CentralNic Group Q&A: Record organic growth of 18% (LON:CNIC)

Domain and Web Services

CentralNic Group plc (LON:CNIC) Chief Executive Officer Ben Crawford caught up with DirectorsTalk for an exclusive interview to discuss delivering record organic growth & how that was achieved, cash conversion at 138%, monetisation and new management.

Q1: Half year results published and you delivered more revenue this period than the whole of last year. Ben, you must be pleased with these results?

A1: Yes, absolutely. I can’t say they came as a surprise but on the other hand, I guess, there aren’t many companies that are able to say that in this kind of time, this economic difficulty and uncertainty so very happy.

Very good results as a result of two forces at work. We did make four acquisitions in the second half of last year so that obviously made a healthy contribution but we’ve also performed the exercise of doing the proforma numbers, looking at what it would’ve looked like if we’d owned all four of those companies for the first half year last year and comparing to this half. We found that the underlying organic growth rate of the company is 18% on the revenue line which is a much higher number than we’ve ever quoted to the market.

So, we’ve got record organic growth plus the four acquisitions has delivered very satisfying numbers this year.

Q2: As you’ve said, organic growth is at 18% which is fantastic, can you tell us more about how that was achieved?

A2: CentralNic Group has three operating segments, the one that really overperformed, or outperformed in the first six months is monetisation so that’s the service for domain name investors. Domain name investors will typically buy domain names that were used by companies that went out of business and then try and flip them to entrepreneurs starting new companies at a profit. Whilst they hold them in inventory, customers of the old company will keep coming to those domain names so if it was a wine shop and people wanting to buy wine will still keep going there.

So, they come to us and we help monetise them by putting a small website up with ad slots on it and we option those ad slots to, for instance, wine suppliers in their area and then we split the money that we get from that with the domain name investors.

So, it’s a great business, again it’s recurring revenue business on rolling contracts and it’s performed particularly well because there’s been a change in the domain name world in the last few years with the introduction of SSL certificates. When you see a domain name or web address that starts ‘https’, that means that it has one of these SSL certificates. Up until now, if the SSL technology hasn’t worked up properly with the monetisation technology and nobody has been able to monetise these domains with these SSL certificates, our team overcame that. We’ve got a patented solution which enables a domain name to have an SSL certificate, so be protected, at the same time as being monetised and it’s just really taken off.

So, we’ve actually seen a 36% year-on-year growth from that division driven by that new product.

The rest of the company is also doing well. Our indirect segment where we sell domain names to other retailers around the world also grew by 8% so we’re very happy with the overall performance of the company but that monetisation segment has really taken off.

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Q3: Cash conversion in Q2 was circa 138%, this is even higher than your typically average 100%, why is that Ben?

A3: Exactly. The thing is we have pretty significant working capital movements during the course of the year, honestly Q1 is usually our worst quarter, there’s more outflows for various different reasons just including paying staff bonuses and insurance premiums and so on. So, Q1 is typically significantly lower than the average 100% so the other quarters have to make up for that.

Q2, everything went very well, we had businesses that generate high amounts of cash and are very positive for our working capital doing very well. So, we don’t want to change expectations, it’ll level out at 100% for the year as it has every year for many years but it’s always good to be able pull out a very strong number like that, especially early on in the year to show that we are generating the cash we expected. We did borrow a significant amount of money last year, roughly $100 million through  a bond and I know that investors are keen to see the net debt to EBITDA ratio constantly improve and the cash we generate the better our net debt position is.

It ticks all the boxes.

Q4: As you mentioned, monetisation is the largest segment in your business, would you say that this is because Team Internet has been particularly successful?

A4: Indeed. We only bought Team Internet on Christmas Eve last year so we’ve owned it for slightly over 8 months and its growth has been excellent considering that we paid 3.9 times  trailing EBITDA and the EBITDA has grown so much since then, it turned out to be a fantastic investment.

As you say, it is now actually the largest investment performing of our segments.

Q5: CentralNic Group has also been investing in new management, can you give us some detail on that?

A5: Up until early this year, we had a centralised management team managing all the business around the world with essentially a very small group of people with responsibility for all of our businesses. We decided that that really wasn’t scalable, already on the scale we were at, at the beginning of this year, following all of those acquisitions, we needed to rethink that.

We bought on a new Head of HR who’s been an enormous help with this activity and we decided to split the company into five revenue divisions and then one shared services and technology division and give them each their own Head’s and also to have a Head of New Product and a Head of Customer Services.

So, it’s been quite a significant investment but it’s absolutely proven to be the right decision as you can see from the growth that we’ve experienced already. It means we’re really in  a great place to scale up now that when we acquire any new companies, we’ll be able to have an internal sponsor that can really focus on making sure they get property integrated and growth at the same rate as everything else.

Obviously, it has impacted somewhat on our profitability but because our revenues have been so far ahead of where analysts thought they might be, that’s enabled us to still deliver in line profits and we expect to continue to do so.

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CentralNic Group Plc

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Find more news, interviews, share price & company profile here for:
CentralNic Group Plc

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