TeleCity surfs the Internet wave

Data centre operator TeleCity Group said demand for its services remains strong in all of its markets, as it made good on its promise to declare a maiden dividend.

Demand for the group's infrastructure and services is increasing due to the ongoing growth of the Internet, which is itself being driven by trends including a continued migration of social, entertainment and business functions online, the growth in mobile internet and cloud computing, the group's interim results statement said.

The truth of that statement can be verified by the growth in the group's top line, with revenue in the first half of 2012 up 22.4%, or 25.6% on a constant exchange rates (CER) basis, to £137.3m from £112.2m in the first half of last year.

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Profit before tax climbed to £40.1m from £33.9m the year before, while adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) jumped 26.6% (CER:+30.4%) to £62.6m from £49.4m the year before. The EBITDA margin rose by one-and-a-half percentage points to 45.6% from 44.1% in the first half of last year.

Adjusted diluted earnings per share rose 36.2%, or 41.1% on a CER basis, to 15.8p from 11.6p in the first half of 2011, which means the interim dividend of 2.5p is more than six times covered by earnings.

If the pay-out ratio seems a bit stingy, it should be taken into account that the group had net debt of £203.3m at the end of June, up from £56.1m the year before, with the increase largely related to the corporate acquisitions that took place in the second half of last year, together with amounts incurred on investment capital expenditure.

The business generates a lot of cash but also requires heavy capital investment to upgrade existing data centres and open new ones.

First half period end physical occupancy (measured as fitted-out space divided by occupied space) increased by one percentage point year-on-year to 81.3%, at the same time as significant additional capacity was delivered.

Revenue per occupied square metre increased 4.8% (CER basis: +6.5%) to £4,497 from £4,292 the year before. This was due to a combination of factors including inflationary price rises, further power capacity being sold in existing space and increasing data centre power densities, partly offset by adverse currency movements. On a currency neutral basis, revenue per occupied sq.m increased 7.5%.

Having bagged some chunky orders in the first half of the year to add to its recurring revenues - currently representing more than 90% of total revenues - and with a solid order book pipeline for the remainder of the year, the group is confident it will deliver a strong performance in 2012.

JH