Turnover of £6.3m marginally ahead of Q2 on a like-for-like basis
Q3 EBITDA loss of £3.4m (Q2: £3.7m), reflecting cost reduction programme
Successful completion of Rights issue raising £15.5m
Six sites EBITDA positive
Expansion of sales and marketing team
Announcement of five year contract with Deutsche Telekom
Michael Hepher, Chairman and Chief Executive, said:
Whilst market conditions remain difficult, we have not seen any further deterioration this quarter. The priority for the company is to continue to sell a wide range of colocation services to European businesses from our existing network of data centres. Our strong financial position will enable us to address this objective with enthusiasm.
The third quarter of 2001 was a crucial period for the company. The sharp downturn in our markets that became dramatically evident in the Spring, caused the company to act with firm determination. The business plan for the current year was significantly changed, with revised revenue and cost targets established.
It was clear that, to assure shareholders, customers and employees of the Company’s financial strength and durability, further funding would be required. Various options were explored, including the possible merger of the company with a competitor. However, the Board concluded that a Rights Issue, supported by the three key institutional shareholders (3i, Schroders Investment Management and M&G Investment Management) was in the best interests of all the shareholders. We were pleased to report on 11 October that more than 87% of the potential new shares had been subscribed for, generating gross proceeds of £15.5m for the Company.
Considerable effort has been expended on rationalising the Company’s cost base without impairing the ability to respond to an improved market when it occurs. Investment has continued in developing an effective sales and marketing capability with a dedicated team of 32 now employed, compared to 13 at the beginning of the year. Elsewhere costs have been very critically appraised, including the loss of 83 positions and a tight control established over all outgoings.
The Company’s cost base was developed to support an extensive network of data centres which itself was designed to support the anticipated growth in demand for colocation services. With the current slowdown, it is prudent to seek to exit those locations where no space has been fitted out for sale. Since May this year we have negotiated an exit from leases in Brussels, Madrid, Barcelona and surplus buildings adjacent to the Paris operating site and continue to seek an exit from Zurich, London 3 and Manchester 2.
The business has a major asset in the 170,000 square feet of quality fitted out space which is ready for sale, together with the enhanced range of services which have been developed this year. The priority is to build upon the platform established with six sites already EBITDA positive.
The activity levels of our customer base has shown no marked improvement over the last three months but has seen no further deterioration from the position I reported at the half year. On 23 October we announced an important five year contract with Deutsche Telekom for space and services at our Harbour Exchange facility. This represents another ‘blue chip’ addition to our customer list and a valuable enhancement of an already very successful site.
The underlying trading performance in the third quarter was precisely in line with the revised business plan. Turnover of £6.3m was, on a like for like basis (i.e. excluding equipment sales), marginally ahead of the second quarter. Before exceptional items, the EBITDA loss in Q3 of £3.4m shows a reduction from £3.7m in Q2 as the cost reduction programme begins to take effect. Exceptional costs of £1.2m relate to redundancies and the cost of terminated leases in Paris on unused buildings; the benefit of these actions, and those taken earlier, will be more evident in the results from Q4 onwards.
Cash in hand at the end of September totalled £7.3m, the rights issue proceeds of £15.5m being received in October. The outflow in the quarter resulted from the EBITDA loss, the payment of exceptional costs of £2.3m and capital expenditure of £4.7m. Capital expenditure will again fall sharply in Q4 as final payments are made on completed fit-out work.
