Centralnic Group PLC (LON:CNIC) Chief Executive Officer Ben Crawford caught up with DirectorsTalk for an exclusive interview to discuss their interim results to 30th June 2017
Q1: Now, Centralnic Group released a great set of interim results today with EBITDA up 50%, can you tell me what were the highlights?
A1: Absolutely. So, having EBITDA up 50% is one of the highlights, our gross profit was up almost 30%, revenue up 19% and we ended the half year with almost £8 million so we ended in a good position. I think, essentially, we had growth across all areas of our business which is extremely encouraging and we also won some new clients, we distributed domain names and we won .rugby, .observer, .storage and multiple country codes contracts as well so, country codes are the domain names used by countries so like co.uk for the UK.
Q2: You’ve had great growth but what are the drivers in this industry?
A2: The drivers in our industry is actually the adoption of the internet itself so whilst countries like the UK and the USA, virtually every business or most small businesses already have websites and use email, in emerging markets, there are literally millions of businesses that haven’t got their own websites, haven’t got their own emails. So, as they gradually adopt their own websites and emails, that drives demand for our services.
Q3: What’s the overall strategy of Centralnic Group then?
A3: We have fantastic technology platforms for giving people the tools to get their own websites and emails around the world and there are many companies in emerging markets that are serving their markets with these tools, essentially, we’re looking to acquire them and then move them on to our platform.
I’d say there’s some really special things about our industry that make it very investable, firstly, when people buy domain names and other services like that, they actually pay in advance and so our cash comes in before we book the revenue. Second thing is all about services, subscription services and so it’s a renewing revenues model where people pay every year to keep their website going, to keep their emails going and so on, obviously, it’s got really good underlying growth particularly in emerging markets.
So, because of that we can find very high-quality businesses around the world, acquire them and shift them on to our platform. Then as we’ve seen in this half, when we didn’t make any acquisitions, we can grow them steadily and so we get organic growth as well as the big jumps that we make every time we acquire a company.
Q4: Talking about renewals, you announced the renegotiation of your .xyz contract, what does that involve?
A4: Yes, that’s correct so .xyz, for anyone that doesn’t know, is just a fantastic product launched about 3 years ago. The internet has been changing over the last 3 years and our company is driving that a lot of that change and the main way is that 1,200 new endings that substitutes for .com or .co.uk have launched over that period. .xyz, over the last 3 years, has held the number one position for, I think, 98% of every week over that period so it’s clearly the preferred top-level domain name, as we call around the world. Google used it when they launched their new parent company, Alphabet (NASDAQ:GOOG) so if you go to abc.xyz, you’ll find that website, Mark Zuckerberg has used it, Deloitte has started using .xyz and so on so the only one that is a real challenger to .com.
So, we’re very very happy to have .xyz on Centralnic Group’s platform and distributing it. We initially had a 10-year contract which we’re halfway through, we’ve now negotiated a 10-year extension so we’re guaranteed to be the exclusive provider of .xyz all the way to 2032. As part of that deal also, we are now getting a fixed fee every month depending on the volumes which basically means that we have guaranteed recurring revenues from this business all the way to 2032 so we couldn’t be happier about that outcome.
Q5: You recently acquired SK-NIC, what was the rationale behind the acquisition?
A5: So, SK-NIC, it’s an amazing business, it’s the wholesaler of .sk, .sk is the country code for Slovakia, so Slovakia is one of the booming economies in Eastern Europe, it’s growth is double that of the average of the EU. .sk has been going for a long time, in fact there’s 360,000 .sk domain names which means that pretty much every small business that uses a website in Slovakia has a .sk and it makes a lot of sense why because .sk means it’s in the Slovak language and it means it’s a local business in Slovakia which are pretty much the 2 messages that any business in Slovakia wants to telegraph to their users.
So, .sk is exactly the kind of business we were talking about, recurring revenues, massive quality of earnings, 77% of all .sk users automatically renew every single year. So, the quality of earnings is superb, it made £1 million plus in EBITDA in the first half of this year, we’re expecting to be able to grow the business from that.
For us, the real benefits are that we are always looking for quality businesses which really ticks that box in emerging markets which we definitely have there. We’ve been able to upgrade the business with our technology and although we only announced a couple of weeks ago that we’d bought it, we actually upgraded the technology over the weekend and it’s now running on our systems. We recruited all of the local staff because obviously you need all your customer service in Slovak language but we’re training them, we’re hiring more, we’re adding to their fire power. We’ve learned a lot about how the market domain names around the world and we’re bringing that knowledge to Slovakia and so not only is it a fantastic quality business as is, we actually believe we can make it grow it quite rapidly.
Q6: Talking about Centralnic Group, how does it differentiate from its peers?
A6: Well, we’re a rollup strategy so if you look at our industry, in the United States there’s companies like Verizon on Nasdaq which has a market cap in the $10 billion range, in Germany United Internet which has a market cap in the €10 billion range but when you look at the smaller countries, there aren’t any big companies in the emerging markets. So, we really view that as the opportunity that if we can go around the world, we have the technology, we just need to really buy the customers and the product and add them on to our platforms.
So, we really believe that investing in us is an investment in emerging markets and growth markets with the same kind of quality of revenues that has allowed other companies to achieve multi-billion-dollar market caps.