Q4 2020 GDS Holdings Ltd Earnings Call
[music].
Hello, Ladies and gentlemen, thank you for standing by for GDS Holdings Ltd, fourth quarter, and full Q 2020 earnings Conference call.
At this time all participants on this.
And on the mode. After.
After managements prepared remarks, there will be a question and answer session.
Today's conference call is being recorded.
I'll now turn the call over to your host Ms. Laura Chen head of Investor Relations for the company. Please go ahead Laura.
Thank you.
Hello, everyone and welcome to <unk> and full year 'twenty earnings Conference call of GDS Holdings Ltd. The company's results were issued via Newswire services earlier today and are posted online.
And some regular inflation retool and batches during this conference call and B.
And downloaded from our IR website at investors GDS services and Dot com.
Today's call is Mr. William Huang GDS, founder Chairman and CEO, who will provide an overview of our business strategy and performance Mr. Dan Newman Gds's CFO will then review the financial and operating result, Ms. Jamie and cool. Our CLO is also available to answer questions.
Before we continue please note that today's discussion will contain forward looking statements made on the safe Harbor provisions of the U S. Private Securities Litigation Reform Act of 1995.
Forward looking statements involve and here with risks and certainties and such and the company's results may be materially different from the views expressed today further information regarding these and other risks and southern and says it's included and the company's prospectus as filed with U S. SEC.
The company does not assume any obligation to update any forward looking statements, except as required under applicable law.
Also note that GDS earnings press release, and this conference call include discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial measures GDS press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP.
And as I will now turn the call over to GDS founder Chairman and CEO William Clark. Please go ahead with it.
Hello, everyone. This is William.
Thank you for joining us on today's call Judy.
So you'd have to have.
Extraordinary journey for the past five years.
The data center market in China has grown beyond imagination.
And digitalization and took off.
Our growth trajectory has been and presents at.
President.
And in the data and award.
We have because we have become the clear market leader.
Reaching a scale, which is a multiple times bigger and then our Kohl's Covid Kosta competitors.
We have the best the customer relationships that most of the complete market presents.
And by far the largest.
Wrapping up on the pipeline.
The strong and that's counted as the balance sheet.
Lowest cost of capital and and most important of all.
Match that reputation.
Refresh and many years of consistent delivery and our high operating standards.
Yes.
As we look forward from today.
We see wave after wave.
Incremental demand.
Driven by new technologies, such as <unk>, AI cloud and Iot.
Supported by a highly favorable government policies.
The market opportunities in front of us as income.
The favorable.
While others are just waking up and we are moving rapidly ahead and to reinforce our market position by innovating.
And innovating with our products and business models.
Deepening our strategy and strategic customer relationships.
Adding subset and adding.
Substantially to our pipeline of scarce resource in tier one markets.
Enhancing our cash flow by entering new markets in China and overseas.
Seizing opportunities to further consolidate and consolidate debt and market.
And the graph break and <unk>.
<unk> Green initiatives.
We have only just the beginning to reap the rewards of our past efforts.
Plenty plenty, one will mark our 20 <unk> anniversary for <unk>.
<unk> for.
And for meat for me personally.
And steel and early stage of development and over the next few years, we will take the business to another level.
Despite the difficult operating environment last year, we made a tremendous progress over the past a year across every aspect of our business and.
And I have met or exceeded our expectation.
Expectations.
First of all we beat our sales targets and.
Adding over 135 or 36000 square meters.
271 megawatts of new customer commitments.
We expanded our data center capacity in line with sales adding.
Adding nearly 140000 square meters in service and under construction.
We added significantly to our development pipeline.
Ending the year with 400 480000 square meters secured force.
And future development.
With respect and.
Our M&A activities.
Clothing for deals with over 50000 square meters of capacity.
We grew revenue by 30 to 39, 2% and adjusted the EBITDA by 47%.
Pardon.
Percentage year over year.
Our.
Adjusted EBITDA margin.
Came out nearly two five percentage points higher at 46 point of 7%.
We've raised it in U S dollars, two 4 billion of equity and debt successfully completed our Hong Kong IPO.
Turning to our sales achievement on slide six.
And at the beginning of the year, we target debt targeted 80000 square meter of organic and net X plus.
Plus 20000 square meter from acquisitions pending COVID-19.
We over delivered by a big margin.
Achieving 100 at 108 solid and square meter of organic and net added including a 14000 square meters from <unk> projects.
And the nearly 28000 square meters some M&A.
Looking forward to 2021, we believe debt to the current level of organic and booking is sustainable.
Ron and 90000 square meters to a 100000 square meters of net debt.
Excluding the Ot data centers for.
For the M&A cost and we already have over 19000 square meter net.
Net added in progress from the Beijing, <unk> acquisition, which is a pen and closing and we aim to close more deals this year.
Turning to slide seven.
Every quarter, a handful of Hyperscale orders.
For a larger part of our sales.
These must win deals typically major deployments at our edge of town Tampa.
Hyperscale customers look look to land and expand on in key locations.
For cloud service providers. These locations are often configured it as.
And this creek availability soon which are critical to their <unk>.
<unk>.
We are very strategic we're very strategic in targeting debt and first a piece of business, where and customers deployed to a new area.
We have succeeded many times in attracting hyperscale customers to establish and initiative presents on our site.
Is it requires coals.
<unk> collaborations with customers.
And why the resource.
Wherever they are going.
And Linda and.
And then and doubt.
Reputations for delivery and the operations.
And as a result of weaning the first deployment will.
We have high visibility for a sustained.
Substantial.
A substantial.
A month of new business in 'twenty, 'twenty, one and beyond.
As customers deploy additional face on our sites.
Turning to slide eight.
While we.
And maintain rates and relationships with our top customers.
Our customer base now extended to almost all of the high growth Hyperscale names in China.
We had and exciting breakage and breakthrough last year and we are working on more.
The growth potential of some of our new customer newer customers is extraordinary.
We are highly focused the folks that are deepening these relationships and there are significantly new business opportunities in the pipeline.
We have and establish a high level of trust with our customers.
Provider, we have the right resource we have an edge in winning new business.
In the eyes on our customers' GDS is not just and asset prayer.
On a total solution provider.
<unk> built on our platform to mirror, our customers and requirements and a market presents.
This fundamentally differentiation to us from other players.
Turning to slide 12.
It is clear and Thats customers must continue to locate.
Locate located their mission critical.
Latency sensitive data center in tier one markets.
Customers target and less than five mark.
And <unk> second microsecond latency to call network nodes and between at between AZ, which imposed a distance ltd of up to one.
100 kilometers around that and urban centers.
And is also clear from years of GAAP.
Government government policies policy set and a supplier.
And as suitable land and power in tier one markets will remain limited.
Non adjusted in the urban areas, but also in the surrounding edge of town and locations.
We recognized this year and this year ago years ago, and have made a huge efforts to secure sufficient resource.
And.
And the pain our growth in all tier one markets.
As at the end of the <unk> <unk>, we had a secured 480000 square meters of tobacco.
Next fall area.
This should move at a cost and and a key market.
Most of it is and then when we.
And have purchased it.
On the local governments governments.
Together with <unk>.
Location of Pablo this is a very valuable assets.
<unk> and net effect.
Sex GDS a path.
We are not stopping after the current day level.
We have some big land deals in the pipeline and it will.
Further strengthen our position.
Sustainability is.
Integral parts of our resource strategy.
The whole of China is grabbing and scrapping with this and it has not and easy problem to solve.
We are working on a range of innovative weighted solutions to source as much green power as we can.
We are doing green power trading.
Wherever possible and purchased purchase and green certificates.
We are also working on working with partners.
Value co investing in green power projects directly in the future.
In terms of AT&T and over 20% of our total power consumption.
Was free.
And clearly it can be one this ratio will go materially higher.
We aim to publish our first ESG report later this year.
We will setup of targets and the roadmap, which realistically realistic and achievable based on deep.
And that is this.
In addition to the existing tier one markets. We believe there are some new tier one markets will emerge.
Emerging immersed in our new <unk> in and.
And next few years, particularly as a result of <unk> and the need and the need need needed to push computing close closer to the edge.
<unk>.
As an example, it hasnt been on our radar for us for a while we bought the land there.
Early last year.
We are now building our first data center on the site.
Back to us with an anchor order in <unk>.
We're looking at another emerging kill and market.
Given the driven by customer demand.
Over the next five years, we pulled and entered 10 new markets in China.
Turning to the slide 14.
Over the past few years.
And increasing number of datacenter projects.
Has been started by independent of deposits.
Developers.
Who is the objective is to sell.
As a result, we see a window of opportunity to consolidate and consolidate the market.
We have.
M&A and track record like and no no.
Haven't downturn views in the past five years.
In 2020, we started up on.
Our efforts with.
We previously announced the sharp Shanghai and 99.
<unk> 19, and BJ and <unk> acquisitions.
Day, we are announcing two new deals and both of them.
Data centers under construction.
But not yet committed by customers.
They will give us highly market marketable resource in debt our respective markets.
We are paying a relatively small premium to organic view of the cost.
We have.
And there.
We're right on M&A opportunities on our radar screen.
Some of which are sizable.
Turning to slide 15.
A foundation of Us check.
Strategy is to be a total solution provider to the leading Chinese customers.
Wherever they are they have critical mass of demand our.
Our customers our customers see a lot of value and working with partners, who understand the debt ecosystem.
The same logic, which takes us to the new markets in China leads us to took look expanding.
Overseas.
Hong Kong is the standpoint, all sides, but mainland China.
We currently have two major projects.
The first half, which is expected to come into service in 'twenty 'twenty two.
We have recently secured another.
And we recently secured an anchor customer order from Hong Kong, one, which we will announce in the next few months.
The China cloud and the Internet Giants has big ambitions in southeast Asia.
<unk> direct and latest flow their core platforms and in directories through their strategic investments.
<unk> and Ali cloud as an example.
We already have three AZ and simple two in Malaysia and Indonesia.
Simple is a well established hub for southeast Asia, and a global tier one data center market.
In recent years.
We believe that's a large part of incremental demand and simple has come from our core market customers.
For the time being the simple come months government has suspended datacenter project approvals.
While new policies and the bandwidth.
And rather than land and power allocation.
It is uncertain.
With.
And whether Singapore.
Singapore.
Given its resource constraints.
We will choose to open the Dol wireless for extensive hyperscale deployment.
Yeah.
Yes.
Bad debt.
Jason adjacent markets in Malaysia, and Indonesia, and less divested.
And in Singapore.
But I have high growth potential.
We believe that Chinese customer demand will be a critical success factor in these in these countries as well.
We have established a picture of demand from our Covid market customers.
They have repeated repeatedly request us to establish a present.
We are actively.
Pursuing opportunities with existing asset and simple.
As well as getting positions for wind and approval a pro both restart.
We have also and.
And to the into discussion with a number of potential local partners, who had we'll have projects.
Various stages of development in Malaysia, and Indonesia.
We believe thats expansion into southeast Asia is strategically important.
And that we can capture several 100 megawatts of new business over the next five years.
We are moving ahead in a very carefully and deliberate way.
We aim to announce several new commitments in southeast Asia.
Okay.
The causes of this year.
To conclude my section section.
<unk> is head and shoulders above everyone else in the China, China market.
This is a matter of fact.
With with what I told you today about the market opportunity in front of ups and.
Our strategic positioning.
Positioning and our competitive advantages, we believe that the GAAP is only going to get bigger.
Now I will hand over to debt for the financial and operating operating and review.
Yeah.
Thank you William.
Starting on slide 18, where we strip out the contribution from equipment sales and the effect of FX changes.
And for Q2 'twenty of service revenue grew by six 9%.
Underlying adjusted gross profit grew by seven 5%.
And underlying adjusted EBITDA grew by six 2% quarter on quarter.
So underlying adjusted EBITDA margin was 46 eight percentage.
Turning to slide 19.
Service revenue growth is driven mainly by delivery of the committed backlog.
And closing of acquisitions.
Net additional area utilized during.
During the <unk>.
With 16000, and 461 square meters.
Consistent with the previous two quarters.
The first quarter of each year.
And it's usually slower.
Due to Chinese new year.
Nonetheless.
We expect moving and <unk> 21.
Only a couple of thousand square meters down on the prior two quarters.
Quarters level.
Given the timing and capacity increases.
As shown on slide 23.
We are forecasting that moving over the course of 2021.
He will be heavily weighted to the second half.
Monthly service revenue MSR declined one 2% quarter on quarter.
And for Q2 'twenty.
2000, and 489 RMB per <unk>.
Square meter per month.
As shown on the next slide.
And that's all for the whole of FY 'twenty.
Three 4%.
Compared with 2019.
And FY 'twenty, one we expect further loan.
Single digit decline.
To some extent and then.
And is a reflection of average selling prices.
However, there are many other factors, which affect MSR and <unk>.
The customer mix.
Data center location.
We don't see level.
And of course.
And contract structure.
Well until the moving flexibility and.
And who pays for the power.
Rather than talk about MSR on a standalone basis.
Third to focus on margins and returns.
Turning to slide 21.
Underlying adjusted gross profit margin.
It was 53, 7% to <unk> 20.
And the same number for the full year.
And the one percentage point improvement.
FY 19.
We calculate adjusted gross profit yield.
To enable investors to keep track about returns and the <unk>.
<unk>.
It is a proxy for cash on cash returns.
We divide adjusted gross profit for the year.
But the average gross amount invested.
Excluding assets will land on the construction will held for future development.
Gross amount invested and crudes the goodwill.
And our acquisitions.
So FY 'twenty.
The adjusted gross profit yield.
13, 3%.
Which compares with 13, 6% for the previous year.
This was achieved with an average utilization rate of 71%.
Materially different from FY 19.
Our commitment rates.
And service.
And is 94 three percentage.
When utilization rates cash.
And the commitment level.
Yields can climb to the high teens.
As you can see we have sustained returns across our portfolio.
Turning to slide 22.
Our adjusted EBITDA margin.
Had a slight dip and <unk> 21.
Mainly due to one off expenses.
Related to <unk>.
IPO events.
For the full year adjusted EBITDA margin was up two five percentage points.
Very approximately we estimate that a half percentage point improvement was due to net positive impact on costs with COVID-19.
For FY 'twenty, one we aim for about one percentage point of further margin expansion.
Turning to slide 24.
Oh Capex for FY 'twenty with.
It was nine 4 billion RMB.
A little bit less and won't be guidance due to timing of capex payments.
Nine 4 billion RMB and.
<unk> 6 billion organic capex.
$1 5 billion Atlanta property purchases.
And one 4 billion of acquisition consideration.
And <unk>.
Page 413 billion RMB of acquisition consideration.
Mainly related to the Beijing.
And Shanghai and 19 deals.
We expect on Capex for FY 'twenty, one to be around 12 billion RMB.
Including an estimated $3 7 billion of consideration for the Beijing, 15 acquisition and the two acquisitions announced today and assuming the close this year.
With respect to Capex guidance.
And we can only include acquisitions.
We have bottom on knowledge.
However, it is quite possible that there could be more M&A deals this year, which will not reflected and our guidance.
Part of the Capex in FY 'twenty and.
In FY 'twenty one.
It relates to organic projects, which we built to suit for customers on the build operate transfer com.
Contracts.
There are different financial approaches to undertaking these projects.
Previously, we sought to minimize our equity investments and maximize management fees.
Now our first preference is to invest more of our own capital.
Leverage it with lower cost debt.
This approach gives us a reasonable risk adjusted return on equity.
We therefore decided to keep on our balance sheet too.
<unk>, which we began constructing and <unk> 'twenty.
Accordingly, we made some minor revisions to include these projects and our core kpis starting from <unk> to 'twenty.
We still have a further nine projects, which we may partner with GIC.
But retaining a higher percentage of equity ownership.
We will update you about these nine projects and the next one or two quarters.
Looking at our financing position on slide 25.
We had $16 3 billion RMB cash on our balance sheet.
And on net debt to EBITDA ratio is two two times.
Given the ongoing levels organic capex and <unk>.
Assuming the patient 15 acquisition closes shortly.
This ratio will go back up to four to five times over the next few quarters.
Turning to slide 26.
During FY 'twenty, we completed debt financings with the total contingency amount with 16 billion RMB.
Trivalent to two 4 billion U S dollars.
Including both new project financing and refinancing of existing facilities.
We made significant progress increasing the tenure of our facilities and lowering the interest rate margin.
This is best illustrated.
By comparing the terms for full facilities, which we refinanced and FY 'twenty.
This is the original terms.
The new facilities have tenders of eight to 15 years.
Compared with five to seven years for the previous facilities.
Similarly, the new facilities and interest margins minus 15 to plug.
And 50 basis points.
Compared with plus 122, plus 270 basis points for the previous facilities.
These improvements reflect the strength and track record of GDS.
And as well as increased appetite for data center exposure from the banking sector.
And FY 'twenty, one we anticipate doing about 15 billion RMB equivalent to $2 3 billion U S dollars with debt financing and <unk>.
Moving and aggressive refinancing plan.
Re fi and bold, some onetime costs, which will impact our effective interest rate and the.
The first two or three quarters of this year.
We should then see a drop.
Most about renminbi denominated debt is floating rate price.
Relative to the over five year loans prime rate or LPR.
This reference rate currently stands at 465 percentage.
It is very stable and in fact, it is hardly changed in the past five years.
What tends to happen when.
And there was a tightening and the credit markets and China.
And at banks prioritize lending to favorite areas.
Which new infrastructure.
Such as data centers is definitely one.
We therefore confident of achieving all of our debt financing goals this year.
Finishing on slide 28 without guidance.
For the full year 2021, we expect total revenues.
To be between $7 7 billion RMB and eight.
8 billion RMB and.
Implying year on year increase.
Of between approximately 34, 2% to 39, 4%.
And adjusted EBITDA.
To be between $3 66 billion RMB.
The $3 8 billion RMB.
Implying a year on year increase.
But between approximately 36, 5%.
To 41, 8%.
And Additionally, we expect FY 'twenty, one capex to be around 12 billion RMB.
We'd now like to open the call to questions operator.
Thank you, ladies and gentlemen, and we will now begin the question and answer session.
I wish to ask a question. Please press star one on your telephone and play.
For your name to be announced.
So the benefit of all participants on today's call. Please do limit your questions.
Our first question comes from Yang Liu Morgan Stanley. Please go ahead.
Thanks for the opportunity.
And to ask questions.
I have one question on the competition.
Management and operating income of the competitive dynamic.
And the market.
Do you feel that the competition is getting more intensified compared with three or four months ago.
Do we see.
Pricing return pressure or.
Or how does GDS to defend the watery share in our key customers when the peers are chasing demographically. Thank.
Thank you.
Yes.
Okay. Good morning, John.
And the.
First of all I think.
The answer is that in general I think net doesn't change.
In terms of compared with the last couple of years, we didn't see gd.
<unk> position and the market will be will be changed so our position is very solid and tubs out.
Platform, we are on the platform player in the market still there is no platform player and the market.
And we mentioned and in the lots of couple of the earnings call is not a change.
And.
And the competitor and the net.
And a all the regional payer or project.
And so platform is very valuable for.
All our key customers.
And number one.
And the mature I think.
Our positioning and our customer is very different.
And all of the falloff.
Our positioning is very solid and customer in our customers' eyes GDS is very very.
Reliable platform. So this will.
Empower their business and the it.
And the past EBIT and the future we are the only reliable platform in our key customer is sold and what I can see Taro is of course, a lot of day because the market is booming a lot of the new per year in the market, even a lot of debt.
Ah.
And as data center and established data set of payable.
Competition between them.
It looks like and more.
Our stronger than before but not the factor to us.
So in terms of price.
Price and return I would like to say that price is that it's very difficult to talk up the price as we mentioned last a couple of times.
We are we have pursued the project.
I would like to say.
And our future project returns will maintain.
What we've talked about before so in general we're not impacts our project returns.
And thank you.
And finally, how about another question.
And so that we have on new <unk>.
Financial metric on the line.
Adjusted the GP.
Should I assume that it is almost the same with <unk>, we have been using for past years.
Sure.
Yes sure on Susan.
It is exactly the same.
Different name and.
It's a little bit simpler because.
Gross profit as a.
Standard accounting.
Your line item and.
Adjusted gross profit just needs to be reconciled to gross profit.
The presentation, and I think sort of and simpler.
But the number itself is exactly the same yes.
Thank you. Our next question comes from Jonathan Atkin with RBC capital markets. Please go ahead.
Thanks very much.
So I was interested in the slide that talks.
Talks about your largest orders in Q4 and <unk>.
Two of those contracts commenced already essentially so that was a very fast turnaround between contract signing and contract commencement and then the other two are fairly far out and appear to be build to suits, but can you talk a little bit about the nature of the customer demand that youre seeing.
And similarly balance between what appeared to be immediate needs and the needs that are that are kind of cloud.
My second question relates to Capex and I wondered if there's any trend that you're seeing and your business around the build cost construction cost per megawatts of capacity does.
Has that trended differently recently or is there any chance that that could decline over time. Thank you.
Yes, John.
And so.
Question on <unk>.
Highlighted for Hyperscale deals.
The first one we acquired a.
Data center in Shanghai is one of those.
Projects.
Oh, it was undertaken by independent development and.
And.
After we acquired it.
Well to move forward with the customer contract. So that's why it appears to be on.
The short timeline.
Yes.
The second one which also appears shorts.
Patient seven but and this case.
It's on its existing data center it was already.
Roughly speaking half half committed.
And customers and this was a.
The first order for the data center. This was the on order that took up most of the remaining.
Pasty that let's say once again and that's why there seems to be a short relatively short time period, because it was a quarter forward and existing base expenses.
The other two hyperscale orders and lung scarring and and.
Joe Yes.
Post the.
Yes.
And one case greenfield assets and the other.
The cases, the conversion, but it's a.
Yes.
Early pre commitments right at the very beginning of the project.
So John can you repeat the second question.
Declining and China, I wondered if you've seen that with the reasons might be or if youre not seeing that at all.
That's why I'm sorry on come on line.
And I Couldnt hear and.
Construction per megawatts.
Hum.
Yes.
On construction cost per megawatt day.
Yes.
Is that.
Differently.
Yeah.
And.
Yes.
No.
Sorry, I Couldnt hear the train and construction costs has been that we are able to.
Keep achieving.
Cost reductions.
On.
Gracias ways from Sunday.
It's simply scale and procurement some of it is through supply chain management.
Some of it is through the way in which we approach the.
The construction in terms of the phasing and the modularity and.
Offsite prefab and and.
So on and.
And some of it frankly is.
By setting up projects, which has the most optimal cost due to location due to the proximity of power and infrastructure.
Due to the ability to leverage existing substations and and so on.
Alright.
Gains year on year a small.
The centers guidance, but they all contiguous and.
Looking forward.
We continue to see.
<unk>.
Continue this so.
We would expect actually for quite a few years to come to be able to.
Lower on unit development costs by a small small increments year on year.
Thank you.
Just to remind.
All participants for the benefit of all please limit your questions to one at a time. Thank you.
Question comes from Colby <unk> at Cowen and company. Please go ahead.
Hi, This is Michael on for Colby two questions if I may.
First it appears you are.
<unk> stated Youre area on the construction and a few other kpis and the third quarter to include the data centers.
Just to be clear. This is because you intend to it would seem and 100% ownership of those assets and.
And if so what drove the change versus your prior view and then my second question is based on the conversations you're having in the markets outside of China, which you intend to expand.
Which market would you expect to have a footprint and first and what would you consider to be a reasonable timeline for having a data center up and running day. Thank you.
And micron.
Part of your question.
We did previously disclose.
On the existence of these these projects we had a.
On cash, we could manage bts datacenters and in that category.
We groups on.
Two projects relating to customer one projects relating to customer two projects relating to customer streak.
There was one project relating to customer to on one project relating to customer free. So they were just a single data centers on on on this site.
And.
And we decided because of the situation.
And it would be more.
Optimal France too.
Undertake those ourselves and the usual way.
And therefore, we move them from the category of what we call managed Bts data centers and then include them and now.
And all Kpis, just as we would any other.
Self developed data centers, but we do identify and the detailed breakdown and the appendix to our presentation, which showed the POC.
And <unk>.
Project, so that it.
Okay.
Okay for all to see.
More generally.
With regard to these projects.
Projects.
It is becoming.
Quite popular.
Yes.
More of the.
Large cloud and Internet.
Companies in China.
Experimenting with this approach.
And for development on their campuses and remote areas.
It's a situation where they clearly have the option.
Two self build right because.
That campus and there is no.
Barrier in terms of.
And in power, but they still see advantage and.
Outsourcing, but the terms of outsourcing quite different.
And our perspective.
The core strategic focus but it is.
And part of our business and you know.
And I think we will be flexed.
Flexible about how we approach it and the path we have done some.
On balance sheet, and we put about 80% leverage on the projects and.
The return on equity to us was quite acceptable and.
I think going forward, we will do some that way we will do somewhere we have majority and maybe we'll do somewhere we have.
And minority or even just purely a management fee.
I think the.
The market will call for a wide variety of business models, and certainly as we call. It <unk>.
On projects outside of core markets.
And we will be adopt brought two different approaches.
And in June and answer the second part and that's all.
Being on.
Okay.
Yep.
Yes, I think there obviously and strategy actually I just mentioned net the first appointment.
And a stop point into Hong Kong.
We're already.
Hong Kong two projects and the development.
On the <unk>.
Net stack is obviously is southeast Asia, and South Asia, the top III country in our radar screen is that Singapore.
Malaysia and Indonesia.
This free market.
And our view.
And the next five years the demand from China will be a few 100 megawatts. So we have tried to catch up with this wave, but potentially ops I think and southeast Asia is a high potential market.
We go to alternative strategies that we have to setup, our present day, but as for the strategic reason.
But.
If you look at it at current to Southeast Asia market, It's very looks like very similar like Aes and 10 years ago. The market in China. So we are we are willing to step in and build out.
Data center position.
And our position there and to catch up on the future.
Hi groups.
As our cash.
And.
Our goal.
So.
We will maybe we'll open that maybe the first project will be and simple, maybe net Malaysia or Indonesia. So we will give you the clear and so and then in the near future.
Thank you. Our next question comes from Tina.
And then sacks. Please go ahead.
Hi, Thank you very much free time management. So yeah. My question is also related to on.
The southeast Asia expansion strategy I'm wondering on.
What kind of differences in terms of revenue.
Revenue as well as retired in these potential southeast Asia projects, and how that may impact, our <unk> or our P&L in the future and when do you see the first project to start contributing on revenue to our P&L as well. Thank you.
I think it's the earliest.
Too early to pop on the revenue because when we in the next five years I don't see I don't think the and it will.
Impact of lost.
Revenue.
Because our plants or the guidance already.
Debarment on steel.
We are still in China, because China is still a big market.
And I just mentioned southeast Asia in our view is it is a strategic but non calculate that any number in our P&L right now I think and maybe when they win.
Projects coming and we will talk about that.
Our next question comes from Harry Halloran at J P. Morgan.
Please go ahead.
Thank you.
Could you talk a little bit about.
What are we seeing from.
That's a government policy and China regarding energy efficiency pollution control et cetera.
And then some of the bigger commitments on climate change.
Could you I know that Gilead would be publishing the ESG report.
This year, but could we start talking a little bit about.
What are we seeing from a volume perspective.
And especially for some of the interest on project and our GDS has been able to do along the customer on this front.
The second question is on.
On <unk>.
M&A.
It seems like M&A is now becoming a much bigger part of pipeline.
As evidenced by last year, if you think about the next two to three years.
Should we assume that M&A become probably a much bigger part and even last year like the I think it was about 20% of the total pipeline build.
Should we think that M&A would be a much bigger part of the pipeline. If you think over the next two to three years.
Okay.
Yes.
Whenever you wanted to address the question about government policy.
Thank God.
Hum.
To meet with net.
So.
Okay cool.
Yeah.
I think the ESG.
It's a very hot topic right now.
And our greater China, including Hong Kong.
And China I think this is.
And definitely is a channel that would be government.
And we encourage you the green power rate and also.
We call it negative and that pencil.
A couple of new carbon neutral right. So GDS already start to prepare for this.
A couple of years, so as I kept I just mentioned.
The percentage of our data center.
Right right bring image.
So we will government debt.
Policy from the policy point of view I think day in general still and the capacity development.
<unk> right now we didn't see any.
Yeah.
Officially.
Enforcement policy right now but of course.
The immediate impact is that.
As I mentioned in the in the net.
<unk> quarter in.
And the chiller market, especially also in the net some.
And Tom.
The tier one market.
And we'll be getting it's easy to see EBITDA world.
Controlled more types in the future.
And as what we can see what what's the what's the what's the impact yet.
Yeah.
And so the question about M&A.
And it may drive about business.
For the foreseeable future is going to be organic developments and tier one.
Markets.
Having said that I mean, we clearly see.
And opportunities.
Right now.
The next few years to consolidate the market.
There's been a lot of.
New entrants and a lot of development by independent developers.
And that's what creates the pipeline and the opportunity to consolidate.
Consolidated net.
We believe that we would have.
Significant competitive advantage in terms of M&A.
And it sounds of the capabilities and experience about team.
The methodology that we developed.
On the deals we've done since 2016.
Financing capacity.
The ability to conduct technical due diligence and.
And we find that.
Sellers when you engage with sellers.
Always top of their mind is.
And they engage with a potential buyer they want on though is that by going on.
Get the finishing line right.
I think buyers.
And I'm, sorry, sellers have a lot of confidence when they engage with GDS because they're on track record right.
Alright.
And I'll ask about.
Data center, M&A and China, but.
I think most of it is being done by us and I'm not aware of and many M&A deals are being done by.
But by others. So we are.
The major portion.
And and data center, M&A and China.
And about.
How much of this could be.
And frankly, we don't have a quota.
Uh huh.
We don't look at it like that.
Yes.
Really two different types of deals.
One site, which is.
Cool kind of flow deal.
Is the kind of five to 10000 square meter data center.
Typically that kind of per rep right.
Single data center on our sites.
It could be.
Purely capacity like the two deals we announced today issuance and.
<unk> eight.
And Tien Tsin Huang.
Well it could be capacity with some customer commitment either debt.
Hum coming with without without acquisitions and like in the case of.
Shanghai and 19.
Is that the.
So there's a steady.
Pipeline and those kind of deals.
And.
The.
And multiples have not increased.
And we can still do these deals paying relatively small premium.
So what kind of cost.
So.
And we.
Okay.
And we count we count in terms of on metrics based on when deals.
So if you do two of those come through maybe 15000 square meters. We did three it comes to something over 20000 square meters.
The other kind of deal.
And as.
Uh-huh harder to predict is the.
And more sizable ones.
That's a 20000 square meters and upwards.
We've done.
Two or three depending on how you.
And how you categorize so it was the Beijing 10 11.
On 12 deal and was 20000 square meters.
And as the Beijing 15 deals 20000 square meters.
You could call and M&A, that's the deal where we're partnering with citic, which by the way is now.
Upgrades and 28000 square meters.
Opportunities and scarce and hard to predict when they're going to come on to the market.
Yeah.
If they are added.
And at a more advanced stage have.
And have customer commitments.
And then.
There's likely to be more competition for those kind of opportunities and and that's where that's where multiples are probably gone up.
But still I think.
Reasonable and justified.
We have some opportunities like that and our pipeline and it can be quite a big swing factor.
Crystallized accounts.
And your expectation on that.
But that's where it could that could make quite a bit.
Big difference, that's where we could go from.
Having 20 or 30000 square meters.
The acquisition net add.
So having something.
Quite a bit more.
Okay.
Our next question comes from Rob Palmisano at Raymond James.
Please go ahead.
Hey, guys, it's Rob on for Frank.
I just wanted to follow up sort of spoke to this earlier can you talk about you know like likely sources of capital for next year.
And and also.
Can you speak to your strategic relationship with Cyrusone going forward. After they just recently monetize their investment in your guidance.
Okay.
Robert we always.
B we have been.
Fully financed fully capitalized for.
Business plan and I think we're quite Hum.
And it's been about sharing what our business plan.
Yes, so I think.
Based on the comments William made about.
And the expected level.
Organic net adds and <unk>.
90 to 100000 square meters.
The fact, we've got 120000 square meter data center acquisitions already.
And the pipeline and potentially closing shortly.
And.
Hopefully other acquisitions that will close.
This year and that's the business plan, which.
I think everyone can see and.
And we are well capitalized for that and at.
And at least for the next couple of years.
But we haven't factored and regionalization.
And we haven't factored in and.
And then beyond.
On the flow deals as I just.
And just described them.
We haven't factored and higher levels of organic growth.
And to some degree we havent factored and potentially.
Essentially bringing forward the capex, if we see opportunities to acquire and handle buildings, which are kind of.
And it would be opportunities that are cooked.
One time opportunities.
Yes, you have to you have to grab when the debt otherwise otherwise they're gone.
And contribute.
So yeah.
If any of that materializes, its upsides and upside to our business base case and blue.
And that will be positive for our shareholders. So yeah.
Yeah, it's a need for capital arises it will it should be seen as something.
It'll be because of.
Because hum.
And create a success.
William comment about our relationship with Cyrusone.
Okay, I think I think.
Ah.
In terms of debt.
Ah self cocreation with two and maintain the cells are accomplishing and relationships.
Because.
Historically did refer subdue and we follow the deal and they help us cut cut cut a couple of video, but a safe now.
Chinese customer go to.
Is there is a slowdown so they get on this.
And then Ltd.
Ltd.
<unk> benefited from us, but I think it'd be warehouse relating stood here.
But today's cash our international team work very closely with a different partner and and so again.
For example last year, we got we got we got on larger deal.
And from U S.
U S based customer and let's say in China.
So independently and so we're not rely on them.
Of course, I think Dave, but in some way and we work together with some of the some deal still right.
Our next question comes from James Huang of UBS. Please go ahead.
Good morning management and this is that transform on video.
Two questions first wanted to follow up on the debt yield.
I'm just wondering.
The Chinese government has announced the carbon neutrality go with your conversations with your largest cloud customer complaints and.
And and related to that how does your current land held for development and future development, how much of that is renewable energy and whether you'll be you'll be able to increase.
And as you've renewable energy usage for your pipeline of protein and.
That's the first question and the second question is on your expanding into.
And we mentioned 10 different region and China.
If I remember for example, I also saw that you recently got into painting and coating.
And if I remember correctly and the path for example, and the west the utilization rate increased testing blood flow.
And so I'm, just wondering what youre seeing and tons of demand.
Region, whether it's just the.
And the situation has changed.
And.
Thank you.
And Jonathan.
And so Thats first question.
Yeah, sorry on the on the different places where they might come on.
And clearly but.
James.
And so you're asking about.
And it helps Q2 GAAP.
What proportion of the power.
About yeah, yeah, yeah, sorry, so for the year on ESG on them.
Conversations with our customers with us with and changed where they're taking a more focused on renewable energy usage and also on your land held for future development how much of it.
And whether that percentage point increase thank you.
Yes sure.
Well I mean, I think the first part of your question.
And China take take more notice.
Stopped you from the central government downwards right.
And our largest customers look to us and expect us to help them solve them.
So solve the problem the challenge.
And how to reduce their carbon footprint.
Foot print.
And I'm, probably the biggest component of it is.
Where does the power come from meaning what is the.
What is the Uh huh.
What what fuel is used in the and the power and.
And the power generation.
It doesn't necessarily go with with individual projects. So for example.
On a region within Shanghai for example.
And we can.
On purchase Green power.
Through.
And the power.
And the trading markets.
And that's one of the ways in which we reached the.
Level.
Green Green power that we mentioned over 20% as well.
Total consumption so that that's not.
Location specific on the other hand.
Awesome.
And locations where <unk>.
Specific to these areas.
On the Green power because for example.
The location may be on the same grades.
<unk>.
Well there is a large amount of wind power generation and even though they could be quite a few hundred kilometers apart.
It could just be.
And they all on the same.
Power grid.
No.
And we.
We will come out with.
With targets I think rather than talk specifically about.
Which project has has walked.
I think the way to look at it as it is in the aggregate and.
Yes.
We will.
Have to be.
And have a chip.
And take a number of different approaches.
Which we're working on now.
Same time.
And whatever targets, we set will be very serious ones not.
It's not.
Take this very seriously it's oh.
Absolutely critical trial business.
What have you on the answer.
Yeah, Yeah yeah.
Yeah sure I was thinking that net.
First of all I think day.
We are in China, a kilowatt market, it's very obviously at Shanghai, Beijing, Shenzhen and Guangzhou right at that.
The western side of it.
If you look at it.
As for years.
Actually the across the data center demand and lost in the in Chengdu and Chongqing.
And lots of free is closed.
Both very fast.
So this is a chair.
So.
Given the.
Parents and utilization.
And can tell you is that the gross gross cash is very obvious. So we are very competent too and.
Increased utilization in day in our current data center in west and parts of China.
Another in our radar.
Screening is another 10 cities like Chongqing right.
We are we pay more attention on that basis and new Chad.
And the last couple of years, what do we can.
Terry and Seth.
Lot of our customer current customer cloud per year, and a lot a lot of internet.
Internet of China.
It's tough to deploy there.
Uh huh.
Silver in the city.
Ross.
We are very confident this free Kevin 10, new market World.
And tried to another.
Ah.
Gross.
And in the future so I think the.
As I mentioned that China is.
Keith It's a check and China is fairly advanced at the on the other country. So <unk> and what's the impact is that when the five Jeep and completed the policy deployment and it will produce more data from the dose ceiling because those city as all economic center in.
And all of the province, and the <unk>.
And the population is.
Most of them is a wrong more than $8 million or even the candidate and right. So I think this is a potential market.
And now there is just a start so we are we are we on.
Yes.
Keep them like per a new and emerging market right so but.
And in order to.
Ah.
Make it investment more efficiency.
Will we always are.
We always will follow on our customer demand.
Two.
Getting to this market, yes. This is our.
What's our.
And our view right.
Thank you, ladies and gentlemen, due to time constraints, we have a nice day all the time for questions I will hand over to GDS for closing remarks.
Thanks, everyone for joining us today and you have further questions. Please feel free to contact GDS Investor relations through the contact information on our website on the <unk> group Investor Relations.
Our next time.
Thank you. This concludes our conference call you May now disconnect. Your line. Thank you.
Yeah.
[music].
[music].
[music].
Hello, Ladies and gentlemen, thank you for standing by for GDS Holdings Ltd.
Fourth quarter, and full Q, 2020 earnings Conference call.
At this time, all participants on a listen only mode.
After managements prepared remarks, there will be a question and answer session.
Today's conference call is being recorded and.
And I'll turn the call over to your host Ms. Laura Chen head of Investor Relations for the company. Please go ahead Laura.
Thank you.
Hello, everyone and welcome to folks you on full year 'twenty earnings Conference call of GDS Holdings Ltd. The company's results were issued via Newswire services earlier today and are posted online.
Some recent renovation, which will research and turn this conference call and be good.
And downloaded from our IR website and invest.
And as a GDS services and they'll call, leading today's call and Mr. William Huang GDS founder Chairman and CEO, who will provide an overview of our business strategy and performance.
So Dan Newman Gds's CFO will then review the financial and operating results Miss Jamie and cool. Our CLO is also available to answer questions. Before we continue. Please note that today's discussion will contain forward looking statements made on this first harbor provisions of the U S progress Securities.
Litigation Reform Act of 1995.
It was looking statements involve and peer with risks and uncertainties as such the company's results may be materially different from the views expressed today further information regarding these and other risks and surfaces is included and the company's prospectus as filed with U S. SEC.
The company does not assume any obligations to update any forward looking statements except as required under applicable law. Please also note that GDS earnings press release and this conference call include discussions of unaudited GAAP financial information as well and unaudited non-GAAP financial measures.
GDS press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures.
I will now turn the call over to GDS founder Chairman and CEO, What Didnt work. Please go ahead with and thank you.
Hello, everyone. This is William.
Thank you for joining us on today's call.
GDS has been on.
A chart and really just the journey for the past five years.
The datacenter market in China has grown beyond imagination.
And digitalization took off on.
Our growth trajectory has been and presented at.
President.
And then in net.
Data Center work.
And we have because we have become the clear market leader.
Reaching a scale, which is multiple times bigger than our Covid COVID-19 cost.
Competitiveness.
We have the best and customer relationships the most complete market presents.
By far the largest.
And by the pipeline.
The strong and that's cloud as the balance.
Balance sheet.
And the lowest cost of capital and most important to all and.
Match and reputation.
Which refresh Manny.
And kind of consistent delivery and our high operating standards.
Yes.
As we look forward from today, we see wave after wave.
Incremental demand driven.
Driven by new technologies, such as <unk>, AI cloud and Iot.
Supported by a highly favorable government policies.
The market opportunities in front of us as income.
Favorable.
While others are just waking up and we are moving rapidly.
To reinforce our market position by innovating.
Innovating with our products and business models.
Deepening our strategy and strategic customer relationships.
Adding to fit.
Adding substantially to our pipeline of scarce resource and tier one markets.
Enhancing our platform by entering new markets in China and overseas.
Seizing opportunities to further consolidate and consolidate that our margin.
And that broad break and breaking green initiatives.
We have only just beginning to reap the rewards of our past efforts.
<unk>, one will mark our 20, <unk> and at misery full and.
And then with the Missouri.
For me for me personally GDS and steel and early stage of development and over the next few years, we will take the business to another level.
Despite the difficult operating environment and the last year, we've made a tremendous progress over the past year across every aspect of our business and have met or exceeded our expectation.
Expectations.
First of all we beat our sales target.
Adding over 135 36000 square meters, all 271 megawatts of new customer commitments.
We expanded our data center capacity in line with cells.
Adding nearly 140000 square meters in service and under construction.
We added significantly to our development pipeline.
Ending the year with 400 480000 square meters secured force.
And future development.
With respect and.
Our M&A activities.
Clothing for deals with over 50000 square meters of capacity.
We grew revenue by 30 to 39, 2% and adjusted the EBITDA by 47.
Pardon the zero.
A fifth year over year.
All right.
Yes.
Adjusted EBITDA margin.
Came out nearly two five percentage points higher at 46 point to 7%.
We raised it in U S dollars two point to 4 billion of equity and net successfully completed our Hong Kong IPO.
Turning to our sales achievement on slide six.
And at the beginning of the year, we target debt target of 80000 square meters of organic and net debt plus.
20000 square meter from acquisitions pending closing.
We over delivered this by a big margin.
Achieving 100 at 108 solid on square meter organic and net added including a 14000 square meters from <unk> projects and the nearly 78000 square meters. Some M&A.
Looking forward to 2021, we believe debt to the current level of organic bookings and sustainable.
As Ron and 90000 square meter to 100000 square meter of net debt.
Excluding the Ot data centers.
For the M&A part and we already have over 19000 square feet of net.
Net added in progress from the Beijing, 15 acquisition, which is a pending closing and we aim to close more deals this year.
Turning to slide seven.
Every quarter, a handful of Hyperscale orders.
For a larger part of our sales.
These must win deals typically major deployments and our edge of Tom campuses.
And Hyperscale customers look look to land and expand in key locations.
For cloud service providers these locations often configured it at.
This increased availability and assume which are critical to their it architecture.
We are very strategic we're very strategic in our <unk>.
Getting the first piece of business, where and customers deploy into a new area.
We have succeeded many times in attracting the hyperscale customers to establish and initiatives presents on our sites.
Is it requires cost.
<unk> collaboration with customers.
And while the resource.
Wherever they are going.
And then Linda.
And then and reputation for delivery and the operations.
And as a result of weaning the first deployment will.
We have high visibility for a sustained.
Substantially.
Substantial amount of new business in 2021 and beyond.
As such customers deploy additional space on our sites.
Turning to slide eight.
Why are we may maintain rates and relationships with our top customers and.
Our customer base now extended to almost all of the high growth Hyperscale names in China.
And we had and exciting breakage and breakthrough last year and we are working on more.
The growth potential of some of our new customer newer customers is extraordinary.
We are highly folks the folks on.
On deepening these relationships and.
There are significantly new business opportunities in the pipeline.
We have and establish a high level of trust with our customers provide a we have the right resource we have and edge.
And new business.
And the highest on our customers' GDS is not adjusted and except prayer.
On a total solution provider.
And have built our platform to mirror, our customers and requirements and a market presents.
This fundamentally differentiation to us from other players.
Turning to slide 12.
It is clear that customers must continue to locate.
Locate located there and mission critical.
Latency sensitive data centre in tier one markets.
Customers target and less than five mark.
<unk> second microsecond latency to call network nodes and between that between AZ, which imposed a defense Ltd of up to one.
100 kilometers and Rhonda Urban center.
And it is also clear from years of GAAP.
Government government policies policy several of supply.
A suitable land and power in tier one markets will remain limited.
Non adjusted in the urban areas and also in the surrounding edge of town and locations.
We recognized this year.
This year ago years ago, and have made a huge efforts to secure sufficient resource.
Underpinning our growth in all tier one markets.
And after the end of the kidney plenty, we have secured 480000 square meters of Developable next fall area.
This included our costs and our key markets.
Most of it is and then when we.
And have purchased from the local government and government.
Together with <unk>.
And the location of power. This is a very valuable asset.
And net of FX, which affect GDS a path.
We are not stopping after this current day level, we have some big land deals in the pipeline and it will.
Further strengthen our position.
Sustainability is.
Integral parts of our resource strategy.
The whole of China is granting scrapping with this and it has not and easy problem to solve.
We are working on a range of innovate innovative solutions to source as much green power as we can.
We are doing and green power trading.
Wherever possible and purchase purchase and Green certificate certificates we.
We are also working on working with partners.
Co investing in green power projects directly in the future.
And we intend to AT&T over 10% of our total power consumption was brief.
And typically one this ratio will go materially higher.
And we aim to publish our first ESG report latest later this year.
We will set up a poverty.
And the roadmap, which realistically realistic and achievable.
Just on deep.
And that is this.
In addition to the existing tier one markets. We believe there are some new tier one markets will.
Emerging immersed in a new <unk> in the next few years, particularly as a result of <unk> and the need and the.
Need needed to push computing close closer to the edge.
Tom King and then.
As an example, it hasnt been on our radar for us for a while we bought and then there.
Early last year.
We are now building our first data center on the site.
Back to us with an anchor order in <unk> 'twenty one.
We're looking at another emerging tier one market.
Given the driven by customer demand.
Over the next five years, we pulled and entered 10 new markets in China.
Turning to the slide 14.
Over the past few years.
And increasing number of datacenter projects.
Had been started by independent of deposits developers.
And developers.
Who is the objective is to sell as a result, we see a window of opportunity to consolidate and consolidate the market.
We have and.
M&A and track record like no no.
Haven't downturn news in the past five years.
And can be 'twenty with GAAP to the App our efforts.
We previously announced that sharp Shanghai nights 19.
19, and BJ and <unk> acquisitions.
We are announcing two new deals both of them on datacenter.
Data centers under construction.
But not yet committed by customers.
They will give us a highly market marketable resource in debt our respective markets.
We are paying a relatively more premium to organic view of the cost.
We have.
And net.
And we're right on M&A opportunities on our radar screen.
Some of which are sizable.
Turning to slide 15.
A foundation of Us Jeff.
Strategy is to be a total solution provider to the leading Chinese customers.
Every day, they have critical mass of demand.
Our customers our customers see a lot of value and walking with partner and.
Understand that the ecosystem.
The same logic, which takes us to the new markets in China leaves us to took look expanding overseas.
Hong Kong is the start point, all sizes, but mainland China.
Currently have two major projects the flow.
First half, which is expected to come into service in 2020 two.
We have recently secured another.
And recently secured an anchor cash order from Hong Kong, one, which we will announce in the next few months.
The China cloud and the Internet of giant has big ambitions in southeast Asia.
Both direct and latest flow that core platforms and in directories and through their strategic investments.
And Ali cloud as an example.
And they already have three AZ and simple to Malaysia and Indonesia.
Simple is a well established hub for southeast Asia, and a global tier one data center market.
And recent for the year.
We believe that a large part of incremental demand in simple has come from our core market customers.
For the time being the simple come months government has suspended datacenter project approvals.
While new policies and the bandwidth.
And rather than land and.
Power and location.
It is uncertain.
With.
Whether Singapore.
Singapore.
Given its resource constraints.
We will choose to open the door wireless for extensive hyperscale deployment.
Yes.
On.
Debt to adjusted adjacent markets in Malaysia, and Indonesia, and less divested.
They are on the Singapore.
But I have high growth potential.
We believe that Chinese customer demand will be a critical success factor in these in these countries as well.
We have established a picture of demand from our core market customers.
And they haven't repeated repeatedly with path for us to establish a present.
We are actively.
Pursuing opportunities with existing asset is simple.
As well as getting positioned for approval and provost restart.
We have also and.
And to the into discussion with a number of potential local partners, who had we'll have projects at various stages of development in Malaysia and Indonesia.
We believe that expansion into southeast Asia.
Particularly important.
And that we can capture several 100 megawatts of new business over the next five years.
We are moving ahead in a very carefully and deliberate way, we aim to announce several new commitments in southeast Asia.
The causes of this year.
Yes.
Sure.
To conclude my section session.
GDS is is head and shoulders above everyone else in China, and China market.
This is a matter of fact.
With with what I told you today about the market opportunity in front of us.
Our strategic positions.
Positioning and our competitive advantages, we believe that the GAAP is only going to get bigger.
Now I will hand over to debt for the financial and operating operating and review.
Thank you William.
Starting on slide 18, where we strip out the contribution from equipment sales and the <unk>.
FX changes.
And for Q2 'twenty of service revenue grew by six 9%.
Underlying adjusted gross profit grew by seven 5%.
And underlying adjusted EBITDA grew by six 2% quarter on quarter.
So underlying adjusted EBITDA margin was 46 eight percentage.
Turning to slide 19.
Service revenue growth is driven mainly by delivery of the committed backlog.
Closing of acquisitions.
Net additional area utilized during <unk>.
It was 16000 and 461 square meters.
Consistent with the previous two quarters.
Yeah.
The first quarter of each year.
And it's usually slower.
Due to Chinese new year.
Nonetheless, we.
We expect moving and <unk> 21.
Only a couple thousand square meters down on the prior two quarters.
Quarters level.
Given the timing of capacity increases.
And as shown on slide 23.
We are forecasting that moving over the course of 2021.
He will be heavily weighted to the second half.
Monthly service revenue MSR declined one 2% quarter on quarter and <unk> 20.
To 2000, and 489 RMB per <unk>.
Square meter per month.
As shown on the next slide.
And that's all for the whole of FY 'twenty was down three 4%.
Paired with F 2019.
And FY 'twenty, one we expect further low single digit decline.
To some extent and that's all.
<unk> is a reflection on that.
Average selling prices.
There are many other factors, which affect MSR income.
Including the customer mix.
State and central location.
C level.
Development cost.
And contract structure.
Example, the move and flexibility.
And who pays for the power.
Rather than talk about MSR on a standalone basis.
Third to focus on margins and returns.
Turning to slide 21.
Underlying adjusted gross profit margin.
It was 53, 7% to <unk> 20.
And the same number for the full year.
And the one percentage point improvement.
2019.
We calculate adjusted gross profit yield.
To enable investors to keep track about returns and a simple way.
It is a proxy for cash on cash returns.
We divide adjusted gross profit for the year.
But the average gross amount invested.
Excluding assets will land on the construction will held for future development.
Gross amount invested and crudes the goodwill for all of us.
And all acquisitions.
So FY 'twenty.
The adjusted gross profit yield was 13, 3%.
Which compares with 13, 6% for the previous year.
This was achieved with an average utilization rate of 71%.
Two really different from FY 19.
Our commitment rates.
And service.
Is 94, 3%.
When utilization rates and.
Catch up to the commitment level.
Yields can climb to the high teens.
As you can see we have sustained returns across our portfolio.
Turning to slide 22.
Our adjusted EBITDA margin.
Had a slight dip and <unk> 21.
Mainly due to one off expenses.
Related to IPO.
IPO events.
For the full year adjusted EBITDA margin was up two five percentage points.
Very approximately.
We estimate that a half percentage point improvement.
Due to net positive impact on costs with Covid.
For FY 'twenty one William.
And for about one percentage point with further margin expansion.
Turning to slide 24.
Oh Capex for FY 'twenty.
It was nine 4 billion RMB.
A little bit less and won't be guidance due to timing of capex payments.
$9 4 billion RMB and.
Includes 6 billion organic capex.
One 5 billion Atlanta property purchases.
And $1 4 billion of acquisition consideration.
And <unk> 20 <unk>.
Page 413 billion RMB of acquisition consideration.
Mainly related to the Beijing.
And Shanghai and 19 deals.
We expect our Capex for FY 'twenty, one to be around 12 billion RMB.
Including an estimated $3 $7 billion of consideration for the Beijing, 15 acquisition and the two acquisitions announced today and assuming the close this year.
With respect.
Capex guidance.
We can only include acquisitions.
We have knowledge.
However, it is quite possible that there could be more M&A deals this year, which will not reflected and our guidance.
Part of the Capex in FY 'twenty and <unk>.
Slide 21.
It relates to organic projects, which we built to suit for customers on the build operate transfer.
Contracts.
There are different financial approaches to undertaking these projects.
Previously, we sought to minimize our equity investments and maximize management fees.
And our preferred.
Is to invest more of our own capital.
But to leverage it with lower cost debt.
And this approach gives us a reasonable risk adjusted return on equity.
We therefore decided to keep on our balance sheet too.
Projects, which we began construction and the <unk> 'twenty.
Accordingly, we made some minor revisions to include these projects and our core kpis starting from <unk> to 'twenty.
We still have a further nine projects, which we may partner with GIC.
But retaining a higher percentage of equity ownership.
We will update you about these nine projects and the next one or two quarters.
Looking at our financing position on slide 25.
We had $16 3 billion RMB of cash on our balance sheet and.
And on net debt to EBITDA ratio is two two times.
Given the ongoing levels of organic capex and assuming the Beijing <unk> and acquisition closes. Shortly this ratio will go back up to four to five times over the next few quarters.
Turning to slide 26.
During FY 'twenty, we competed debt financings with the total contingency amount with 16 billion RMB equivalent to $2 4 billion U S dollars.
Including both new project financing and refinancing of existing facilities.
We made significant progress increasing the tenure of our facilities and.
Lowering the interest rate margin.
This is best illustrated by comparing the terms.
<unk> facilities, which we refinanced and FY 'twenty.
Versus the original terms.
The new facilities have tenders of eight to 15 years.
Compared with five to seven years for the previous facilities.
Similarly, the new facilities and interest margins minus 15.
50 basis points, compared with plus 122, plus 270 basis points for the previous facilities.
These improvements reflect the strength and track record.
GDS as well as increased appetite for data center exposure from the banking sector.
And FY 'twenty, one we anticipate doing about 15 billion RMB equivalent to $2 3 billion U S dollars with debt financing and <unk>.
<unk> and aggressive refinancing plan.
Refi and bold some onetime costs, which will impact our effective interest rate and the first two or three quarters of this year.
We should then see a drop.
Most about renminbi denominated debt is floating rate price.
And relative to the over five year loans prime rate or LPR.
This reference rate currently stands at $4 six five percentage.
It is very stable and in fact, it is hardly changed in the past five years.
What tends to happen when there was a tightening and the credit markets and China.
Banks prioritize lending to favorite areas.
Of which new infrastructure such.
Such as data centers is definitely one.
We therefore confident of achieving all of our debt financing goals this year.
Finishing on slide 28 without guidance.
For the full year of 2021, we expect total revenues.
To be between $7 7 billion RMB and.
8 billion RMB and.
Implying a year on year increase.
And between approximately 34, 2% to 39, 4%.
And adjusted EBITDA.
To be between $3 66 billion RMB.
To $3 8 billion RMB.
Implying a year on year increase.
But between approximately 36, 5%.
To 41, 8%.
And Additionally, we expect FY 'twenty, one capex to be around 12 billion RMB.
We'd now like to open the call to questions operator.
Thank you ladies and gentlemen, we will now begin the question and answer session.
I wish to ask a question. Please press star one on your telephone and why.
For your name to be announced.
So the benefit of all participants on today's call. Please limit your question.
Our first question comes from Yang Liu Morgan Stanley. Please go ahead.
Thanks for the opportunity.
To ask questions.
I have one question on the competition.
The management of operating income of the competitive dynamic.
On the market.
Do you feel that the competition is getting more intensified compared with three or four months ago.
Do we see.
Pricing return pressure or.
Or how does GDS to defend the water's share in our key customers when the peers are chasing demographically.
Yes.
Okay. Good morning.
And.
First of all I think.
The assets that in general I think net nothing changed.
In terms of compared with the last couple of years, we didn't see.
GDS position and the market will be will be changed so our position is very solid and tubs out.
Tactful and we are the only platform player in the market still there is no platform a player in the market.
As we mentioned in the last couple of their earnings call. This is not a change.
And.
The competitor in the net.
And then all the regional Payor or project per year.
So Pat on this very valuable for us.
And all our key customers.
And number one.
Number two I think.
Our positioning and our customer is very different.
And all.
And.
Our positioning is very solid and customer and our customers ice GDS is very very.
Reliable platform. So this will.
Empowered day of business.
Past, EBIT and a future where the only reliable platform in our key customer ice.
So what I can see tail is of course, a lot of data because the market is booming a lot of the new players in the market, even a lot of the year.
Ah.
And as data center established data set of payable.
And competition became debt.
It looks like and more.
Our stronger than before but not the factor to us.
So in terms of price and the return I would like to say that price is that it's very difficult to talk up the price as we mentioned last a couple of times.
We are we have pursued the project, but I.
I would like say in.
And our future margin.
We will maintain what.
And what we've talked about before so in general will not impact our project returns.
And thank you.
And finally, how about another question.
And so that we have on new.
And financial metric on.
Adjusted the GP.
Should I assume that it is almost the same with <unk>, we have been using for past few years.
Yes short answer is it is exactly the same.
Different name and.
It's a little bit simpler because.
Gross profit as a.
Standard accounting.
Your line item and.
Adjusted gross profit just needs to be reconciled to gross profit so presentation and I think so the can simpler.
But the number itself.
Same yes.
Thank you. Our next question comes from Jonathan Atkin with RBC capital markets. Please go ahead.
Thanks very much.
And so I was interested in the slide that talks.
It talks about your largest orders in Q4 and <unk>.
Two of those contracts commenced already essentially so that was a very fast turnaround between contract signing and contract commencement and then the other two are fairly far out they appear to be build to suits, but can you talk a little bit about the nature of the the customer demand that youre seeing that are.
Similarly balance between what appeared to be immediate needs and the needs that are that are kind of crowd.
My second question relates to Capex and I wondered if there was any trend that you're seeing and your business around the build cost construction cost per megawatts of capacity.
Cause that trended differently recently or is there any chance that that could decline over time. Thank you.
Yes, Jonathan.
So first question on <unk>.
Highlights for Hyperscale deals.
The first one we have quality.
Data center in Shanghai is one of those.
Projects.
It was undertaken by independent development.
And.
After we acquired it.
Able to move forward with the customer contract. So that's why it appears to be on the.
The short timeline.
Yes.
The second one, but which also appears shorts is ah patients seven and this case.
Its and its existing data center it was already.
Roughly speaking half half committed.
And customers and this was a.
The first order for the data center. This was the on order that took up most of the remaining.
Perhaps do you see that let's say once again and that's why there seems to.
And to be short time period, because it was a.
Quarter, four and existing.
The other two hyperscale orders and lung scarring and.
Joe Yes.
Net boes.
Evolve and.
And its greenfield assets and the other cases, so conversion, but it <unk>.
Yes.
Early pre commitments right at the very beginning of the project.
So John can you repeat the second question.
Declining and China, I wondered if you've seen that with the reasons might be year, if youre not seeing that at all.
That's why I'm, sorry, I'll come on line.
And I and I couldn't hear that.
Construction per megawatts.
Oh, yes.
Yes.
Our construction cost per megawatts of capacity.
That differently.
Yeah.
And.
Yes.
Sure.
So I couldn't hear the trend and construction costs has been debt.
We're able to.
Keep achieving.
Cost reductions.
Gracias ways.
It's simply scale and procurement is.
And as through supply chain management.
Some of it is through the way in which we approach the.
The construction and in terms of the phasing and the modularity and.
Well site prefab and and.
So on and.
And some of it frankly is.
By setting on projects, which has the most optimal cost due to location due to the proximity of power and infrastructure.
<unk> ability to leverage existing substations and and so on.
All right.
The gains year on year are small.
The centers guidance, but they all continuous and looking forwards.
We continue to see.
<unk>.
To continue this so.
We would expect actually for quite a few years to come to be able to.
On lower unit development costs by a small small increments year on year.
Thank you.
Just a reminder for all.
All participants for the benefit of all please limit your questions to one at a time.
Question comes from Colby <unk> at Cowen and company. Please go ahead.
Hi, This is Michael on for Colby two questions if I may.
First it appears you are.
<unk> stated Youre area on the construction and a few other kpis and the third quarter to include the data centers.
And just to be clear. This is because you intend to it would seem that 100% ownership of those assets and.
And if so what drove the change versus your prior view and then and my second question is based on the conversations you're having in the markets outside of China, which means and tend to expand.
Which market would you expect to have a footprint and first and what would you consider to be a reasonable timeline for having data center up and running.
And you.
And my phone.
Yes.
Part of your question.
We did previously disclose.
And the existence of these these projects we had a.
On a category, we could manage bts data centers and in that category.
And we groups.
Two projects relating to customer one projects relating to customer two projects relating to customer Street.
There was one project relating to customer to on one project relating to customer free. So they would just single data centers on on it.
Right.
And.
And we decided because of the situation.
It would be more opt.
Optimal for us to.
Undertake those ourselves and the usual way.
And therefore, we move them from the category and what we call managed Bts data centers and the.
And include them and now.
And our Kpis just as we would any other.
Self developed data centers, but we do identify and the detailed breakdown and the appendix to our presentation, which showed.
Projects.
Okay.
Okay for all to see.
But more generally.
With regards to <unk>.
Projects.
It is becoming.
Quite popular.
Got it.
And more of the.
Large cloud and Internet.
Companies in China.
Experimenting with this approach for development on their campuses and remote areas.
It's a situation where they clearly have the option.
Two self build right because.
Typically it's that campus and there is no.
Barrier in terms of.
And I and power, but they still see advantage and.
Outsourcing, but the terms of outsourcing quite different.
And from our perspective.
The core strategic focus but it is.
Adjacent part of our business and.
And.
And I think we will be flexed.
Flexible about how we approach it and the POS we have done some.
On balance sheets, and we put about 80% leverage on the projects and.
The return on equity 12 was quite acceptable and.
I think going forward, we will do some that way we will do some where we have majority and maybe we'll do somewhere we have.
On a minority or even just purely on management fee.
And I think I think the.
The market will call for a wide variety of business models and certainly as we call. It is Steve.
<unk>.
Corn projects outside of core markets.
And we will be adopt brought two different approaches.
Will endure and I'll answer the second part of it.
And okay, that's right.
Yep.
Yeah I think.
Obviously and strategy I just mentioned net the first appointment.
On a stop point into Hong Kong.
We're already.
The GAAP to Hong Kong to projects and the development so.
And.
Net net stack is obviously is southeast Asia, and South Asia, the top III country in our radar screen is Singapore.
Malaysia and Indonesia.
And this free market.
And our view and.
And the next five years the demand from China will be a few 100 megawatts. So we have tried to catch up with this wave, but potentially ops I think and southeast Asia is a high potential market.
And we go to our current strategy is that we have to setup, our present day, but as for the strategic reason.
But.
If we look at it at current to the Southeast Asia market, it's very looks like very similar like Aes and 10 years ago the market in China. So we are.
We're willing to.
Step E and the build out.
Data center position.
And our position there and to catch up on the future.
Hi groups.
At this hour.
And.
Our goal.
So.
We will maybe we'll open that maybe the first project will be and simple, maybe net Malaysia or Indonesia. So we will give you the clear and so and then in the near future.
Thank you. Our next question comes from Tina.
And then sacks.
Please go ahead.
Hi, Thank you very much free time management. So yeah. My question is also related to on.
And the southeast Asia expansion strategy I'm wondering on.
What kind of differences in terms of.
Revenue as well as retired in these potential southeast Asia projects, and how that may impact, our <unk> or our P&L.
P&L in the future and when do you see the first project to start contributing revenue to our P&L as well. Thank you.
I think it's the early.
It's too early to talk about the revenue because we in the next five years I don't see I don't think day and it will.
The impact of loss is not.
Revenue.
And because our parents or the guidance already.
Government still.
We are still in China, because China is still a big market.
And just as mentioned southeast Asia in our view is it is a strategic but we non calculate on any number in our P&L right now I think and maybe when the windows are.
Projects coming and we will talk about that.
Our next question comes from Garko, Harry Halloran at J P. Morgan. Please go ahead.
Thank you.
And you.
Could you talk a little bit about.
What are we seeing from.
And the absolute guidance.
And China regarding energy efficiency pollution control et cetera.
Some of the bigger commitment on climate change.
Could you.
No that would be publishing the ESG report.
But it.
Could you just start talking a little bit about.
What are we seeing from a <unk> perspective.
With me for some up and took down project and what do you guys have been able to do along with customers on this front.
Second question is on.
M&A.
Seems like M&A is now becoming a much bigger part of pipeline.
And I as evidenced by and Austria.
Think about the next two to three years.
Should we assume that M&A and become probably a much bigger part and even last year and I think it was about 20% of the total pipeline build.
Should we think that M&A would be a much bigger part of the pipeline. If you think about the next two to three years.
Yeah.
You wanted to address the question about government policy.
So the plan.
Let's see.
Hum.
And.
Okay.
And.
And so.
Okay.
Yes.
I think and the ESG.
It's a very hot topic right now.
Greater China, including Hong Kong or mainland China I think this is.
It definitely is a channel that is it government.
Encouragingly Green power right and also.
We call it negative EBITDA pencil having.
Our cable news carbon neutral right. So <unk> already start to prepare for this for a couple of years. So as I just I just mentioned.
The percentage of our data center already.
And right bring image.
So we will government debt.
Policy from the policy point of view I think in general still under development.
<unk> and right now we didn't see any.
Yeah.
Fisher.
Enforcement policy right now but of course.
The immediate impact is that.
As I mentioned in the net.
Common quarter in there.
Chiller market, especially also in the in the.
Some added top tier.
The tier one market.
And we'll be getting it's easy to see if it will.
Control more types in the future.
What we can see what what's the what's the what's the impact yes.
Yes.
And so the question about M&A.
And it May drive business.
For the foreseeable future is going to be organic developments and tier one.
Market, but.
Having said that I mean.
We clearly see.
And opportunities.
Right now.
The next few years.
All right Mark.
There's been a lot of new entrants and a lot of development by independent developers and.
And that's what creates the pipeline and the opportunity.
We believe that we have.
Significant competitive advantage in terms of M&A and it.
In terms of the capabilities and experience about team.
The and methodology that we have developed.
The deals we've done since 2016.
And our financing capacity.
Yes.
And to conduct technical due diligence and.
And we find that.
<unk> when you engage with sellers.
Always top of their mind is.
They engage with a potential buyer they want on though is that by going on.
Yes, the finishing line right.
And I think buyers.
Sorry, sellers have a lot of confidence when they engage with GDS because of our track record.
Alright.
People ask about.
Data center, M&A and China, but.
I think most of it is being done by us and not aware of and many M&A deals are being done by.
But by others and so we are.
The major portion.
And and data center, M&A and China.
Question about.
How much of this could be.
And frankly, we don't have a quota.
Uh huh.
We don't look at it like that.
And there is.
Really two different types of deals.
One type which is cool.
Cool kind of flow deal.
Is the kind of five to 10000 square meter data center.
Typically that kind of.
Single data center on our sites.
It could be.
Purely capacity like the two deals we announced today <unk> and.
Eight and Tien Tsin Huang.
Well it could be.
<unk> with some customer commitment either there.
And.
Coming with without without acquisitions and like in the case of <unk>.
Shanghai and 19.
This is the.
Yes.
Steady.
Pipeline and those kind of deals.
And.
Uh huh.
And <unk> acquisition multiples have not increased.
And we can still do these deals.
And relatively small premium.
So organic cost.
So.
And we look at.
We count and turns around metrics based on when deals close and so if you do two of those come through maybe 15000 square meters. We did three it comes on something over 20000 square meters.
The other kind of deal.
It is.
Harder to predict is the more sizable ones.
And let's say 20000 square meters and upwards.
We've done.
Two or three depending on how you.
And how you categorize the Beijing 10 11.
12 deal and was 20000 square meters.
And as the patient 15 deals 20000 square meters.
You could call. It M&A, that's the deal where we're partnering with citic, which by the way is now.
Upgraded 28000 square meters. These.
And these opportunities and scarce and hard to predict when they're going to come onto the market.
<unk>.
What we do.
And if they are.
On a more advanced stage have.
And have customer commitments.
And then.
There's likely to be more competition for those kind of opportunities and that's where that's where multiples are probably gone up.
But still I think.
Reasonable and justified.
We have some opportunities like that and our pipeline and it can be quite a big swing factor.
Crystallized, but I call it.
Okay.
The expectation on that.
But that's where it could that could make quite a bit.
And the difference that's where we could go from.
Having 20 or 30000 square meters.
The acquisition net add.
So having something.
Quite a bit more.
Okay.
Our next question comes from Rob Palmisano with Raymond James.
Please go ahead.
Hey, guys, it's Rob on for Frank.
I just wanted to follow up sort of spoke to this earlier can you talk about likely sources of capital for next year.
And also.
Can you speak to your strategic relationship with Cyrusone going forward. After they just recently monetize their investment and you guys.
Okay.
Yes, Robert.
Try to be we have been.
Fully financed fully capitalized for.
Business plan and I think we're quite Hum.
Open about sharing what our business time.
Yes, so I think.
Based on the comments William made about.
And the expected level.
Organic net adds and.
And 90 to 100000 square meters.
The fact, we've got 120000 square meter data center acquisitions already.
And the pipeline and potentially closing shortly.
And.
And.
Hopefully other acquisitions that will close.
This year and that's the business plan, which.
I think everyone can see and.
And we are well capitalized for that at.
At least for the next couple of years.
But we haven't factored and regionalization.
And we haven't factored in and.
And then beyond.
On the flow deals as well.
And I just described.
We haven't factored in and a higher level of organic growth.
And to some degree we haven't factored in yet.
Actually bringing forward the capex, if we see opportunities to acquire and handle buildings, which are kind of.
That'd be opportune to sort of one.
One time opportunity.
You have to have to grab when the debt otherwise otherwise they are gone.
And contrary.
So yes.
If any of that materializes, its upsides and upside to our business base case and blue.
And that will be positive for our shareholders. So yeah.
It's a need for capital arises it it should be seen something.
It'll be because.
And.
Greater success.
And <unk>.
Comment about the relationship with Cyrusone.
Ah, Okay, I think I think.
Yeah.
Net.
In terms of their debt.
Ah self cocreation with two and maintain the SaaS accomplishing our relationship.
Because.
Historically, they refer subdue and and we follow the deal and then help us cut cut cut a couple of video, but a safe now.
Chinese customer go to.
Net.
Throw down so they get and Linda.
And then Ltd.
Ltd.
<unk> benefited from us, but I think COVID-19.
Relation is still there.
But kudos.
Our international team work very closely with a different partner and to get on.
For example last year, we got we got we got a larger deal.
And from U S.
U S based customer, let's say in China.
So independently so we are not rely on bad debt.
Of course, I think day, but in some way we work together with the summit deal still right.
Our next question comes from James Huang of UBS. Please go ahead.
Good morning management, because inside guidance won't per media just go.
Two questions first wanted to follow up on <unk>.
And so I'm just wondering on.
Chinese government has announced the carbon neutrality go with your conversations with your largest cloud customers and chains and.
And related to that how does your current land held for development and future development.
Much of that is renewable energy and whether you'll be you'll be able to increase the percentage of renewable energy usage for your pipeline of protein and that's the first question and the second question is on.
<unk> and <unk>.
And we mentioned 10 different region and China.
If I remember for example, I also saw that you recently got into <unk> and <unk>.
And if I remember correctly.
And the path for example, and the west but utilization rate increase has been with blood flow.
And so I'm, just wondering what youre seeing and tons of demand.
Region, where they just did.
The situation has changed.
Yes.
Thank you.
And Jonathan.
And so Thats first question.
Yes, sorry on the on the different places and where they might have.
And clearly but.
James.
You're asking about.
So they have it helps Q2 GAAP.
What proportion of the power.
About yes it does.
And sorry for the E on.
And <unk>.
Conversations with our customers with.