Wholesale/transport services

Interoute Turns a Profit, Plans M&A

Interoute Communications Ltd. , one of the many victims of the telecom downturn at the start of the 2000s, last week bucked the current economic trend by announcing 2009 as its most profitable year to date.

The company, which operates a pan-European next-generation network, said EBITDA last year increased by 62 percent to €40 million (US$49.5 million) and revenue by 9 percent to €269 million ($334 million), and generated cash surpluses in two of the last three quarters. Not a bad result for a company that only became operationally profitable for a full financial year in 2008. (See Interoute Announces 2009 Growth, Interoute Touts H1 Success.)

And, according to its CEO, Gareth Williams, that extra liquidity will fuel further growth by helping to fund strategic acquisitions, though the company isn't about to do anything "crazy" on the M&A front.

Williams told Light Reading that the company benefited from the recession in some ways in 2009 as, with companies of all shapes and sizes looking to cut their costs, it was able to attract corporate customers away from other larger global service providers by undercutting its rivals on price.

Williams said his company, which offers a broad array of wholesale and business services, won around 500 new customers last year, taking the total number of core corporate clients to around 3,500. (See Interoute Boosts Its Capacity, Interoute Speeds Bandwidth Service, Interoute Unveils Internet Barometer, and Interoute Supports IPv6.)

He conceded that Interoute still has a tiny slice of the business services market (less than 5 percent), but believes there are huge opportunities for it to grow, particularly as more corporates embrace the cloud services concept.

Part of that growth will come from acquisitions. Williams said the main focus of his M&A plans this year will be to deepen network presence in existing, mature markets such as France, Germany, and the Nordics, and expand further into pastures new, such as Turkey and Russia, with Moscow a particular interest. (See Interoute Reaches Into Turkey, Russia on the Rebound?, and Interoute Expands in Russia.)

"We are actively engaged in discussions with more than 10 companies now," said Williams. "We look at distressed assets -- it’s all about value creation. We don’t do crazy deals."

He added that a decision on how acquisitions would be financed would be made nearer the time, but it certainly sounds as if Interoute would not struggle to raise funds if required.

"We have been approached a lot by people in 2010 who either want to lend us money or get involved in Interoute in some way," said Williams, who wryly added that this is a far cry from 2003 when the company was struggling to emerge from bankruptcy protection.

Around 50 percent of Interoute’s business is still generated by wholesale business, with the remainder now coming from corporate services. Williams said wholesale will continue to grow, particularly as Interoute sees new opportunities ahead to run other operators’ European networks. "We have high hopes in mobile," said the CEO. "They [the mobile operators] have an arcane approach to networks… They could integrate their European networks by using us."

On the corporate services side, Interoute’s goal is to look at how much more corporate data it can "suck into its network," and will invest in the development of new services, such as virtual desktop support.

One thing is clear: Interoute still has a very big network to fill. Williams said the company is still only using around 17 percent of its dark fiber capacity.

— Anne Morris, freelance editor, special to Light Reading

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