h1 2016 results - zegona/media/files/z/zegona/investors/...and management’s analysis of...
TRANSCRIPT
This Presentation has been prepared by Zegona Communications plc (the “Company”) in connection with the financial performance of the Company for the 3 months and 6 months ended 30 June 2016. The forecast financial information contained herein was prepared expressly for use herein and is based on certain assumptions and management’s analysis of information available at the time that this presentation was prepared. No reliance may be placed, for any purposes whatsoever, on the information contained in this Presentation or on its completeness. While the information provided herein is believed to be accurate, no representation or warranty, express or implied, is given by or on behalf of the Company, or any of its directors, partners, officers, employees, advisers or any other persons as to the accuracy, fairness or sufficiency of the information or opinions contained in this presentation and (to the extent permitted by law) no responsibility is accepted by any of them for the accuracy or completeness of such information or for omissions from the presentation or for any other written or oral information transmitted or made available. Accordingly, save in the case of fraud, no liability is accepted for any errors, omissions or inaccuracies in such information or opinions. The information and opinions provided in this Presentation are provided as of the date of this Presentation and are subject to change. Certain statements in this Presentation are forward-looking statements. The forward-looking statements include statements typically containing the words “intends”, “expects”, “anticipates”, “targets”, “plans”, “estimates” and words of similar import. These forward-looking statements speak only as at the date of this Presentation. These statements are based on current expectations and beliefs and, by their nature, are subject to a number of known and unknown risks, uncertainties and assumptions that could cause actual results, performances and achievements of the Company and its subsidiaries to differ. The forward-looking statements are based on numerous assumptions regarding the Company’s present and future business strategies and environments in which the Company may operate in the future and such assumptions may or may not prove to be correct. No statement in this Presentation is intended, nor may it be construed, as a profit forecast. No one undertakes to update or revise such forward-looking statements.
Disclaimer
Zegona continues to see many attractive investment opportunities in European TMT
Telecable acquisition performing well • Results fully in line with full year guidance • 4.4% revenue growth • 10.6% Cash Flow growth*
Strong cash returns to shareholders • 4.5p dividend for 2016 confirmed
Opportunity to further improve cash flows with debt refinancing • Significant reduction in interest costs • Material impact on free cash flow
Significant shareholder value upside potential
Summary Telecable acquisition continues to deliver strong performance, on track for full year guidance
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* Cash Flow is EBITDA minus Capex
Zegona’s Strategy…. A Reminder
Significant sector expertise
Extensive real world senior operational and public company management experience
Executive leadership over last 10 years in businesses that have created $25bn of shareholder value
Experienced Team with Proven Track Record
Investor friendly Buy-Fix-Sell strategy in European TMT
Focus on businesses that require active change and fundamental improvement to realise full value
Target significant long term growth in shareholder value
Buy-Fix-Sell Strategy
Attractive Market Opportunity
Changing market dynamics in telecommunications and media industry create multiple investment opportunities
Driven by consumer consumption, industry consolidation and convergence in European TMT
Over 60 companies of desired scale identified
Targeting acquisitions in £1-3bn EV range
Telecable 1st acquisition and early performance very encouraging
Many attractive additional opportunities but very disciplined approach as shareholder value No 1 priority
Well Positioned to Access Attractive Deals
Zegona acquired Telecable in 2015 for €640m and continues to see many attractive investment opportunities
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Attractive Spanish Market Dynamics
Macro economic rebound
Favourable industry structure following consolidation
Early stages of market price repair
Telecable Overview
Leading quad-play telecommunications provider in Asturias
High profile local brand
Advanced cable network delivering market-leading speeds
Extensive network covering 73% of households in region
Strong, experienced local management team
Telecable is a Strong Regional Champion Telecable Well-Positioned for Future Consolidation
452k homes passed
138k Consumer customers
20k Business customers
Market Share Market Position
Pay TV 70%
Broadband 41%
Fixed Line 32%
Mobile 16%
Asturias Region
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Zegona Improvement Actions
Revenue upsides (pricing, mobile, B2B, premium football)
Service enhancements (network PVR, BB speeds, mobile data)
Productivity gains (capex, procurement)
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Euskaltel / R Cable
ONO (Vodafone)
Leading quad-play operator in Asturias, North West Spain
€m
YoY Growth
€m
YoY Growth
Revenue 34.3 3.1% 69.2 4.4%
EBITDA 16.7 0.2% 33.3 1.9% % Revenue 49% 48%
Capex 5.1 - 16.7% 12.9 - 9.3% % Revenue 15% 19%
Cash Flow* 11.6 10.2% 20.4 10.6% % Revenue 34% 29%
Telecable Financial Results
Q2 2016 H1 2016
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Note: A reconciliation between Telecable’s unaudited results and Zegona’s interim condensed consolidated financial statements for the six months ended 30 June 2016 is provided in Appendix C of Zegona’s Earnings Release
* Cash Flow is EBITDA minus Capex
In line with expectations, with continuing growth in Revenue, EBITDA and Cash flow
Telecable Operational Results Product and service enhancements driving KPI improvements
H1 2016
YoY Growth
Consumer*
Revenue (€m) 50.4 2.8%
Customers (AOP K) 139 -3.7%
ARPU (€/mth) 60.3 6.7%
RGUs (K) 450 -1.7%
Consumer Mobile
Revenue (€m) 13.6 7.7%
Postpaid lines (AOP k) 116 19.0%
Postpaid ARPU (€/mth) 19.5 -9.5%
Business**
Revenue (€m) 18.7 9.8%
Customers (AOP K) 20 3.4%
RGUs (K) 93 6.2%
ARPU (€/mth) 152 6.1%
High value customer base
Stable RGUs
ARPU growing with recent price increase in line with market
Strong growth with further upside given low market share
Prepaid to postpaid customer conversion program
Converged customers have lower churn/higher value
Impressive Business revenue growth
Growing RGUs per customer
Significant further potential given relatively low market share
Note: Telecable results are unaudited and based on management accounts for the period from 1 January 2016 to 30 June 2016
* Includes Consumer Mobile ** Includes Business Mobile and excludes other revenues 6
Significant Progress on Key Strategic Initiatives
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Enhance Mobile Experience
Doubled mobile data allowances in January 2016 Continued Wifisfera take-up to 61k customers, up 17% YoY 19k consumer mobile postpaid YoY line adds (19% growth) Mobile penetration increased to 55% (from 51% end of 2015) Quadplay customers at record high of 36%
Improve Capex Productivity
Focus on sales distribution, network maintenance, self install Invest savings into revenue growth initiatives, e.g. BB speed Capex % revenue 19% in H1 2016 vs 22% in 2015 EBITDA – Capex % revenue now 29% vs 27% in 2015
Grow Consumer Revenues
Doubled min. BB speed to 200Mbps, launched 500Mbps Investment in best-in-class football offering: customers
increased by 18k YoY to 30k* Increased consumer prices by €2/mth in January 2016 7% ARPU growth, now at record high of €60/mth
Renewed Focus on Business Clients
Comprehensive product and management changes Football expansion into bars/ restaurants 10% revenue growth in H1 2016 Customers and ARPU growing strongly
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* Includes OTT
Shareholder Returns - Dividend Confirmed
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4.5p per share dividend confirmed
£8.8m full year payment
Half (2.25p/ £4.4m) to be paid in Oct 2016, balance in March 2017
Current dividend yield of 4.5%*
Intention to grow dividend on a progressive basis
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* Based on share price of 99.95p as per 2 September 2016
£4.4m to be paid in October 2016 and a further £4.4m in March 2017
Shareholder Returns - Reduced Interest Costs
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We are exploring the opportunity to refinance existing debt to significantly reduce interest costs
Potential Benefits
Over €4m reduction in interest costs
Circa 10% reduction in cost of capital
Potential for double digit free cash
flow increase2
1 Excludes €20m undrawn revolver capacity
2 Based on pro forma Telecable 2015 normalised free cash flow of €28m
Current Debt
€274m
Bullet in Aug 2022
4.25%
c.€12m
Very limited
Possible Refinancing
€274m
Amortising but back-ended
<3.00%
<€8m
Limited
Amount:1
Maturity: Interest Rate: Annual Cost: Covenants:
Shareholder Returns - Valuation Perspectives
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1 Based on last twelve months Telecable EBITDA to June 2016. Using Zegona share price of 99.95p, FX rate 1.19 €/ £ as at 2 Sep 2016
2 Based on last twelve months pro forma EBITDA to June 2016 (including R Cable). Using Euskaltel share price of €8.03 as at 2 Sep 2016
Valuation multiple: Zegona June 2016 LTM EBITDA valuation multiple is only 7.3x1 vs Euskaltel at 9.3x2
Circa 50% shareholder value upside compared to Euskaltel rating
Growth: Telecable revenue growing faster than peers - growth of circa 3% in 2015 with acceleration to
mid single digit in 2016
Cash flow: Telecable generating strong Cash Flow Incremental upside post potential debt refinancing
Shareholder returns: Zegona dividend of 4.5p provides attractive yield
Additional capital returns potential
Forex gain: €/£ rate has improved from 1.40 at acquisition to 1.19, a gain of c.18% for Zegona shareholders
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