Dublin, Frankfurt, Helsinki, Istanbul, Milan, Paris, Sofia, Stockholm and Warsaw. The largest of these markets in terms of revenue contribution to the Group are Amsterdam, Stockholm, Frankfurt and Dublin.
(1)A glossary of terms is included in note 20.
Demand trends
The RoE division experienced good trading conditions in all markets in the first half of 2014. The strength seen in Amsterdam, Stockholm and Dublin during 2013 has continued, while there has been a significant improvement in the performance of the Frankfurt business. As expected, at a divisional level, gross order wins have been good and customer churn has reduced.
Revenue increased 14.2% to £100.6m (H1 2013: £88.1m) and adjusted EBITA increased 18.5% to £31.0m (H1 2013: £26.2m). On an organic currency neutral basis(1) revenue increased 14.6% and EBITA increased 19.6%.
Operational metrics
Available customer power increased 28.0 % to 69.5MW (H1 2013: 54.3MW) through previously announced additional capacity being brought online during H2 2013 and additions in H1 2014, principally at Amsterdam 5 (5.0MW) and Frankfurt 1 (2.4MW). Total announced customer power increased 17.1% to 97.2MW (H1 2013: 83.0MW) due to additional capacity previously announced during H2 2013. At the period end, 74.8% (H1 2013: 73.8%) of available customer power was sold to customers.
Revenue per sold kW decreased 11.1% to £4,062 (H1 2013: £4,567) anddecreased by 7.2% on a currency neutral basis. The impact of discontinued business in Helsinki, which provided revenue with no associated kW, was £1.8m. Therefore, on a currency neutral and underlying basis the decrease in revenue per kW was 5.2%. EBITA per sold kW decreased 7.7% to £1,253 (H1 2013: £1,357)and decreased 3.3% on a currency neutral basis .
Outlook
The demand outlook for premium carrier neutral data centre capacity in Europe is encouraging. As such, management re-iterates full year expectations for revenue growth of 9% to 11% on an organic FX neutral basis, with margins remaining robust.
We continue to remain focused on securing maximum returns for shareholders from our capital investment and our capital expenditure guidance of £110m to £130m is also re-iterated. The Group benchmarks all investment expenditure against returns to shareholders and only proceeds with projects that offer a significant return above the Group's cost of capital. Given the expected growth of its cash flows, the Group can increase its dividend payments whilst continuing to deliver on its organic growth plans.
Michael TobinChief Executive Officer
1 August 2014
(1)A glossary of terms is included in note 20.
Financial Review
IntroductionThe Group delivered a solid set of results during H1 2014. Revenue increased 9.3% to £174.1m (H1 2013: £159.3m), adjusted EBITDA grew 10.7% to £81.6m (H1 2013: £73.8m) and adjusted EPS increased 12.0% to 19.6p (H1 2013: 17.5p).
Capital expenditure for the first six months of the year was £48.8m (H1 2013: £51.6m). Investment capital expenditure has been funded though the operating cash flows of the business. After payment of the 2013 final dividend of £14.2m (H1 2013: £10.1m) and the effects of foreign exchange, net debt decreased to £296.2m from the 2013 year end value of £304.3m (H1 2013: £288.0m).
The Group's leverage(1) ratio was 1.8 times adjusted EBITDA (H1 2013: 2.0 times). At the period end, undrawn committed facilities were £98.1m (H1 2013: £61.6m), and the Group's borrowings had an average unexpired term of 4.2 years (H1 2013: 4.2 years).
Return on capital employed(1) ('ROCE') increased to 15.4% (H1 2013: 15.1%) up from 15.2% at the full year 2013.
Each of the following sections discusses the Group's adjusted results. The adjusting items are discussed later in this review and a reconciliation between the adjusted and statutory results is contained in note 5.
RevenueTelecityGroup's total revenue growth was 9.3%. On an organic currency neutral(1) basis it was 9.5%, with the full year contribution of prior year acquisitions being offset by the strengthening of sterling against other operating currencies. Full year organic currency neutral revenue growth guidance of 9% to 11% is reaffirmed. The Group's previously issued full year revenue range guidance of £355m to £362m, represents an organic currency neutral revenue growth range of 9% to 11%. This growth rate range is reaffirmed and translates to £344m to £351m based on foreign exchange rates at 31 July 2014. The Group had a good period of gross order wins in H1 2014 with particularly pleasing results in the Netherlands, Germany, Ireland and the UK.
As expected, churn(1) rates for H1 2014 were elevated and totalled 11.4% on an annualised basis (H1: 2013: 10.1%). This included £1.6m relating to the planned disposal of non-core businesses in Finland, which had been acquired as part of the Academica acquisition in 2012 and £2.0m relating to the closure of the Prospect House data centre in London. Underlying churn on an annualised basis, after adjusting for the disposal of businesses in Finland and closure of Prospect House, was 9.6% (H1 2013: 10.1%). The previously stated total churn rate range for FY14 of 7.5% to 9.5% is reiterated.
The previously forecast elevated churn levels in the UK during the first half of 2014 resulted in churn rates of 16.4% for the period (H1 2013: 9.0%), underlying churn rates were 14.3% (H1 2013: 9.0%). Churn rates are expected to fall significantly in the second half of the year.
Churn rates in Rest of Europe ('RoE') reduced to 7.7% (H1 2013: 11.0%). This includes the disposal of the non-core businesses in Finland referred to above. The underlying churn rate was 6.2% (H1 2013: 11.0%).
Annual price increases on the Group's existing order book were at low single digit levels, reflecting the recent relatively low inflationary environment of many of the markets in which the Group operates. Price increases form a modest percentage of the increase in the Order Book during the period.
Operating costsThe Group has a relatively predictable cost base, which is kept under constant review to ensure tight control is maintained. Operating costs, excluding depreciation, increased 8.1% to £92.5m (H1 2013: £85.5m). The increase is a result of organic growth of £5.9m, M&A activity in the second half of 2013 of £2.8m, off-set by foreign exchange movements of £1.7m. A review of the major cost categories follows.
(1)A glossary of terms is included in note 20.
Power costs of £24.6m (H1 2013: £23.0m) represented 14.1% of revenue (H1 2013: 14.5%). The increase of £1.6m was principally due to higher usage from new and existing customers and an increased total unit cost in certain countries. The Group seeks to pass on to customers the cost of power directly used by their equipment, together with the associated supporting infrastructure power costs, for example cooling. The UK Government has recently enacted legislation that will provide a Climate Change Agreement for Data Centres. The Group intends to become a participant in the Climate Change Agreement, meaning that it will stop paying the CRC tax in exchange for committing to certain energy efficiency targets. Included within power costs for the period are CRC tax related charges of £0.7m, which are recharged to customers. These costs will cease during the second half of 2014, having no impact on profit.
Property costs of £20.5m (H1 2013: £19.7m) represented 11.8% of revenue (H1 2013: 12.3%). Of the £0.8m increase, £0.7m related to the full period effect of M&A activity in 2013 and £0.4m related to additional rent and rates associated with the delivery of capacity at the Group's on-going operations. Off-setting the increase was £0.3m due to foreign exchange movements.
Staff costs of £25.3m (H1 2013: £23.7m) represented 14.5% of revenue (H1 2013: 14.9%). Of the £1.6m increase, £0.6m related to the full period effect of M&A activity in 2013. A further £1.5m was due to an increase in headcount at the Group's on-going operations and annual salary increases. Off-setting these increases was £0.5m relating to foreign exchange movements and reduced head office salary costs whilst the recruitment of a permanent CFO was undertaken.
Other costs, comprising operational maintenance costs, sales and administrative costs and cost of sales of services, were £22.1m (H1 2013: £19.1m) and represented 12.7% of revenue (H1 2013: 12.0%). The increase of £3.0m was mainly due to costs associated with an increase in sales of non-colocation services and the impact of the acquisitions in the second half of 2013.
EBITDAAs a result of the growth in revenue and operating costs described above, adjusted EBITDA increased 10.7% to £81.6m (H1 2013: £73.8m) and the adjusted EBITDA margin increased to 46.9% (H1 2013: 46.3%). On an organic currency neutral basis EBITDA growth was 11.5%.
UK adjusted EBITDA increased 4.2% to £35.0m (H1 2013: £33.6m), which included the benefit of reduced central costs. The UK adjusted EBITDA margin increased 50bps to 47.7% (H1 2013: 47.2%).
RoE adjusted EBITDA increased 16.1% to £46.6m (H1 2013: £40.2m). The increase in adjusted EBITDA was supported by acquisitions in the second half of 2013, off-set by movements in foreign exchange rates. On an organic currency neutral basis(1) adjusted EBITDA increased 17.5%. RoE adjusted EBITDA margin increased 70bps to 46.3% (H1 2013: 45.6%).
DepreciationDepreciation increased 7.3% to £24.2m (H1 2013: £22.5m). The increase of £1.7m was largely due to additional depreciation from data centre expansions of £1.8m and the full effect of acquisitions in the previous period of £0.5m, off-set by £0.6m relating to foreign exchange movements. For new builds, depreciation commences when a data centre, or a part thereof, is brought into use. The largest data centre expansions that have contributed to the increase in depreciation are Amsterdam 5, London Powergate, Harbour Exchange and Dublin 3.
On exit of the Prospect House lease, the Group incurred dilapidation expenses that were £0.3m less than the previously held provision resulting in a one-off credit to the UK depreciation charge in the period. The depreciation charge in respect of Prospect House in the prior period was £0.9m.
Depreciation represented 5.6% (H1 2013: 6.1%) of the average cost of depreciable assets (i.e. excluding assets in the course of construction). The reduction is due to the impact of the Prospect House closure described above.
EBITAAdjusted EBITA increased 12.1% to £57.5m (H1 2013: £51.2m) in line with the growth in adjusted EBITDA and depreciation. UK adjusted EBITA increased 5.5% to £26.4m (H1 2013: £25.1m) and RoE adjusted EBITA increased 18.5% to £31.0m (H1 2013: £26.2m). UK adjusted EBITA margin increased 80bps to 36.0% (H1 2013: 35.2%) and RoE adjusted EBITA margin increased 110bps to 30.8% (H1 2013: 29.7%). The increase in adjusted EBITA was supported by acquisitions in the second half of 2013, off-set by movements in foreign exchange rates. On an organic currency neutral basis(1) adjusted Group EBITA increased 12.7%.
(1)A glossary of terms is included in note 20.
Net finance costsNet finance costs for the period were £4.9m (H1 2013: £4.1m) and comprised net cost of borrowings of £4.5m (H1 2013: £3.7m), loan commitment fees of £0.3m (H1 2013: £0.3m) and net other finance costs of £0.1m (H1 2013: £0.1m).
Net cost of borrowings comprise gross cost of borrowings of £6.2m (H1 2013: £6.6m) less capitalised interest of £1.7m (H1 2013: £2.9m). The Group is required under IFRS to capitalise interest on the borrowings that fund assets in the course of construction. The reduction in capitalised interest is due to a reduction in the average value of assets in the course of construction and a reduction in the gross cost of borrowing rate described below.
The decrease in the gross cost of borrowings was a result of a 10.9% increase in average net borrowings during the period, offset by a 15.3% reduction in the gross interest rate(1), largely due to a reduction in the rate of interest being paid due to the lower leverage and the replacement of expired interest rate swap agreements at lower rates.
The Group's cost of drawn debt(1) during the period was 3.2% (H1 2013: 3.6%). The gross interest rate(1) was 3.8% (H1 2013: 4.4%).
Interest accrues on the Group's borrowings at LIBOR, or equivalent, plus a margin. At the period end, the Group had interest rate swaps in place that converted the interest rate on 89.3% (H1 2013: 92.9%) of borrowings from a floating rate to a fixed rate. The period end valuation of the interest rate swaps is included on the balance sheet under the heading of derivative financial instruments.
TaxationThe adjusted tax charge for the period was £12.7m (H1 2013: £11.3m), representing 24.2% (H1 2013: 24.0%) of adjusted profit before tax. There has been a slight increase in the Group's weighted average tax rate due to a lower corporate tax deduction in respect of outstanding share options due to the current share price. This was partially offset by certain territories' reduced local corporate tax rates and a greater weighing of profits towards the lower tax jurisdictions, such as Ireland.
EarningsAdjusted profit after tax increased 11.4% to £39.9m (H1 2013: £35.8m), resulting in an increase in adjusted diluted earnings per share ('adjusted EPS') of 12.0% to 19.6p (H1 2013: 17.5p). Adjusted EPS is calculated based on adjusted profit after tax and a reconciliation between the adjusted and unadjusted profit is given in note 5. The diluted number of shares has reduced due to share price movements since the same time last year.
DividendsDuring the period the 2013 final dividend that was approved by shareholders at the AGM on 8 April 2014 was paid at 7.0p per share totalling £14.2m.
An interim dividend of 4.5p per ordinary share (H1 2013: 3.5p) was declared by the Board of Directors and is payable on 19 September 2014 to shareholders on the register at 15 August 2014. This interim dividend totalling £9.1m (H1 2013 £7.1m) has not been recognised as a liability in this half year financial report.
Adjusting itemsThe Group presents adjusted results, in addition to the statutory results, as the Directors consider that they provide a useful indication of performance. The pre-tax items that are excluded from the adjusted results are intangible asset amortisation, other finance items and, in respect of the prior period, exceptional items. A reconciliation between the adjusted and statutory results is given in note 5.
Intangible asset amortisation for the period was £2.6m (H1 2013: £2.2m). The increase was due to the acquisitions in the second half of 2013.
Other financing items are £nil in the current period (H1 2013: £0.4m) and relate to net foreign exchange gains and losses on financing items including borrowings, cash and inter-company loans. The Group seeks to minimise this figure by matching the currency of its financial assets and liabilities in each country.
There were no exceptional items in the period (H1 2013: £1.3m).
(1) A glossary of terms is included in note 20.
The tax effect of the above items is similarly considered an adjusting item, resulting in a total adjusted tax credit of £0.8m (H1 2013: £0.5m).
Return on capital employedReturn on capital employed(1) ('ROCE') was 15.4% for the period (H1 2013: 15.1%). The Group's policy is to only invest capital when there is a clear need for additional inventory, considering factors such as existing occupancy levels and forecast customer demand. Wherever possible, the Group leverages the inherent advantages of existing capacity, including established connectivity, customer ecosystems and build cost efficiency, by expanding or building close to existing sites. Once an optimal site expansion or new build site has been identified, a detailed investment case is produced to assess a number of financial metrics including the pre-tax internal rate of return and EBITA per sold kW. Each investment case is assessed and ranked against both other investment cases and other uses of capital, including returns to shareholders. Only those investment cases that have compelling investment returns and which can be delivered within the previously stated annual capital expenditure range of £110m to £130m are put forward to the Board for approval.
Cash flow and net debtThe Group finances its demand-driven expansion programme through a combination of cash flows from operating activities and bank borrowings, principally provided by its senior debt facility. Where appropriate, the Group purchases plant and machinery under finance lease. The Group's senior debt facility is provided jointly by Barclays, HSBC, Lloyds Banking Group and RBS.
Period end net debt was £296.2m (FY 2013: £304.3m, H1 2013: £288.0m). As a result of increasing adjusted EBITDA, the leverage(1) ratio has reduced to 1.8 times adjusted EBITDA (H1 2013: 2.0). The Group was in full compliance with its debt covenants, with significant headroom, and expects to remain so.
Cash inflow from operating activities increased 1.8% to £62.0m (H1 2013: £60.9m). The current year figure included a number of one-off costs which suppressed the growth including the closure of Prospect House (£2.1m), part settlement of historical tax claims in respect of the Group's dormant Spanish subsidiary (£1.4m) and movements in foreign exchange. On a currency neutral basis the underlying, i.e. adjusting for the effects of Prospect House and Spanish taxes, growth in cash flows from operating activities was 11.9%.
Operational capital expenditure increased 10.1% to £14.2 m (H1 2013: £12.9m) resulting in operating free cash flows of £47.8m (H1 2013: 48.0m). Operational capital expenditure comprised maintenance capex of £6.5m (H1 2013: £5.4m), sales capex of £7.1m (H1 2013: £5.5m) and general capex of £0.6m (H1 2013: 2.0m).
The operating free cash flow was sufficient to fund investment activities totalling £34.5m (H1 2013: £64.8m). The prior year investment activities included M&A spend of £26.1m.
As a result of payment of the 2013 final dividend of £14.2m, along with other smaller items and after the effect of movements in foreign exchange rates, net debt reduced by £8.1m during the period (H1 2013: increase £33.8m).
Balance sheetThe Group has a robust, well-financed balance sheet. Wherever possible, the Group minimises its interest charge by using surplus cash to repay borrowings classified as long-term liabilities, and as such it is normal for the Group's current liabilities to exceed its current assets. This trend is further enhanced as deferred income, a non-cash item, makes up a significant part of current liabilities. A review of the major components of the balance sheet follows.
The Group's intangible assets had a book value of £171.8m (H1 2013: £174.2m). They comprise acquired customer contracts and goodwill. The increase due to the acquisitions in the last 12 months was more than offset by amortisation and foreign exchange movements.
The carrying value of property, plant and equipment was £664.0m (H1 2013: £632.0m). Balance sheet additions of £44.4m (H1 2013: £51.5m) were made during the period. The depreciation charge for the period was £24.2m (H1 2013: £22.5m). As a significant proportion of the Group's capital assets are denominated in euros, the relative strengthening of sterling against the euro since 31 December 2013 resulted in a foreign exchange decrease in the net book value of property, plant and equipment of £18.0m (H1 2013: £13.9m increase).
(1)A glossary of terms is included in note 20.
Current trade and other receivables were £40.2m (H1 2013: £36.7m) and increased due to the effects of both organic growth and the additional trade and other receivables contributed by the recent acquisitions in the prior year. Period end debtor days were 34 (H1 2013: 33) with the slight increase being due to collections from a number of customers falling over the period end. The Group's trade receivables risk is reduced as customers are generally billed, and pay, in advance of services being provided.
Current trade and other payables were £52.2m (H1 2013: £68.1m). The timing of capital expenditure payments accounts for a £11.3m decrease, with period end capital creditors being £9.0m (H1 2013: £20.3m).
Deferred income was £63.9m (H1 2013: £60.0m), split between current of £44.5m (H1 2013: £43.2m) and non-current of £19.4m (H1 2013: £16.8m). The increase is consistent with a larger recurring revenue base and represented 36.7% (H1 2013: 37.6%) of revenue for the period.
Provisions for other liabilities and charges were £4.3m (H1 2013: £6.9m), split between current of £1.2m (H1 2013: £1.0m) and non-current of £3.1m (H1 2013: £6.0m). The reduction of £2.6m largely relates to settlement of previously provided costs on the exit of the Prospect House site. The remaining provision largely relates to a historical lease on a property in Munich which has never been fitted out as a data centre, for which the Group is currently engaged in discussions to sub-let.
Total equity
Equity shareholders' funds increased during the period by £12.7m to £421.9m and comprised total comprehensive income of £24.8m (H1 2013: £43.5m) offset by transactions with owners of £12.1m (H1 2013: £7.9m).
Total comprehensive income comprised retained profits of £38.1m (H1 2013: £33.2m), a decrease recorded directly in equity relating to currency translation on the Group's foreign currency net investments of £12.7m (H1 2013: £9.3m increase) and a fair value increase in the Group's interest rate swaps, net of tax, of £0.6m (H1 2013: £1.0m decrease).
Transactions with owners comprised share-based payment credits and share capital items. In accordance with accounting standards, the share-based payment expense, included within retained profits, of £1.7m (H1 2013: £1.6m) is added back to reserves along with the associated tax of £nil (H1 2013: £0.4m). The Group received a net amount of £0.3m (H1 2013: £0.2m) in respect of shares purchased and issued under the share option schemes, and paid out £14.2m (H1 2013: £10.1m) in respect of dividends.
RiskThe Group's operations expose it to a variety of risks. Effective management of these risks is essential to the delivery of the Group's business plans and strategic objectives, as well as maximising shareholder return. The Group's approach is focused on early identification of key risks, mitigating or removing those risks and responding quickly and effectively should a risk crystallise.
The Board has overall responsibility for ensuring that risk is appropriately managed across the Group. The Board is supported by the Risk Committee, comprising the executive Director as well as other senior managers. The Risk Committee meets regularly to consider all areas of risk, including operational, financial, environmental, reputational, strategic, technological, compliance and regulatory risks, to which the Group is exposed, and appropriate steps are taken to reduce or eliminate the risks or mitigate their potential impact.
The Group's principal risks relate to the delivery and successful operation of existing and future capacity, pricing of the Group's revenues and costs and foreign exchange movements. A detailed review of the Group's risks and risk management at 31 December 2013 is contained on pages 22 to 25 of the Annual Report in respect of that year. Such risks are considered to remain relevant at the current period end and for the remaining six months of the financial year. No additional significant risks have been identified since 31 December 2013.
Consolidated income statement
Notes |
Six months |
Six months | |||
Revenue | 6 | 174,088 | 159,276 | ||
Cost of sales | (73,383) | (68,675) | |||
Gross profit | 100,705 | 90,601 | |||
Sales and marketing costs | (7,060) | (5,719) | |||
Administrative costs analysed: | |||||
Depreciation charges | (24,159) | (22,510) | |||
Amortisation charges | (2,630) | (2,219) | |||
Operating exceptional items | 7 | - | (1,250) | ||
Other administrative costs | (12,024) | (11,128) | |||
Administrative costs | (38,813) | (37,107) | |||
Operating profit | 6 | 54,832 | 47,775 | ||
Finance income | 35 | 23 | |||
Finance costs | 9 | (4,894) | (4,160) | ||
Other financing items | - | 358 | |||
Profit on ordinary activities before taxation | 49,973 | 43,996 | |||
Income tax charge | 10 | (11,895) | (10,782) | ||
Profit for the period | 38,078 | 33,214 | |||
Earnings per share: | basic (p) | 11 | 18.8 | 16.4 | |
diluted (p) | 11 | 18.7 | 16.2 | ||
Adjusted(1) earnings per share: | basic (p) | 11 | 19.7 | 17.7 | |
diluted (p) | 11 | 19.6 | 17.5 | ||
(1) Adjusted as set out in note 5.
Consolidated statement of comprehensive income
Six months |
Six months | ||
Profit for the period | 38,078 | 33,214 | |
Other comprehensive income: | |||
Currency translation differences on foreign currency net investments | (12,722) | 9,292 | |
Fair value movement on cash flow hedges | (708) | 1,352 | |
Tax on items above taken directly to or transferred from equity | 148 | (324) | |
Other comprehensive (expense)/income for the period net of tax | (13,282) | 10,320 | |
Total comprehensive income recognised in the period attributable to equity holders | 24,796 | 43,534 |
The components of other comprehensive income may subsequently be reclassified to the income statement.
Consolidated statement of changes in equity
Share |
Share |
Retained |
Own |
Cumulative |
Total | |
At 1 January 2013 | 403 | 78,038 | 280,138 | (447) | (1,174) | 356,958 |
Profit for the period | - | - | 33,214 | - | - | 33,214 |
Other comprehensive income: | ||||||
Currency translation differences on foreign currency net investments | - | - | - | - | 9,292 | 9,292 |
Fair value movement on cash flow hedges | - | - | 1,352 | - | - | 1,352 |
Tax on fair value movement on cash flow hedges | - | - | (324) | - | - | (324) |
Total comprehensive income | - | - | 34,242 | - | 9,292 | 43,534 |
Transactions with owners: | ||||||
Credit to equity for share-based payments | - | - | 1,645 | - | - | 1,645 |
Tax on share-based payments | - | - | 363 | - | - | 363 |
Purchase of own shares by EBT | - | - | - | (405) | - | (405) |
Issue of shares | 2 | 415 | (291) | 433 | - | 559 |
Dividends paid to owners of the parent | - | - | (10,080) | - | - | (10,080) |
Consolidated balance sheet
Notes |
30 June 2014 |
31 December |
30 June 2013 | |
Assets | ||||
Non-current assets | ||||
Intangible assets | 171,817 | 179,098 | 174,154 | |
Property, plant and equipment | 13 | 664,009 | 661,917 | 631,961 |
Deferred income taxes | 2,224 | 2,885 | 3,934 | |
Derivative financial instruments | 665 | - | - | |
Trade and other receivables | 720 | 1,163 | 1,172 | |
839,435 | 845,063 | 811,221 | ||
Current assets | ||||
Trade and other receivables | 40,216 | 40,604 | 36,700 | |
Cash and cash equivalents | 20,476 | 23,244 | 18,413 | |
60,692 | 63,848 | 55,113 | ||
Total assets | 900,127 | 908,911 | 866,334 | |
Equity | ||||
Share capital | 15 | 406 | 405 | 405 |
Share premium account | 78,881 | 78,453 | 78,453 | |
Retained profits | 357,945 | 333,191 | 306,017 | |
Own shares | (228) | (419) | (419) | |
Cumulative translation reserve | (15,089) | (2,367) | 8,118 | |
Total equity | 421,915 | 409,263 | 392,574 | |
Liabilities | ||||
Non-current liabilities | ||||
Deferred income | 19,443 | 18,712 | 16,801 | |
Borrowings | 14 | 311,730 | 322,858 | 301,909 |
Derivative financial instruments | 1,196 | - | 1,047 | |
Provisions for other liabilities and charges | 3,077 | 3,759 | 5,971 | |
Deferred income taxes | 25,783 | 29,394 | 19,080 | |
361,229 | 374,723 | 344,808 | ||
Current liabilities | ||||
Trade and other payables | 52,175 | 61,490 | 68,085 | |
Deferred income | 44,461 | 45,373 | 43,158 | |
Current income tax liabilities | 12,865 | 8,604 | 10,745 | |
Borrowings | 14 | 4,935 | 4,637 | 4,544 |
Derivative financial instruments | 1,299 | 1,122 | 1,459 | |
Provisions for other liabilities and charges | 1,248 | 3,699 | 961 | |
116,983 | 124,925 | 128,952 | ||
Total liabilities | 478,212 | 499,648 | 473,760 | |
Total equity and liabilities | 900,127 | 908,911 | 866,334 |
Consolidated cash flow statement
Notes |
Six months
June |
Six months
June | |
Cash inflow from operations | 17 | 75,925 | 69,243 |
Interest received | 35 | 23 | |
Interest paid | (3,813) | (2,695) | |
Interest element of finance lease payments | (313) | (349) | |
Taxation paid | (9,791) | (5,274) | |
Cash inflow from operating activities | 62,043 | 60,948 | |
Purchase of operational property, plant and equipment | (14,269) | (12,960) | |
Operating free cash flows | 47,774 | 47,988 | |
Cash flows from investing activities | |||
Acquisition of subsidiary, net of cash acquired | 12 | - | (24,870) |
Costs associated with acquisition of subsidiary | 12 | - | (1,250) |
Purchase of investment related property, plant and equipment | (34,488) | (38,656) | |
Net cash used in investing activities | (34,488) | (64,776) | |
Cash flows from financing activities | |||
Net (repayments of)/proceeds from borrowings | (3,920) | 13,445 | |
Proceeds from sale and leaseback arrangements | 2,898 | 12,638 | |
Repayment of finance leases | (2,344) | (1,854) | |
Net proceeds on issue of ordinary share capital | 348 | 154 | |
Dividends paid to owners of the parent | 16 | (14,178) | (10,080) |
Net cash (outflow)/inflow from financing activities | (17,196) | 14,303 | |
Net decrease in cash and cash equivalents | (3,910) | (2,485) | |
Effects of foreign exchange rate change | 1,142 | (73) | |
Cash and cash equivalents at beginning of period | 23,244 | 20,971 | |
Cash and cash equivalents at end of period | 20,476 | 18,413 |
Consolidated net debt statement
Six months
June |
Six months
June | ||
Decrease in cash and cash equivalents | (3,910) | (2,485) | |
Cash inflow/(outflow) from movement in debt | 3,366 | (24,229) | |
Movement in deferred debt arrangement fees | (953) | (1,171) | |
Other non-cash movements in net debt | 90 | (199) | |
Change in net debt | (1,407) | (28,084) | |
Effects of foreign exchange rate change | 9,469 | (5,757) | |
Movement in net debt in period | 8,062 | (33,841) | |
Net debt at beginning of period | (304,251) | (254,199) | |
Net debt at end of period | (296,189) | (288,040) | |
Comprising: | |||
Borrowings | 14 | (316,665) | (306,453) |
Cash and cash equivalents | 20,476 | 18,413 | |
Net debt at end of period | (296,189) | (288,040) |
Notes to the condensed financial statements
The Company is a limited liability company incorporated and domiciled in the UK. The address of its registered office is Masters House, 107 Hammersmith Road, London W14 0QH.
The Company is listed on the London Stock Exchange.
This half year financial report, which comprises the Operating Review, the Financial Review, the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Changes in Equity, the Consolidated Balance Sheet, the Consolidated Cash Flow Statement, the Consolidated Net Debt Statement and notes 1 to 20 to the condensed financial statements, does not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2013 were approved by the Board of Directors on 11 February 2014 and have been delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 498(2) or (3) of the Companies Act 2006.
This half year financial report has been reviewed, not audited.
The Directors of Telecity Group plc in office at 31 December 2013 are listed in the Telecity Group plc Annual Report for that year. A list of current directors is maintained on the Telecity Group plc website: www.telecitygroup.com.
The Directors confirm that this half year financial report for the six months ended 30 June 2014 has been prepared in accordance with the Disclosure and Transparency Rules ('DTR') of the Financial Conduct Authority and with IAS 34, 'Interim financial reporting', as adopted by the European Union. It should be read in conjunction with the annual financial statements for the year ended 31 December 2013, which have been prepared in accordance with IFRS, as adopted by the European Union. As required by DTR 4.2.7 and DTR 4.2.8, the half year financial report includes a fair review of important events that have occurred, any material related party transactions during the period, and a description of the principal risks and uncertainties for the remaining six months of the financial year.
The Directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing the condensed financial statements.
This half year financial report, including the responsibility statement above made in accordance with DTR 4.2.10 (1), was approved on behalf of the Board by Michael Tobin on 1 August 2014.
The accounting policies applied are consistent with those of the annual financial statements for the year ended 31 December 2013.
The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period.
Taxes on income in the interim periods are accrued using the tax rate that would be applicable to the expected total annual earnings.
A number of new standards, amendments and interpretations have been issued but are not effective for the financial year beginning 1 January 2014. To the extent they are not relevant to the Group they are not disclosed below:
- IFRS 9, 'Financial instruments' addresses the classification, measurement and derecognition of financial assets and financial liabilities. The standard is not applicable until 1 January 2015 but is available for early adoption. When adopted, the standard is not expected to have a material effect on the Group's results.
- IFRS 15, 'Revenue from contracts with customers' establishes principles for reporting information to users of financial statements about the nature, amount, timing and uncertainly about revenue and cash flows arising from an entity's contracts with customers. The standard is not applicable until 1 January 2017 but is available for early adoption. When adopted, the standard is not expected to have a material effect on the Group's results.
The preparation of the half year financial report requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.
In preparing these condensed financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 31 December 2013.
The following table provides a reconciliation between the Group's adjusted and statutory financial results:
Six months ended 30 June 2014 | Six months ended 30 June 2013 | |||||
Adjusted
results | Adjusting
items | Statutory
total | Adjusted
results | Adjusting
items | Statutory
total | |
Revenue | 174,088 | - | 174,088 | 159,276 | - | 159,276 |
Cost of sales | (73,383) | - | (73,383) | (68,675) | - | (68,675) |
Gross profit | 100,705 | - | 100,705 | 90,601 | - | 90,601 |
Sales and marketing costs | (7,060) | - | (7,060) | (5,719) | - | (5,719) |
Depreciation charges | (24,159) | - | (24,159) | (22,510) | - | (22,510) |
Amortisation charges(1) | - | (2,630) | (2,630) | - | (2,219) | (2,219) |
Operating exceptional items(2) | - | - | - | - | (1,250) | (1,250) |
Other administrative costs | (12,024) | - | (12,024) | (11,128) | - | (11,128) |
Administrative costs | (36,183) | (2,630) | (38,813) | (33,638) | (3,469) | (37,107) |
Operating profit/(loss) | 57,462 | (2,630) | 54,832 | 51,244 | (3,469) | 47,775 |
Finance income | 35 | - | 35 | 23 | - | 23 |
Finance costs | (4,894) | - | (4,894) | (4,160) | - | (4,160) |
Other financing items(3) | - | - | - | - | 358 | 358 |
Profit/(loss) before tax | 52,603 | (2,630) | 49,973 | 47,107 | (3,111) | 43,996 |
Income tax (charge)/credit(4) | (12,730) | 835 | (11,895) | (11,304) | 522 | (10,782) |
Profit/(loss) for the period | 39,873 | (1,795) | 38,078 | 35,803 | (2,589) | 33,214 |
Diluted earnings per share | 19.6 | (0.9) | 18.7 | 17.5 | (1.3) | 16.2 |
Supplementary non-statutory information | ||||||
EBITDA | 81,621 | - | 81,621 | 73,754 | (1,250) | 72,504 |
Depreciation charges | (24,159) | - | (24,159) | (22,510) | - | (22,510) |
EBITA | 57,462 | - | 57,462 | 51,244 | (1,250) | 49,994 |
Amortisation charges | - | (2,630) | (2,630) | - | (2,219) | (2,219) |
Operating profit | 57,462 | (2,630) | 54,832 | 51,244 | (3,469) | 47,775 |
(1) Amortisation charges are excluded from the Group's adjusted results, as is normal practice for comparable companies.
(2) Exceptional items by their very nature are not considered part of the Group's underlying business. Further details are given in note 7.
(3) Other financing items comprise foreign exchange movements on the Group's financing items and are not considered to be related to the underlying performance of the Group.
(4) The tax effect of the above items is also removed from the adjusted results.
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors.
The Group is organised on a geographical basis and derives its revenue from the provision of colocation and related services in Bulgaria, Finland, France, Germany, Ireland, Italy, the Netherlands, Poland, Sweden, Turkey and the UK. These geographical locations comprise the Group's segments.
Due to similarities in services, customers, regulatory environment and economic characteristics across the countries in which the Group operates, the Group aggregates these operating segments into the UK and the Rest of Europe for reporting purposes.
The Board reviews the Group's internal reporting in order to assess performance and allocate resources. The internal reporting principally analyses the performance of the UK and the Rest of Europe. When further detail is required, the results of individual countries are reviewed. The Board has therefore determined the reportable segments to be the UK and the Rest of Europe.
The Group's income statement, split by segment, is shown below. Treasury and financing is managed on a Group-wide basis; as such, it is not practical to allocate costs below operating profit to an individual reporting segment.
Six months ended 30 June 2014 | Six months ended 30 June 2013 | |||||
UK |
Rest of Europe |
Total |
UK |
Rest of Europe |
Total | |
Revenue | 73,470 | 100,618 | 174,088 | 71,141 | 88,135 | 159,276 |
Cost of sales | (31,930) | (41,453) | (73,383) | (31,526) | (37,149) | (68,675) |
Gross profit | 41,540 | 59,165 | 100,705 | 39,615 | 50,986 | 90,601 |
Depreciation charges | (8,586) | (15,573) | (24,159) | (8,545) | (13,965) | (22,510) |
Amortisation charges | (1,054) | (1,576) | (2,630) | (1,054) | (1,165) | (2,219) |
Operating exceptional items (note 7) | - | - | - | - | (1,250) | (1,250) |
Operating expenses | (6,519) | (12,565) | (19,084) | (6,015) | (10,832) | (16,847) |
Total operating costs | (16,159) | (29,714) | (45,873) | (15,614) | (27,212) | (42,826) |
Operating profit | 25,381 | 29,451 | 54,832 | 24,001 | 23,774 | 47,775 |
Finance income | 35 | 23 | ||||
Finance costs | (4,894) | (4,160) | ||||
Other financing items | - | 358 | ||||
Profit before tax | 49,973 | 43,996 | ||||
Income tax charge | (11,895) | (10,782) | ||||
Profit for the period | 38,078 | 33,214 | ||||
Supplementary non-statutory information | ||||||
Adjusted EBITDA | 35,021 | 46,600 | 81,621 | 33,600 | 40,154 | 73,754 |
Depreciation charges | (8,586) | (15,573) | (24,159) | (8,545) | (13,965) | (22,510) |
Adjusted EBITA | 26,435 | 31,027 | 57,462 | 25,055 | 26,189 | 51,244 |
Amortisation charges | (1,054) | (1,576) | (2,630) | (1,054) | (1,165) | (2,219) |
Operating exceptional items (note 7) | - | - | - | - | (1,250) | (1,250) |
Operating profit | 25,381 | 29,451 | 54,832 | 24,001 | 23,774 | 47,775 |
Summary assets and liabilities | ||||||
Segment assets | 346,659 | 530,266 | 876,925 | 329,810 | 517,738 | 847,548 |
Unallocated assets | 23,202 | 18,786 | ||||
Total assets | 900,127 | |||||
The above segmental results are shown after eliminating inter-segment trading of £803,000 (H1 2013: £965,000). The Group had no customers from which greater than 10% of revenue was derived during the period.
The Group's key performance indicators ('KPI') by reportable segment are shown below. To the extent that it is not practical to measure a KPI by reportable segment due to, for example, the common financing structure, the Group KPI is given.
Six months ended 30 June 2014 | Six months ended 30 June 2013 | |||||
UK | Rest of Europe | Total | UK | Rest of Europe | Total | |
Available customer power (MW) | 36.8 | 69.5 | 106.3 | 35.7 | 54.3 | 90.0 |
Announced customer power (MW) | 55.9 | 97.2 | 153.1 | 58.0 | 83.0 | 141.0 |
Sold power percentage (%) | 67.9 | 74.8 | 72.4 | 67.1 | 73.8 | 71.1 |
Revenue (£'000) | 73,470 | 100,618 | 174,088 | 71,141 | 88,135 | 159,276 |
Adjusted EBITDA (£'000) | 35,021 | 46,600 | 81,621 | 33,600 | 40,154 | 73,754 |
EBITA per sold kW (£) | 2,129 | 1,253 | 1,545 | 2,125 | 1,357 | 1,648 |
Adjusted diluted EPS (p) | 19.6 | 17.5 | ||||
Return on capital employed (%) | 15.4 | 15.1 | ||||
No exceptional items arise in the period. The exceptional item totalling £1.3m in the period to 30 June 2013 related to transaction and integration costs associated with the acquisition of SadeceHosting in Turkey.
Six months |
Six months | |
Transaction-related expenses | - | 1,250 |
The Group classifies its expenses by nature into the categories shown in the table below. Power costs represent the total cost of power to the Group, including related taxes. Property costs include rent, service charges, property-related taxes and ancillary property costs such as insurance. Staff and staff-related costs include expenses such as training and recruitment in addition to staff remuneration costs. Other costs comprise operational maintenance costs, sales and administrative costs and cost of sales of services.
Six months ended 30 June 2014 | Six months ended 30 June 2013 | |||||
Adjusted |
Adjusting items |
Statutory |
Adjusted |
Adjusting items |
Statutory | |
Power costs | 24,536 | - | 24,536 | 23,039 | - | 23,039 |
Property costs | 20,508 | - | 20,508 | 19,670 | - | 19,670 |
Staff and staff-related costs | 25,306 | - | 25,306 | 23,664 | - | 23,664 |
Other costs | 22,117 | - | 22,117 | 19,149 | 1,250 | 20,399 |
92,467 | - | 92,467 | 85,522 | 1,250 | 86,772 | |
Depreciation charges | 24,159 | - | 24,159 | 22,510 | - | 22,510 |
Amortisation charges | - | 2,630 | 2,630 | - | 2,219 | 2,219 |
116,626 | 2,630 | 119,256 | 108,032 | 3,469 | 111,501 | |
Six months |
Six months | |
Interest payable on long-term loans | 4,862 | 5,036 |
Interest payable on finance leases | 385 | 393 |
Amortisation of loan arrangement costs | 956 | 1,171 |
Gross cost of borrowings | 6,203 | 6,600 |
Less interest capitalised | (1,753) | (2,870) |
Net cost of borrowings | 4,450 | 3,730 |
Loan commitment fees | 338 | 285 |
Other | 106 | 145 |
4,894 | 4,160 |
The income tax expense is recognised based on management's best estimate of the weighted average annual income tax rate expected for the full financial year. The estimated average annual adjusted tax rate for the period ended 30 June 2014 is approximately 24.2%. In accordance with IAS 34, the tax effect of exceptional or one-off items has not been included in the calculation of the estimated average annual tax rate.
Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company, profit for the period as disclosed in the income statement, by the weighted average number of ordinary shares in issue during the period, excluding those held by the Employee Benefit Trust.
Adjusted earnings per share is calculated on the same basis but uses the adjusted profit for the period (note 5). The adjusted earnings per share is presented as the Directors consider it provides an additional indication of the underlying performance of the Group.
Six months ended |
Six months ended |
Six months ended |
Six months ended | |
Profit for the period (£'000) | 38,078 | 33,214 | 39,873 | 35,803 |
Weighted average number of shares in issue ('000) | 202,607 | 201,935 | 202,607 | 201,935 |
Earnings per share (p) | 18.8 | 16.4 | 19.7 | 17.7 |
Diluted earnings per share is calculated by dividing the profit for the period by the weighted average number of ordinary shares in issue during the period, adjusted for the weighted average effect of share options outstanding during the period.
Adjusted diluted earnings per share is calculated on the same basis but uses the adjusted profit for the period (note 5).
Six months ended |
Six months ended |
Six months ended |
Six months ended | |
Profit for the period (£'000) | 38,078 | 33,214 | 39,873 | 35,803 |
Weighted average diluted number of shares in issue ('000) | 203,181 | 204,944 | 203,181 | 204,944 |
Diluted earnings per share (p) | 18.7 | 16.2 | 19.6 | 17.5 |
On 10 September 2013 the Group acquired 100% of the share capital of 3DC EAD ('3DC') and on 2 December 2013 the Group acquired 100% of the share capital of PLIX Sp. z.o.o. ('PLIX'). Both of these acquisitions were disclosed on a provisional basis at 31 December 2013 because the Group had not completed its detailed appraisal of the acquired assets and liabilities at the date of those financial statements. The appraisals have now been completed for both acquisitions, resulting in an increase of £0.1m to the fair value of net assets acquired. There have been no business combinations in the period to 30 June 2014.
Assets in the |
Freehold |
Leasehold |
Plant and |
Office |
Total | |
Cost | ||||||
At 1 January 2013 | 129,156 | 8,545 | 271,560 | 405,622 | 8,582 | 823,465 |
Exchange differences | 2,040 | 399 | 9,374 | 8,030 | 204 | 20,047 |
Additions | 29,328 | - | 5,499 | 15,756 | 947 | 51,530 |
Transfers | (14,189) | - | 5,369 | 8,774 | 46 | - |
Disposals | - | - | - | (11) | (1) | (12) |
At 30 June 2013 | 146,335 | 8,944 | 291,802 | 438,171 | 9,778 | 895,030 |
At 1 January 2014 | 131,383 | 9,928 | 318,397 | 473,873 | 9,728 | 943,309 |
Exchange differences | (2,187) | (412) | (13,557) | (9,834) | (244) | (26,234) |
Additions | 20,869 | - | 4,049 | 19,200 | 300 | 44,418 |
Transfers | (51,952) | - | 22,773 | 28,927 | 252 | - |
Disposals | - | - | (28) | (940) | (279) | (1,247) |
At 30 June 2014 | 98,113 | 9,516 | 331,634 | 511,226 | 9,757 | 960,246 |
Accumulated depreciation | ||||||
At 1 January 2013 | - | 28 | 83,968 | 144,050 | 6,331 | 234,377 |
Exchange differences | - | 9 | 2,620 | 3,404 | 161 | 6,194 |
Charge for the period | - | 33 | 9,356 | 12,759 | 362 | 22,510 |
Disposals | - | - | - | (11) | (1) | (12) |
At 30 June 2013 | - | 70 | 95,944 | 160,202 | 6,853 | 263,069 |
At 1 January 2014 | - | 86 | 100,956 | 173,281 | 7,069 | 281,392 |
Exchange differences | - | (14) | (3,572) | (4,449) | (187) | (8,222) |
Charge for the period | - | 30 | 7,385 | 16,204 | 540 | 24,159 |
Disposals | - | - | (28) | (785) | (279) | (1,092) |
At 30 June 2014 | - | 102 | 104,741 | 184,251 | 7,143 | 296,237 |
Net book value | ||||||
At 30 June 2014 | 98,113 | 9,414 | 226,893 | 326,975 | 2,614 | 664,009 |
At 31 December 2013 | 131,383 | 9,842 | 217,441 | 300,592 | 2,659 | 661,917 |
At 30 June 2013 | 146,335 | 8,874 | 195,858 | 277,969 | 2,925 | 631,961 |
The net book value of assets held under finance leases at 30 June 2014 was £26,541,000 (31 December 2013: £24,599,000; 30 June 2013: £25,295,000 ). Such assets are categorised as plant and machinery in the above table.
Included within additions to assets in the course of construction for the period are capitalised finance and other costs (principally rent and rates incurred during the construction or commissioning phase) in respect of the Group's new data centres, totalling £1,753,000 and £1,978,000 respectively (31 December 2013: £5,376,000 and £3,892,000; 30 June 2013: £2,870,000 and £1,440,000 ).
Borrowings represent bank borrowings and obligations under finance leases. Bank borrowings relate to the Group's senior debt facility and comprise a term loan of £100,000,000 and amounts drawn under a revolving credit facility.
30 June |
31 December |
30 June | |
Current | |||
Obligations under finance leases | 4,935 | 4,637 | 4,544 |
4,935 | 4,637 | 4,544 | |
Non-current | |||
Bank borrowings | 295,738 | 307,089 | 283,740 |
Obligations under finance leases | 15,992 | 15,769 | 18,169 |
311,730 | 322,858 | 301,909 | |
Total borrowings | 316,665 | 327,495 | 306,453 |
The maturity profile of borrowings is set out below:
30 June |
31 December |
30 June | |
Within one year | 5,708 | 5,223 | 5,278 |
In one to two years | 5,637 | 5,207 | 5,238 |
In two to three years | 17,454 | 8,983 | 13,134 |
In three to four years | 20,553 | 20,974 | 20,960 |
In four to five years | 271,468 | 292,900 | 267,346 |
After five years | 788 | - | - |
Gross borrowings | 321,608 | 333,287 | 311,956 |
Less future interest and unamortised debt issue costs | (4,943) | (5,792) | (5,503) |
Net borrowings | 316,665 | 327,495 | 306,453 |
The weighted average maturity of the borrowings is 4.2 years (30 June 2013: 4.2 years).
The Group pays LIBOR (or equivalent based on currency) plus a margin on its borrowings. The Group uses interest rate swaps to fix the LIBOR, or equivalent, rate it pays on its borrowings. The split of borrowings between fixed and variable is shown below:
30 June |
31 December |
30 June | |
Fixed rate borrowings | 287,060 | 294,042 | 289,769 |
Variable rate borrowings | 34,548 | 39,245 | 22,187 |
321,608 | 333,287 | 311,956 | |
Percentage of bank borrowings at fixed rate | 89.3% | 88.2% | 92.9% |
The Group has undrawn committed loan facilities at the period end as shown below:
30 June 2014 |
31 December 2013 |
30 June 2013 | |
Senior debt facility | 400,000 | 400,000 | 350,000 |
Finance lease facility | 22,613 | 21,989 | 26,250 |
Gross borrowings drawn | (321,608) | (333,287) | (311,956) |
Rental guarantees issued under senior debt facility | (2,896) | (2,617) | (2,653) |
Undrawn committed loan facility | 98,109 | 86,085 | 61,641 |
The allotted share capital of the Company is shown below:
Ordinary shares of £0.002 each |
Number |
Value |
At 30 June 2013 | 202,647 | 405 |
Shares issued under share option schemes | - | - |
At 31 December 2013 | 202,647 | 405 |
Shares issued under share option schemes | 153 | 1 |
At 30 June 2014 | 202,800 | 406 |
Each ordinary share carries one vote at general meetings.
During the period, 118,000 new shares were issued under the Group's share option schemes for a total consideration of £429,000 and 34,000 new shares were issued to the Employee Benefit Trust ('EBT') for a total consideration of £69.
In addition to the new shares, during the period 114,000 shares were issued from the EBT under the Group's share option schemes for a total consideration of £18,000.
The EBT made purchases of shares from the market of 15,000 shares for a consideration of £99,000.
Six months |
Six months | |
2012 final dividend paid - 5.0 pence per share | - | 10,080 |
2013 final dividend paid - 7.0 pence per share | 14,178 | - |
Total dividends | 14,178 | 10,080 |
A reconciliation of profit on ordinary activities before taxation to cash flows from operations is shown below:
Six months |
Six months | |
Profit on ordinary activities before taxation | 49,973 | 43,996 |
Add finance costs | 4,894 | 4,160 |
Less finance income | (35) | (23) |
Less other financing items | - | (358) |
Add intangible asset amortisation | 2,630 | 2,219 |
Add exceptional items | - | 1,250 |
Adjusted operating profit (note 5) | 57,462 | 51,244 |
Depreciation charge | 24,159 | 22,510 |
Loss on disposal of property, plant and equipment | 155 | - |
Share-based payment charges | 1,676 | 1,645 |
Movement in trade and other receivables | (2,041) | (2,328) |
Movement in trade and other payables | (2,786) | (5,518) |
Movement in deferred income | 1,481 | 1,806 |
Movement in provisions | (2,630) | (470) |
Exchange movement | (1,551) | 354 |
Cash inflow from operations | 75,925 | 69,243 |
Financial guarantees granted by the Group's banks, primarily in respect of operating leases, are disclosed in note 14.
At the inception of a property lease and annually thereafter, the Directors assess the cost of restoring leasehold premises to their original condition at the end of the lease and the likelihood of such costs actually being incurred. If the likelihood of this liability arising is judged to be possible, rather than probable, it is disclosed as a contingent liability. When assessing the likely duration of the lease and the likelihood of this liability arising, the Directors take into account their contractual and statutory rights to renew or extend the lease terms. If the likelihood of this liability arising is judged to be probable, the discounted cost of the liability is included in leasehold improvements and is depreciated over the duration of the lease.
At 30 June 2014, the estimated discounted cost of reinstating leasehold properties at the end of leases in accordance with the lease contracts was not materially different from the balance disclosed in the 2013 Annual Report (31 December 2013: £7,814,000; 30 June 2013: £9,180,000). In addition , £ 354,000 (31 December 2013: £1,557,000; 30 June 2013: £1,557,000) is recorded within provisions. The leases expire over a range of 2 to 29 years.
The Group has contractual capital commitments £14,912,000 (30 June 2013: £23,303,000) and future expected commitments of £7,610,000 (30 June 2013: £5,335,000) relating to the phased delivery of infrastructure to provide the currently available customer power.
There were no related party transactions, other than remuneration to key management, during the period.
Below is a glossary of terms commonly used by the Group:
Announced customer power - The value of available customer power once all currently announced expansion projects are complete.
Available customer power - The total value of power that the Group has available to sell to customers, including the amount already sold.
Churn - The annual financial value of reductions to the Group's order book during the period, as a result of contract losses or downsizing of contracts, divided by the revenue for the period.
Cost of drawn debt - Interest payable on long-term loans and finance leases (note 9) divided by the average borrowings (note 14) during the period.
EBITA - Earnings before interest, taxation and amortisation. A reconciliation from EBITA to operating profit is contained in note 5.
EBITA per sold kW - EBITA for the period divided by the average sold kW during the period.
EBITDA - Earnings before interest, taxation, depreciation and amortisation. A reconciliation from EBITDA to operating profit is contained in note 5.
Gross interest rate - Gross cost of borrowings (note 9) divided by the average borrowings (note 14) during the period.
Investment capital expenditure - Capital expenditure that results in additional available customer power or a significant enhancement to the currently installed asset base.
Leverage - Period end net debt divided by annualised EBITDA for the period.
Net debt - Borrowings (note 14) less cash.
Operating free cash flow - Cash inflow from operating activities as stated on the cash flow statement less operational property, plant and equipment capital expenditure. Capital expenditure is classified as operating rather than investment if it does not result in additional available customer power or a significant enhancement to the currently installed asset base.
Organic currency neutral - For organic growth rates, the contribution from acquisitions made in the current period is excluded, and for acquisitions made in the comparative period, the full period contribution is included in the comparative period results. Currency neutral results are calculated by retranslating the comparative period results using current period exchange rates.
Return on capital employed ('ROCE') - Annualised EBITA for the period divided by the average equity plus debt during the period.
Revenue per sold kW - Annualised revenue for the period divided by the average sold kW during the period.
Sold power percentage - Period end sold customer power divided by period end available customer power.
Independent review report to Telecity Group plc
Report on the condensed interim financial statements
Our conclusionWe have reviewed the condensed financial statements, defined below, in the half year financial report of Telecity Group plc for the six months ended 30 June 2014. Based on our review, nothing has come to our attention that causes us to believe that the condensed financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
This conclusion is to be read in the context of what we say in the remainder of this report.
What we have reviewedThe condensed financial statements, which are prepared by Telecity Group plc, comprise:
· the consolidated income statement and consolidated statement of comprehensive income for the period ended 30 June 2014;
· the consolidated statement of changes in equity for the period then ended;
· the consolidated balance sheet as at 30 June 2014;
· the consolidated cash flow statement for the period then ended;
· the consolidated net debt statement for the period then ended; and
· the explanatory notes to the condensed financial statements.
As disclosed in note 2, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.
The condensed financial statements included in the half year financial report have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
What a review of condensed financial statements involvesWe conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.
A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the half year financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed financial statements.
Our responsibilities and those of the DirectorsThe half year financial report, including the condensed financial statements, is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half year financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Our responsibility is to express to the Company a conclusion on the condensed financial statements in the half year financial report based on our review. This report, including the conclusion, has been prepared for and only for the Company for the purpose of complying with the Disclosure and Transparency Rules of the Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
The maintenance and integrity of the Telecity Group plc website is the responsibility of the Directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.
Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
PricewaterhouseCoopers LLP
Chartered Accountants
1 August 2014
1 Embankment Place, London WC2N 6RH
This information is provided by RNS
|
distributed by
|
