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Centralnic Group Plc

CentralNic Group plc Strong organic growth in H1

Mike Turner, Chairman of CentralNic, commented:

“Our first half results are most encouraging as CentralNic continues to deliver consistent organic growth whilst at the same time concluding earnings enhancing acquisitions.

“CentralNic’s organic growth and roll-up strategy continues to be bolstered by a determination to escalate the size and scale of the business by concentrating on activities which will deliver high quality earnings and recurring revenues focused on the higher-margin and higher-growth segments of the market.

“2018 will be backend loaded following the KeyDrive acquisition occurring in August, second-half results will show a heavier weighting than those of the first-half. The Board is confident that the Company is on track to meet market expectations for the full year to 31 December 2018.”

CentralNic Group plc (LON: CNIC), a leading global player and consolidator in the recurring revenue domain and web services industry, today announced its half year results for the six months ended 30 June 2018, which demonstrates the strong underlying organic growth in combination with the positive impact of the SK-NIC acquisition.

Highlights:

· Gross profit of £3.9m (H1 2017: £3.0m) – up 30.7%

· Revenue of £11.2m (H1 2017: £10.6m) – up 5.5%

· Adjusted EBITDA* of £2.1m (H1 2017: £1.1m) – up 95.0%

· Adjusted EBITDA*, excluding forex gains and losses, of £2.3m (H1 2017: £1.4m) – up 65.3%

· Net debt of £8.6m (H1 2017: Net cash £7.7m)

· A period of transformation in the lead-up to the completion of the $55 million acquisition of KeyDrive S.A. (“KeyDrive”) in August 2018

*Adjusted EBITDA: Earnings before interest, tax, depreciation and amortisation, acquisition costs, exceptional items and non-cash charges.

Operational highlights:

· Recurring revenues continue to increase; reflecting the Group’s strategy, as exemplified by the acquisition of SK-NIC in December 2017 and post period-end acquisition of KeyDrive – both 90%+ recurring revenue businesses

· Retail division continues to focus on optimising strategic marketing performance, which is realising higher rate of returns on marketing spend

· Wholesale business maintained its lead in global market share by volume, being the only company to support eight of the Top 25 new Top-Level Domains (“TLD”)

· Significant new client wins as a registry service provider included .ooo, .best, .kred, .ceo and .icu

· Enterprise division’s increasing focus on recurring revenue products and services, reinforced post period-end by the introduction of BrandShelter corporate domain management and brand protection services

· The Group reported an unadjusted operating loss of £1.0m (H1 2017: £0.7m) mainly driven as a result of intangible related amortisation of £1.6m, acquisition and non-recurring fees of £1.2m, and other non-cash items of £0.3m, and after adjusting for these items, £2.1m was the resulting adjusted EBITDA

· Net debt of £8.6m (H1 2017: Net cash of £7.7m) as a result of debt financing of the SK-NIC acquisition in December 2017

· SK-NIC integration has successfully completed with pleasing post-acquisition contribution to the Group

Post half year end highlights:

· Acquisition of KeyDrive S.A., effectively doubled the size of the Company:

– On 2 August 2018, the Group announced that it acquired the share capital of KeyDrive, a strong player in the internet domain name and web services industry

– The initial consideration of $35.8m, represented an enterprise value of $44.5m, plus a performance based earn-out of up to $10.5m. The initial consideration consisted of $16.5m in cash and $19.3m in shares of CentralNic, plus a cash adjustment for working capital at completion and settlement of debt like items

– The board of directors of the Group (the “Board”) believes that this represents a transformative, earnings enhancing acquisition, further increasing the Group’s recurring revenues and diversifying the Group’s underlying businesses

– An equity raise of £24m was executed in order to fund the initial cash consideration of the KeyDrive acquisition, with 17 new holders joining existing holders in funding the deal

– The integration of KeyDrive is progressing as planned across all working groups

· H1 2018 unaudited summary financials for KeyDrive, which are in line with management expectations, are shown below:

– Revenue – $31.8m

– Gross profit – $5.5m

– Adjusted EBITDA – $3.3m

– Net cash of $0.3m – the external debt of KeyDrive was settled by the CentralNic as part of the acquisition

· Acquisition of GlobeHosting:

– As announced on 6 September 2018, the Group acquired the business assets of GlobeHosting, a Romania and Brazil focused domain registrar and provider of hosting solutions and SSL certificates

– The consideration for the acquisition consisted an initial consideration of €1.5m, and a deferred consideration of €1.1m, resulting in the total consideration of €2.6m

· Reporting currency:

– Following the acquisition of KeyDrive S.A. the Board are considering changing the reporting currency of the Group’s consolidated financial statements from Sterling to US dollars and, if they determined to do so, for this to take effect from the Annual Report 2018 onwards. This change would be driven as a result of US dollar being the main underlying currency in which the Group and market operates. KeyDrive also reports its trading performance in US dollars, and consequently the Group has taken this opportunity to make its reporting currency consistent with KeyDrive and the wider domain industry

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Disclaimer: Statements in this article should not be considered investment advice, which is best sought directly from a qualified professional.