Centralnic Group Q&A: Further acquisitions & revenue growth to come (LON:CNIC)

CentralNic Group plc

Centralnic Group PLC (LON:CNIC) Chief Executive Officer Ben Crawford caught up with DirectorsTalk for an exclusive interview to discuss how they achieved huge growth this year, $1 million of cost savings, integration of acquisitions, further growth in revenue & acquisitions and the long-term goals for the company.

Q1: You’ve seen huge growth this year with revenue and EBITDA more than tripling, can you talk us through how you achieved this growth?

A1: So, obviously we couldn’t be happier that things are going according to our plan.

There’s obviously two components to this, we’ve got underlying operating growth of around 6% on the top line which also then drops through to the bottom line and that’s across all of our businesses, it’s a blend but everything grows and 6% is what we come out with.

The main change here is actually through acquisitions and in particular, one acquisition that we completed in August of last year which is a company called KeyDrive. For anyone following the stock, you’ll recall that it was a reverse takeover so we actually had to delist and relist on the stock exchange in August last year.

The first half of this year is the first full half that sees the effect of that business and obviously it’s really taken us to another league where we’re up in dollar terms approaching the $10 million EBITDA for the first half and it looks like, revenue-wise, $50 million.

So, that’s been the main change there but like I said, we also have underlying growth at 6%.

Q2: The integration of KeyDrive, it appears to be progressing to plan, as you’ve said, it’s exceeding forecasts to date but you’ve mentioned $1m of cost savings from this acquisition in FY19. Is this still to come?

A2: Some of it has been achieved already. For the full year, we’re going to see $1 million in savings and that’s going to be recurring so I think you’d be safe to think that more than half has been achieved in the first half. They’re actually a series of different integration projects to be completed and a number of them are done, the others are on track.

We’ve actually just brought in a couple of integration specialists because we realise that not only do we need to get this KeyDrive acquisition finished but moving, we need to be really excellent at integration, having obviously bought three companies in the month of August. It’s an area where we realise it’s going to make a big difference to us moving forward.

Q3: As you’ve just mentioned, three further successful acquisitions, post-period, as you’ve accelerated your buy and build strategy. Are you making good progress with integrating these acquisitions as well? Also, are further cost synergies and cross-selling opportunities to be expected as a result of these?

A3: Absolutely. I think the first key thing is that in our industry, customers are very sticky, it can cost more to switch supplier than it can to just keep the supplier that you’ve got and less than 1% of customers per year switch from one supplier to another. So, that means that when we’re buying companies, we have a very limited downside and that’s always what we’re looking for, we’re looking for acquisitions where we can’t lose, all we can do is gain.

On top of that, obviously we look at gains from integrations whether that be in cost savings or in cross-selling opportunities or indeed both. As I’ve said, we’ve actually strengthened our integrations team, knowing that we’re trying to integrate three companies simultaneously now in different countries, to make sure that we can achieve those. For us, it’s really like the cherry on the cake, the integration savings and cross-selling opportunities but they are significant.

For instance, in TPP Wholesale, the first company we’ve acquired recently, that takes us to a number one position as a reseller platform in Australia and New Zealand which is where we want to be, in every country. Also, it gives us, for the first time, exposure to some subscription cloud services, mainly Microsoft Office 365 and Amazon’s AWS hosting, and for us that’s a massive bonus because they’ve solved their technical problems of how to integrate solid domain names from selling these other cloud services. They’ve got contracts, they’ve got customers, we know what the margins are so there there’s a great opportunity for us to roll those out internationally, get exposure to those very exciting new revenue opportunities for us.

As another example, we bought a company called ideegeo whose website is called iwantmyname and if anyone wants to have a look at, it’s really worthwhile. It’s famous in our industry for being the easiest to use website for buying domain names and so, not only do we get that with its customers, its revenues, its profits and its growth, we also get the team that put it together. So, we can now get them to work on some of our other websites as well and improve their user friendliness and particularly as we’re looking at emerging markets, they have the most user friendly, easy to use e-commerce businesses is a very smart direction for us to move in.

So, each time we buy a business, we’re not just getting the profit, the cash conversion, the growth, the stickiness, we’re also looking for these added things that can benefit Centralnic Group as a whole.

Q4: Should we therefore expect further rapid growth at the revenue and EBITDA lines for the full year?

A4: As I mentioned, we’ve got some exciting new products but I don’t want to get ahead of myself in terms of how fast we can bring the on, we have a number of different projects that we’re working on. what we’re going to do is test them in another market or two and then we’ll be able to have some clear visibility of exactly how much we can accelerate our growth and obviously, we’ll let the market know once we’re clear on that.

Q5: Is this revenue virtually all subscription and therefore recurring?

A5: Yes, exactly so today we’re a pure play recurring revenue business so that’s a very big change. Back in 2016/2017, half of our EBITDA was coming from non-recurring sources, we listened to the market, we heard that kind of mix wasn’t viewed as investor-friendly as we could be and so we made some very dramatic changes.

We shut down some lines of business and we acquired others and it brought us into this pure play position of where we’re a subscription business.

Q6: We’ve been talking about acquisitions, you’ve made quite a few this year, will you be continuing to make acquisitions at this rate or do you think there’ll be a period of consolidation?

A6: The thing is, if we don’t buy some of these companies, our competitors will because they’re great so that really puts us under pressure to do deals.

The first thing we also look at is the downside and we will not buy businesses where there’s a lot of risk tied to them, the beauty of buying recurring revenue businesses is that the vast majority of their revenue comes from existing customers, just to maintain services that they need. So, therefore, so long as we keep buying within our comfort zone, risks are very low and obviously, upside is high so that will continue to be our strategy.

What we’ve done is we’ve structured our company in an unusual way in that we have an operations team, an integrations team and an acquisitions team and so therefore, we don’t disrupt the day-to-day operations when we’re integrating, we actually have different people working on that which enables us to do all three things simultaneously.

Q7: Finally, Ben, what are your long term goals for Centralnic Group?

A7: Well, I’m very ambitious. The thing is this, if you have a look at our industry, in particular the leaders in the United States, companies like Verizon and GoDaddy, you can see it’s entirely possible to build businesses that are valued in the tens of billions of dollars doing exactly what we do.

We’re different because we’re actually a multi-platform, whereas each of those have one platform, and we’re very focussed on the global market whereas they started very focussed on the US market.

As far as we’re concerned then, we have more revenue lines and more markets that we’re in than anybody else so we feel that gives us every advantage we could want to try and get up to the kind of scale that we’ve seen from those American companies.

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CentralNic Group Plc

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