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Centralnic Group Plc

CEO Q&A with Ben Crawford at Centralnic Group PLC (LON:CNIC)

Centralnic Group PLC (LON:CNIC) Chief Executive Officer Ben Crawford caught up with DirectorsTalk for an exclusive interview to discuss their final results, key growth drivers, key points for investors and their focus going forward.

 

Q1: You’ve just released some pretty impressive results for the year end 31st December 2018, can you talk us through the financial highlights?

A1: Centralnic, it’s actually been 5 years now since we listed on AIM and I’m happy to say that revenues this year are 14 times the number they were back when we floated in 2013.

Last year was our biggest year of growth, up 100% on our revenues and there are really two factors in this, strong underlying organic growth and the other one was 2 significant acquisitions, one at the end of 2017 and then a very large one in August 2018 which was a reverse so we actually delisted and relisted on AIM.

The end result of that was 100% lift in revenues, gross profit up by 70% and our EBITDA was up 66% to £7 million, which actually £500,000 ahead of the market expectation number, the consensus number, cash balance at the end of the year was £18 million and our net debt was £2.5 million.

So, we couldn’t be happier with the growth and obviously we plan to continue that so we have a good strong underlying growth across our three business units and we continue to look at new acquisitions as that’s proven to be a great driver for us.

 

Q2: You did touch on two of the key drivers but could you just expand on the growth drivers for us?

A2: KeyDrive was a large acquisition so that’s behind a significant chunk of that growth but also, we’ve integrated that business very successfully, we’re expecting £1 million of savings from integration over the course of 2019.

The businesses have truly come together in that their former Chief Financial Officer is now on our Board as our Group Chief Financial Officer and their founder Alex Siffrin actually took Centralnic paper in this acquisition. So, he’s actually now our single largest shareholder with 16% of the shares but also, he’s become our Chief Operating Officer as well so he’s in the office everyday running the day-to-day operations team whilst I’m out doing more deals and overseeing the growth of the business.

So, the company has truly transformed. We now have 80 software engineers in Germany who maintain all our software platforms and obviously, we have a reputation for being the best in the business as far as the services and software we offer. This amalgamation of the two companies has put us in an even stronger position.

 

Q3: Just looking at the operational side, what are the key points that investors should take from these results?

A3: Just to summarise the investment case because I think we really focused on growth but it isn’t just a growth story.

The thing is, in the past, we had two business; we had a recurring revenue business but we also had a business where we traded premium domain names which was a very highly profitable but a non-recurring type of business. At the end of 2017, we decided to stop that second business and just focus on the recurring parts, the pure play recurring revenue business.

So, what we do is we sell subscription products online and these products, mostly domain names but also things like hosting and SSL certificates and so on, all have a very highly predictable recurring revenue cycle. That means the quality of earnings of the company is transformed as well, it’s not just the scale but the quality of earnings is quite different to what it was in years past.

Not only that, but the products we sell, the subscription products, we actually get paid at the beginning of the 12-month cycle so our cash actually precedes our revenues and we have roughly 100% cash conversion.

So, in terms of the investment case, the business couldn’t be stronger now. We really listened to investors about they liked and didn’t like about our business and through the various deals we’ve done we’ve been able to really create the kind of business that we believe is very highly investable.

 

Q4: Looking forward, where will the focus be now for Centralnic Group?

A4: We basically do three things now:

• We sell domain names to resellers so all the well-known companies that sell domain names that you might have heard of; GoDaddy, 123Reg, Network Solutions and Google for that matter, they’re all our customers. We sell them domain names and they on sell them to small businesses around the world and that’s the largest part of our business.
• We also sell directly to small businesses focusing very much on emerging markets where the growth is strongest.
• Lastly, we manage domain name portfolios for large companies because large companies view domain names like trademarks as a way of protecting their brands online and that is our highest margin business, our best renewal rate business and it’s also our highest growth business. So, that part of the business is growing at 20% a year and as it grows, it’s pulling up our overall gross margins as well by 1% each year.

So, that’s really where the biggest growth is coming from but also, we’re looking at adding additional add-on products in the year and the years to come so things like Amazon Web Hosting, Microsoft365 Business Suite, those kind of products. We have the types of customers already that want those kinds of products and as they’re subscription products they fit in very well with our business model.

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