Financials
Third Quarter Results Financial Statement And Related Announcement
Financials Archive
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Consolidated Income Statement
Consolidated Statement Of Comprehensive Income/Loss
Review of Operations
The results for 3Q 2011 include the results for LambdaNet for the quarter and TeraGate for two months and as such, most revenue and cost lines have increased relative to 3Q 2010.
Revenue
Revenue increased by €13.0m or 117% from €11.1m in 3Q 2010 to €24.1m in 3Q 2011. For the nine month period to September 2011, revenues rose 63% to €49.2m from €30.1m in the comparative period from 2010.
The increase was due to:
- The acquisition of the LambdaNet and TeraGate businesses. The 3Q 2011 result for the Group included a full quarter of LambdaNet revenue plus two months of the TeraGate business. See section 8(ii) for further details on the TeraGate acquisition.
- Network services revenues as the business continued to drive revenues for the provision of bandwidth services on its fibre network. As such and including LambdaNet and TeraGate, network service revenues increased by €11.5m. Network revenues excluding LambdaNet and TeraGate grew 38% from 3Q 2010, and 27% from 2Q 2011.
- Revenues associated with data centre services. Although the legacy euNetworks' revenues were flat quarter on quarter as the data centre business is operating at near its full space capacity, LambdaNet operates 25 data centres which provide the Group with incremental revenues.
Direct Network Expenses and Network Operating Expenses
Direct network expenses include those costs directly related to the delivery of customer revenues. The 3Q 2011 increase of 168% from €3.1m to €8.3m (and 82% nine month period to date increase from €8.2m to €14.9m) is driven by the inclusion of LambdaNet costs for three months, TeraGate costs for two months, and the increase in network services revenues over the period.
Network operating expenses include those costs that relate to the general operation and maintenance of the Group's network assets, and network related charges. Network operating expenses increased 39% from €2.8m to €3.9m, primarily due to LambdaNet and TeraGate costs. The increase of 11% for the nine month period to September 2011 against the 2010 comparative includes a refund of costs from a supplier which was received in the first half of 2011 relating to a settlement of 2010 rights of way charges.
Staff costs
Staff costs increased by €1.8m or 38% to €6.6m in 3Q 2011, due to the additional headcount as a result of the LambdaNet and TeraGate acquisitions as well as one-off restructuring costs of €0.3m.
The nine month period ended September 2011 was down €0.7m or 4% on the same period in 2010, predominantly due to one-off costs in 2010 relating to settlements with former Directors, including additional share option expenses of €1.2m, offset by the additional staff costs relating to LambdaNet and TeraGate.
Other administrative expenses
Other administrative expenses principally comprise office rental, other office costs and professional fees. They increased from €0.7m in 3Q 2010 to €1.9m in 3Q 2011 and from €3.2m in the nine month period to September 2010 to €4.9m in the nine month period ended September 2011, and include one-off acquisition costs of €0.2m relating to the TeraGate acquisition for 3Q 2011. The nine month period to September 2011 also included transaction costs of €0.4m from the LambdaNet acquisition as reported in 2Q 2011.
Depreciation and amortisation
Depreciation and amortisation costs have increased from €3.4m in 3Q 2010 to €4.6m in 3Q 2011, and from €10.0m in the nine months ended September 2010 to €12.1m in the nine months ended September 2011, principally due to the increased scope of the Group's network. The Group also reported a loss on disposal of plant and equipment of €0.3m in 3Q 2011 (€0.5m for the nine months ended September 2011) which was a result of the write-off of assets from network changes in the current year.
Operating loss
As a result of the above, the Group's Operating Loss reduced from €3.7m in 3Q 2010 to €1.5m in 3Q 2011. For the nine month period ended September 2011, the loss reduced from €17.0m to €9.2m.
Financial costs
Other finance costs in 3Q 2011 and the nine month period ended September 2011 represent interest on the shareholder loans, finance lease costs and interest on the vendor loan relating to the LambdaNet acquisition.
Foreign exchange movements resulted in a €1.5m loss for 3Q 2011, which included a loss of €1.0m on the translation of Singapore dollar denominated cash held as a result of the rights issue proceeds and a loss of €0.5m on the translation of the Singapore dollar denominated 2013 bond. Although some of the rights issue proceeds were converted to euros and pounds sterling during the quarter, the Group continues to hold cash in Singapore dollars to act as a natural hedge to the 2013 bond. In the nine month period to September 2011 there was a foreign exchange gain of €1.5m on the 2013 bond, offset by a €1.0m loss on cash (2010: foreign exchange loss of €1.3m).
Exceptional financial costs
In the nine month period to September 2010, there was an exceptional financial cost of €2.6m related to the redemption of the 2012 Bond.
Gain on a bargain purchase
The gain on a bargain purchase of €3.9m related to the acquisition of TeraGate during 3Q 2011 and is reflective of the benefit obtained from acquiring the €7.2m net assets of TeraGate for consideration of €3.3m. The Group has commenced its purchase price allocation exercise and the gain is provisional and subject to change.
Income tax
For the nine month period ended September 2011, the Group recorded an income tax charge of €0.4m. This represented a current tax charge of €0.6m offset by a deferred tax credit of €0.2m.
Acquisition of TeraGate
On 29 July 2011, euNetworks GmbH, a wholly owned subsidiary of euNetworks Group acquired the German based TeraGate.
TeraGate is a leading service provider for next generation Corporate WAN in Germany with a high-end customer base and a market leading value proposition. Offering both national and international solutions to medium and large enterprises, TeraGate's product portfolio is based on intelligent Ethernet and efficient data centre and cloud services. TeraGate operates in Germany, headquartered in Munich, with technical headquarters in Frankfurt. TeraGate was acquired for total purchase consideration of €3.3m. Costs of €0.2m were incurred during the acquisition and were included in the income statement for 3Q 2011.
As a result of the acquisition, TeraGate has become a subsidiary of the Group and their results from the acquisiton date to 30 September 2011 have been consolidated in the Group's results.
The fair values of the identifiable assets and liabilities of TeraGate as at the date of the acquisition were as follows:
* The Group has now commenced its purchase price allocation exercise giving due consideration for other identifiable intangible assets, which may have been acquired by the Group. Accordingly, the gain on acquisition of €3.9m is provisional and expected to change.
** In addition to the purchase consideration, the Group incurred acquisition costs of €0.2m, which are included in the Group's operating loss for the quarter.
As a result of the acquisition, a gain on a bargain purchase of €3.9m was recognised in the income statement for the Group. This is reflective of the benefit obtained from acquiring the €7.2m net assets of TeraGate for consideration of €3.3m.
The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired.
Interest Bearing Borrowings
2013 Bond
The value of the option embedded in the bond at 3Q 2011 of €8.2m has remained unchanged from 2Q 2011.
The 2013 bond is denominated in Singapore dollars, whilst the Group's reporting currency is euro; movements in the value of the euro against the Singapore dollar has resulted in a foreign exchange loss of €0.5m for the 3Q 2011 (foreign exchange gain of €1.5m for the nine month period to September 2011).
The interest charge of €2.0m in 3Q 2011 has increased the value of the bond to €48.4m.
As announced on 30 September 2011, the conversion price of the bond was reset on 1 October 2011, at S$0.017780. The next conversion will take place effective from 1 April 2012.
Shareholder loans
As previously reported in 2Q 2011, as an interim measure, the Company secured financing in the form of a shareholder loan facility from a number of its substantial shareholders during 2Q 2011. During 3Q 2011, the Company drew down the remaining €3.6m of the shareholder loan facilty, and resulted in the Company receiving the agreed €37.8m facility in full.
The shareholder loans held were subsequently repaid in full from the subscription of rights during the period via the rights issue completed in 3Q 2011.
Interest of €1.0m on the loans calculated at pro rata rate of 9% per annum was paid during the period from the rights issue proceeds.
Vendor Loan
The acquisition balance sheet of LambdaNet contained a loan of €9.8m from the previous owner of LambdaNet, 3U Holdings AG, of which €2.0m was repaid during 2Q 2011. The remaining loan is repayable in five annual instalments of €1.6m each and incurs interest at a rate of LIBOR + 2%. At 30 September 2011, €1.6m was classified as a current liability and €6.2m as a non-current liability. The vendor loan has been guaranteed by the Columbia Guarantors in exchange for the issue of warrants during 3Q 2011.
Statement of Financial Position
Non-current assets
The movement in non-current assets from €159.0m at the end of 2010 to €217.0m at the end of 3Q 2011 relates to:
- Provisional goodwill on the acquisition of LambdaNet of €27.7m;
- The incorporation of the LambdaNet balance sheet, which at the acquisition date contained a deferred tax asset of €4.9m related to tax losses and €15.8m of property, plant and equipment;
- The incorporation of the TeraGate balance sheet, which at acquisition contained property, plant and equipment of €3.8m;
- The build out of the European network assets net of the depreciation charge for the period; and
- The increase of non-current prepayments in respect of long term fibre leases across the Group from €0.3m at the end of 2010 to €0.6m at the end of 3Q 2011.
Current assets
Infrastructure held for resale of €1.1m comprised specific network assets, which are likely to be sold in the next 12 months and for which a potential acquirer has been identified.
Trade and other receivables and prepayments increased from €13.7m at the end of 2010 to €19.2m at the end of 3Q 2011 principally due to the acquisition of LambdaNet and TeraGate, which had €6.1m of trade receivables and other current assets at the date of acquisition.
Cash and cash equivalents increased from €9.5m at 31 December 2011 to €45.2m at 30 September 2011, primarily due to the proceeds from the rights issue of €73.2m, less net acquisition payments of €21.7m and purchases of property, plant and equipment of €18.0m.
Equity
Movement in equity for 3Q 2011 predominately related to the rights issue.
Changes in accumulated losses were primarily due to the loss incurred by the Group in the period.
The employee share option reserve increased by €0.9m for 3Q 2011 due to the share options expense for the quarter, resulting in a €2.5m charge for the nine month period ended September 2011.
Non-current liabilities
Non-current liabilities increased from €61.2m at the end of 2010 to €84.8m at the end of 3Q 2011 primarily due to the acquisition of LambdaNet and TeraGate.
The acquisiton balance sheet of LambdaNet had €20.7m of non-current liabilities, including €8.2m of finance leases relating to its network assets, a loan from its former parent undertaking of which €6.2m was non-current, and €4.8m of dilapidation provisions, relating to its 25 colocation sites.
In addition to LambdaNet, the TeraGate acquisition during 3Q 2011 included €0.4m of non-current finance lease liabilities relating to finance lease liabilities for hardware.
Current liabilities
Current liabilities increased from €17.1m at the end of 2010 to €28.9m at the end of 3Q 2011 primarily due to the acquisition of LambdaNet and TeraGate.
The acquisiton balance sheet of LambdaNet had €8.7m of current liabilities, including €0.8m of finance leases relating to its network assets and deferred revenue, trade, income tax and other payables of €6.6m. The acquisiton balance sheet of TeraGate held €0.5m relating to finance lease liabilities, and deferred revenue, trade and other payables of €1.5m.
Statement of cash flows
Operating activities
For 3Q 2011, the Group generated a net cash inflow of €7.1m (nine months ended September 2011: €8.1m) compared to an outflow of €(1.9)m in 3Q 2010 (nine months ended September 2010: (€5.5m)). This was derived from operating income before working capital changes of €4.3m (nine months ended September 2011: €6.1m), adjusted by net working capital inflows of €3.0m (nine months ended September 2011: inflows of €2.3m). The improvement in working capital in 3Q 2011 versus 2Q 2011 primarily related to a reduction in trade receivables.
Investing activities
Net cash outflow from investing activities for 3Q 2011 was €7.3m, which was the result of ongoing investment in the European network assets of €8.9m in 3Q 2011 (nine months ended September 2011: €18.0m), compared to €4.5m in 3Q 2010 (nine months ended September 2010: €10.2m). The result for the nine months ended September 2011 of €39.7m net cash outflow was also due to the €23.3m net outflow on the acquisition of LambdaNet in May 2011, and a net cash inflow of €1.6m on TeraGate in July 2011.
Financing activities
Net cash inflow from financing activities in 3Q 2011 was €35.4m (3Q 2010: €(0.4)m outflow), primarily due to cash proceeds from the rights issue of €73.2m, less the repayment of shareholder loans of €37.8m and payments for finance lease obligations. Interest paid of €1.3m for 3Q 2011 (nine months ended September 2011: €1.4m) included interest paid on the shareholder loans, vendor loans and finance leases. The nine month period ended September 2010 included the redemption of the balance of the 2012 bond of €20.4m. The nine months ended September 2011 also included the repayment of €2.0m of the vendor loan, which occurred in 2Q 2011.
Commentary
While macroeconomic conditions continue to challenge the European region, foundations put in place in 2010 by the Group are driving the euNetworks business forward, as are recent acquisitions. The Group's depth and scale continues to develop, further enabling euNetworks to serve a widening array of customers and segments whose bandwidth requirements are only increasing. There is good opportunity for both further organic and inorganic growth ahead.
Connecting more bandwidth intensive buildings to the network, driving up sales with product and market developments and a relentless focus on good data to deliver a great experience to customers and value to shareholders and stakeholders remain key to euNetworks in 2011. The Company will continue to invest to drive top line revenue growth, carefully managing against key financial indicators.
Balance Sheet
