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THE INTERNET PLATFORM OF THE EMERGING DIGITAL MARKETS
Investor presentation: May 2019
01
People and Cap-table
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Structure and organization
Growth strategy
Financials
Overview
Stock and valuation
Other information
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AGENDA
OVERVIEW
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ABOUT US
Dominion Hosting Holding (“DHH”) is a tech group focused on Web hosting, SaaS and cloud-computing industry with the goal of creating the leading “Internet Platform of the Emerging Digital Markets”, where expected growth rates are higher thanks to current lower online penetration. DHH is listed on AIM Italia, a Multilateral Trading Facility regulated by Borsa Italiana and registered as a SME Growth Market.
So far DHH has focused its investments on Web domain name registration / transfer and on Web hosting products (from simple share hosting products to more sophisticated solutions as virtual private server, cloud and managed hosting services). New “verticals” of the basic Web services / cloud computing space should be added in the next future.
Most of the above-mentioned services are supplied trough cloud based Software as a service (SaaS) technicality, with a one-to-many model where contracted customers are charged in advance for their subscription
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CORE BUSINESS AND BUSINESS MODEL
Web hosting global market reached a valuation of $32.1bn in 2018 and is expected to grow at a 15.9% CAGR in the next five years (Source: Market Research Future, August 2018). The global cloud computing market is expected to grow from $272bn in 2018 to $623bn by 2023, highlighting a 18% CAGR during the forecasted period. The cloud system infrastructure service (IaaS) should be the fastest-growing segment, expected to experience a 21.7% CAGR (Source: Statista)
European emerging digital markets are one step behind with regard to internet use and are expected to post higher than average growth rates ahead (Source: European Commission, Digital Agenda Scoreboard 2018)
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MARKET OPPORTUNITY
These “unusual geographies” can also be seen as experimental markets to test and launch scalable digital businesses internationally, thanks to the amount of talents available in these areas at very competitive costs with respect to more developed markets
Market Opportunity
DHH, gaining a leadership position in these markets would like to take advantage of the robust growth trend already in place due to fill the gap with more mature geographies
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Several brands under management, with ca. 100 thousand customers and 200 thousand registered domains in five promising countries: Croatia, Italy, Serbia, Slovenia and Switzerland
In-depth and proven capabilities of turning around and up-scaling acquired assets (more than 10 acquisitions between 2015 and 2018, 6 acquisitions after the IPO that took place back in July 2016)
Fast growing company (FY18 Revenues +12% YoY) with a well-balanced financial structure, (positive net cash position of €2.6mn as of 2018 year-end) and sound Cash Flow generation (EBITDA to OpFCF conversion ratio at 45%)
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MAIN FEATURES
Since its foundation DHH has finalized several investments while successfully IPOing onto AIM Italia stock market:
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HISTORICAL MILESTONES
October 2015 Acquisition of Klaro, a Slovenian web agency which in turn fully controlled the entire corporate capital of Domenca, Domovanje, Plus HR and Plus RS
November 2015 Acquisition of Tophost S.r.l., leading low-cost Italian web hosting player
July 2016 Successful IPO on the Italian AIM stock market, raising €4.2mn proceeds
Acquisition of Infonet, Croatian company which fully owned Hosting IT, a young web hosting provider
March 2017 Acquisition of the business branch of Studio4Web, low-cost web hosting in the Croatian market
May 2017 Acquisition of 60% of Bee Bee Web (together with its Italian reseller Hosting Star), a Swiss based web hosting company, owner of the brand Artera, whose products are addressed to professional users
May 2018 Establishment of System Bee d.o.o. as a spin-off from DHH d.o.o. Sysbee
is a group of system engineers and infrastructure architects providing managed hosting services to small and medium-sized enterprises
October 2018
May 2019
Acquisition of mCloud, a Serbian cloud computing provider fully dedicated at delivering advanced hosting services
Acquisition of 20% stake of DHH Switzerland from Sergio Ravera
Merger between mCloud and DHH Serbia
April 2019
September 2016
STRUCTURE AND ORGANIZATION
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Conglomerate business model. One holding company controlling seven “Opcos”
Holding company providing to all subsidiaries advisory in terms of both “go to market” strategy (expert support, resources and capabilities enhancement) and planning & control (Business unit control, managerial processes, financial KPIs implementation)
Main benefits of “conglomerate approach”: (i) Synergies in SG&A, through optimization of IT, Sales and physical infrastructure and as well as collective technology purchase, (ii) Synergies from cross-selling programs based on the same business model in order to boost ARPU, (iii) Synergies in knowledge creation and sharing among different brands
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GROUP STRUCTURE BASED ON INDUSTRIAL CONGLOMERATE APPROACH
Tophost Italian subsidiary providing entry level solutions to more than 45,000 customers, still keeping the status of the lowest-cost web hosting provider in Italy. Double-digit YoY growth in gross Sales across FY18, reaching ca. €1.5mn, as a result of turnaround efforts finalized in 2017, and the development and launch of new software and features
Subsidiary description 12
DHH Slovenia It is the leading provider in Slovenia (i.e. the largest registrar of .eu and .si domains) managing two brands, Domenca and Domovanje. Gross Sales flat in FY18 YoY, since i) main sales activities have been stopped for the migration project of the shared hosting infrastructure and ii) key people were more focused on the development of new products (i.e. expert services) to be launch in the upcoming months 13
Subsidiary description
DHH Croatia Along with its subsidiaries is the largest hosting provider in Croatia, with 30% of market share, and total number of customers more than doubled since the IPO, establishing at ca. 20,000. The three own brands (Plus hosting, Studio4web, Infonet) provide a broad array of services, from low-cost hosting solutions to managed hosting services addressed to high end customers. Not considering Sysbee spin-off, gross Sales increased at high single-digit rate in FY18, mainly thanks to an increasing focus on sales and marketing activities carried on in the last quarter of FY18 Subsidiary description 14
Sysbee Recently established Croatian vehicle focused on managed hosting, resulting from the above -mentioned spin-off, it counts ca. 30 active clients
Subsidiary description 15
Subsidiary description
mCloud It manages two brands, Plus hosting, already among top ten Serbian registrars for rs. ccTLD domains (ca. 3,900 customers and gross Sales increasing by 24% in FY18 YoY) and mCloud – the cloud computing provider –delivering its products to 1,900 active clients, however still highlighting small numbers at p&l level
Subsidiary description 16
Subsidiary description 17
Subsidiary description
DHH Switzerland Owner of the brand Artera, it provides high-end services, mainly addressed to customers requiring high reliability and technologically advances web hosting services. It has generated gross Sales for ca. €0.23mn inFY18, experiencing negative growth rate YoY, as result of the web agency activities replace (no more the core business) with intern service provider activities
DHH Italia The Italian reseller of Swiss premium brand Artera, ca. 2,000 clients. gross Sales at ca. €0.7mn in FY18
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Subsidiary key indicators
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Legal Entity Gross Sales (€ ‘000)
FY17 FY18 YoY (%)
Tophost 1,263 1,461 +16%
DHH Slovenia 1,455 1,452 0%
DHH Croatia 1,937 1,905 n.a(*)
DHH Serbia 121 150 +24%
DHH Italia 465 700 n.a(*)
DHH Switzerland 269 226 n.a(*)
Sysbee n.a. 172 n.a(*)
mCloud (**) n.a. 95 n.a(*)
Total 5,510 6,161 +12%
(*) Not to be compared on a line-by-line basis (**)Merge between DHH Serbia and mCloud announced as of May, 2nd
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SUBSIDIARY CONTRIBUTION TO CONSOLIDATED FIGURES IN FY18
Revenues breakdown by geography
Revenues breakdown by legal entity
Serbia 4%
Switzerland 4%
Croatia 34%
Italy 34%
Slovenia 24%
DHH Croatia 31%
DHH Serbia 2%
DHH Italia 11%
DHH Switzerland 4%
Sysbee 3%
mCloud 2%
DHH Slovenia 23%
Tophost 24%
GROWTH STRATEGY
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Exploiting positive net cash position in order to finalize further investment deals following three main guidelines: Consolidation, Expansion, Start-ups
Criteria 1. Consolidation 2. Expansion 3. Start-ups
Objective
Increasing market share in the current company's reference
market, acquiring small to mid-sized companies
Entering in new geographies, or expanding product lines
acquiring mature and cash generating companies with at
least €1mn turnover
Investing at least €1mn in worldwide innovative start-ups
with appealing ideas
Industry focus Web Hosting, Cloud Computing Web hosting, Cloud computing New digital technologies
Stage of development
Companies with an existing customer base and distribution
network
Market leader, cash generating companies with low leverage
Team and product with proven traction
Acquisition strategy
Asset acquisition without retaining the management
Initially cash purchase of 51%-60% of equity with the option to buy the remaining stake via cash
or equity
Initial minority stakes with contingent call options
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INVESTMENT STRATEGY
Improving customers acquisition rates, renewal rates and, as a consequence, Life-Time Value (LTV)
Building a diversified product portfolio by integrating new “verticals” beyond traditional Web hosting field, such as Cloud computing and other Value-Added Solutions (VAS)
Expanding supply chain, trying to meet all customers’ needs, mixing high quality products with satisfying experience levels
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Establishing an innovative inter-disciplinary team with proven track record in digital business and capital markets, providing specific functions to engage all subsidiaries’ needs in terms of:
Expert support, cost and revenue synergies achievement, resources and capabilities enhancement
Business unit control, managerial processes and financial KPIs implementation
Turnaround capabilities of acquired assets from a financial and technological point of view, delivering strategic thinking, technology solutions, marketing know-how and other best practices
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Implementing managerial capabilities in revamping and optimize acquired assets from a financial and technological point of view, delivering strategic thinking, technology solutions, marketing know-how and other best practices
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As a consequence, bookings improved dramatically (+16% in 2H17 YoY, and +16% in 2018 YoY) as a result of turnaround efforts which have been finalized as of 2017. Additionally, there has been a marked improvement in the average lifetime value
Tophost case study: Adapting a range of operational & strategic measures to transform the organization At the beginning of 2016, when DHH took over active management of Tophost, all relevant KPIs were negative, since customer base was recording negative growth rates and average customer acquisition costs (CAC) were disproportionate if compared to lifetime value (LTV) provided on average by customers
In addition, Tophost products were not listed on the first page when an internet research was run, and a survey conducted by the company revealed that clients thought of Tophost as a cheap and unreliable company
To overcome these issues, many adjustments have been implemented, aiming at enhancing Customer acquisition / retention and Profitability margins
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FINANCIALS
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Net Sales increased by 12% YoY, as a result of both accelerating organic growth and consolidation of acquired company, EBITDA flat YoY at €0.53mn (€0.84 on a Pro-Forma basis)
Well balanced capital structure with positive Net Cash Position at ca. €2.6mn. Cash conversion ratio (i.e. OpFCF b.t. as % of EBITDA) close to 50%
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DOUBLE DIGIT GROWTH RATES IN FY18
Cash conversion rate expected in the 80%-90% region
Ramp up continues in 2019E-20E (Source for estimates: Value Track equity research report, released back in October 2018. i.e. before the release of actual 2018FY results)
Full year Revenues expected up +25% and 15% YoY respectively in 2019E-20E
Operating profitability to progressively increase, with EBITDA margin expected at 11.0% and 12.6% respectively in 2019E-20E being the result of higher intra-group costs synergies
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DHH: Summary of financials
(*) Pro-forma results (not audited) do not consider AIM Italia listing costs / other non-recurring M&A related items and take into account financial effects of the acquisitions for the whole fiscal period (and not since the official consolidation date) Source for future financial results estimates: Value Track equity research reports
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Income Statement (€'000) 2017A 2018A 2019E 2020E Net Revenues 5,289 5,970 7,477 8,639 Other Revenues 387 337 31 32 Total Revenues 5,676 6,307 7,508 8,671 COGS -3,413 -3,956 -4,710 -5,425 Labour cost -1,732 -1,816 -1,978 -2,145 EBITDA 531 534 820 1,101 D&A -181 -361 -240 -235 EBIT 350 173 580 866 Net Profit 245 103 403 614 Adjusted Net Profit 284 350 403 614
Pro-Forma results (€'000) (*) 2017A 2018A Net Revenues P-F 5,670 6,163
EBITDA P-F 886 841 EBIT P-F 702 647 Net Profit P-F 534 526
Balance Sheet (€'000) 2017A 2018A 2019E 2020E Net Fixed assets 6,243 6,171 6,536 6,601 Net Working Capital -1,369 -1,172 -1,850 -2,122 Severance pay and other funds 22 15 30 32 Total Capital Employed 4,852 4,967 4,656 4,447 o/w Group Net Equity 7,333 7,571 8,028 8,642 Net Fin. Position 2,481 2,604 3,372 4,195
Key figures & Ratios 2017A 2018A 2019E 2020E EBITDA Margin 10% 9% 11% 13% EBIT Margin 7% 3% 8% 10% Net Margin 5% 2% 5% 7% ROE 3% 1% 5% 7% ROCE b.t. 7% 4% 12% 19% Net Debt / Equity nm nm nm nm Net Debt / EBITDA (x) nm nm nm nm OpFCF b.t. as % of EBITDA 118% 45% 102% 98% P/E (x) 22.9 15.0 P/BV (x) 1.2 1.1 EV/Sales (x) 0.8 0.6 EV/EBITDA (x) 7.1 4.6 Revenue YoY growth 34% 13% 25% 15% EBITDA YoY growth 49% 1% 53% 34% Net Profit YoY growth 58% -58% nm 52% Company data Outstanding Shares (mn) 1.42 Market Price (€) 6.50 Fair Value (€) 10.30 Market Cap (€mn) 9.3
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Cash Flow Statement (€'000) 2017A 2018A 2019E 2020E
EBITDA 531 534 820 1101
Op. WC requirements 424 -197 314 272
Capex (not incl. Fin. Inv.) -350 -92 -300 -300
Change in provisions 20 -7 5 2
OpFCF b.t. 625 239 839 1,075
As a % of EBITDA 118% 45% 102% 98%
Cash Taxes -58 -52 -147 -223
OpFCF a.t. 568 187 692 853
As a % of EBITDA 107% 35% 84% 78%
Capital Injections 0 114 0 0
Other (incl. Fin. Inv.) -1,241 -158 -15 -20
CF available to serve debt/equi -674 144 677 833
Net Financial Charges -29 -21 -15 -10
Dividend paid 0 0 0 0
Change in Net Fin Position -703 123 662 823
Operating Cash Flow and Net Cash Evolution
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PEOPLE & CAP-TABLE
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• Former partner of Digital Magics (IPO 2013)
• Director of MailUp (IPO 2014)
• Domovanje bootstrap • Domenca acquisition
Matija Jekovec co-founder, COO Group finance and operation
Antonio Baldassarra co-founder, Board Member Group business strategy advisor • Seeweb bootstrap • Docebo investment (exit 2015)
Guido Busato Board Member Group business strategy advisor • EcoWay bootstrap
Giandomenico Sica co-founder, President Growth strategy and M&A
Uroš Čimzar co-founder, CEO Growth strategies of portfolio companies
Founders and top managers deeply committed to DHH. Together they control ca. 55% of the share capital
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• Domovanje bootstrap • Domenca acquisition
Free float 29.6%
Seeweb Holding Srl* 25.4 %
Giandomenico Sica 14.1 %
Matija Jekovec 7.6 % Uroš Čimzar
7.6 %
Tomaž Koštial 0.5 %
Matjaž Jazbec 7.6 %
Martin Romih 7.6 %
36 *The owners of Seeweb Holding Srl are Antonio Domenico Baldassarra (50,67%) and Enrico Vona (49,33%).
STOCK & VALUATION
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VALUATION RELATIVE TO COMPARABLES
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DHH share price, 27 September 2017 to 02 May 2019
Based on 2019E-20E estimates provided by Value Track, DHH trades at a wide discount vs. selected international peers, ranging from 40% to 85% depending on the multiple taken into consideration
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Based on the dataset created by Prof. Aswath Damodaran (Stern School of Business, New York University), DHH is trading at a huge discount (ca. 47% discount vs. its European peers in the sector “Software System & Application”). The dataset includes 246 European public tech companies in the sector “Software (System & Application)”, many of them listed on secondary markets like AIM Italia, AIM UK, Euronext Growth, Nasdaq First North, NewConnect Poland, MaB Madrid
03
By looking at AIM Italia digital sector, DHH is trading at ca. 53% discount on EV/Sales 2019E
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DHH Stock Performance
DHH Stock Market Multiples relative to Selected Comparables
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Company EV / Sales (x) EV / (EBITDA - Capex) (x) 2019E 2020E 2019E 2020E
Wix.com 7.3 5.8 nm 28.0 Godaddy 5.0 4.2 19.1 15.4
Endurance 2.2 2.0 7.9 7.2
iomart 3.9 3.6 9.7 8.7 Shopify 14.4 10.9 nm nm Median 5.0 4.2 18.7 15.5 Average 6.6 5.3 23.6 17.8 DHH 0.8 0.6 11.3 6.3
DHH vs. Median 84% 86% 40% 59%
DHH vs. Avg. 88% 89% 52% 65%
Market Cap Approx. €9,3 mn (May 2019)
ISIN ordinary shares IT0005203622
Outstanding number of shares 1.42 mn
Listing Milan, AIM ITALIA
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STOCK DETAILS
OTHER INFORMATION
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Thursday, 26 September 2019 Board approving 1H19 results
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FINANCIAL CALENDAR
Address DHH S.p.A via Caldera, 20153 Milan, Italy
Phone +39 02 87365100
Email [email protected]
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CONTACTS
www.dhh.international
Thank you. For further information, please visit
