Eurofiber recently published its annual results for 2010. While still a young company, Eurofiber has moved past its start-up losses, is very profitable and is experiencing strong growth, supported by massive investments.
No sales figures were released, but the company published a gross profit figure. We assume a gross margin of 90 percent. This leads to revenue of EUR 48.4 million, up 39 percent. The EBITDA rose 55 percent to EUR 32.3 million, operating profit was up 264 percent to EUR 20.1 million, and the net result jumped 366 percent to EUR 12.3 million. This puts the EBITDA margin at 66.8 percent. Operating cash flow was EUR 18.6 million, showing little growth due to a decline in working capital. Capex fell to EUR 22 million, but was still 46 percent of revenues, versus 75 percent in 2009. Free cash flow (defined as EBITDA minus capex) was positive, despite the high capex, and reach EUR 10.3 million, versus a negative EUR 5.1 million in 2009.
Eurofiber is a young company, started in 2000 and based in part on acquisitions (Fastfiber, iConnext). Eurofiber is a 100 percent subsidiary of Eurofiber Holding, which is owned for 95 percent by Reggeborgh. (There is no direct link to KPN, which is a shareholder alongside Reggeborgh in Reggefiber. Eurofiber and Reggefiber are 'half sisters'.) At the moment, the company has 135 employees and a network of 12,000km. Around 150 business parks and 3,500 sites are connected directly to the network.
It’s remarkable the company already generates a profit and positive cash flow, as Eurofiber in its current form only exists since June 2006. In 2010, 83 percent of revenues came from the Netherlands, so Belgium and Germany are also starting to make a significant contribution. This suggests that Eurofiber is operating on a very attractive market, marked by high growth. The cash flow statement suggests no major acquisitions were made in 2010, so the growth is all organic. There is also likely a focus on costs, as these are rising much less quickly than revenues. In a number of areas, such as office space, the company even made savings. Investments (capex) are extremely high. The profit has been added to shareholders equity, and the balance sheet also has a substantial amount of debt (the debt-to-equity ratio was 69/31 at the end of 2010). Eurofiber is paying a decent interest rate of 6.75 percent. Given the substantial amount of debt, the return on equity is now 24 percent and will increase sharply if the current trend continues.
Conclusion: Eurofiber is very profitable and is showing strong growth. It has taken on debt in order in order to expand its network quickly. The company can be considered remarkably successful. The motto appears to be: borrow as much as possible (without letting the risks get out of control) and stick it in the ground as quickly as possible. This offers a way of cornering the market, as the first to connect business parks and other important sites stands to profit the most. These are also just the results for 2010, which don’t yet include the company’s new contract with Vodafone. Eurofiber is also extending its focus to Belgium and Germany, where it could play a consolidating role.
One could ask what Reggeborgh’s exit strategy is. A sale to KPN would be difficult due to competition concerns, as well as significant network overlap. Even if KPN only took over the customers, this could turn out badly, as the customers may not want KPN as a provider. Its new partner Vodafone, with which it's expanding the FTTO network, seems a more obvious choice. And then the price: what is Eurofiber worth? Google, although clearly not a Eurofiber peer, shows similar growth trends. That gives a valuation of 8.6 times EBITDA. At the same multiple, Eurofiber would be worth around EUR 300 million.
Telecompaper is also publishing an extensive Company Profile of Eurofiber. In addition Eurofiber will give a presentation at our Breedband 2011 conference on 12 October in The Hague.
