Q2 2019 Earnings Call
Ladies and gentlemen.
Okay. Thank you for standing by for the G.P.S. Holdings Limited second for that 2019 headings come from school.
Hi, This time all participants are <unk>.
After the management's prepared remarks that there'll be a question and answer session. Today's conference call is being recorded.
I will now turn cold over to your host Miss Laura trend continuing vegetable relations for the company. Please go ahead Laura.
Thank you okay.
Hello, everyone will come to <unk> based conference call of G.D.F. Holdings limited the company's results were issued venue swallow services earlier today and post it online.
Some representation, which will go to such an agenda comforters cold can be viewed and downloaded from I.R. website at invested stock G.D.S. services Dot com.
Leading today's coal is Mister William Fung G.D.S. found a chairman and C.O. will provide an overview of our business strategy and performance.
Mr. Dan Human G.S.C.S., though well then review the financial and operating results.
Before we continue please note that today's discussion will contain forward looking statements made under the safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995.
Forward looking statements involve inherent risks and uncertainties.
As such the company's results maybe maturity difference from the views expressed today.
Further information regarding bees and are those risks uncertainties is included.
You know <unk> perspective as filed with the U.S.S.C.C.
The company does not assume any obligation to update any forward looking statements, except as required under applicable law.
Please also note the G.D.F. earnings press release. This conference call include discussions of audited Gab financial information as well as <unk> financial measures.
G.D.F. press release contains a reconciliation of the older Kids <unk> city and audited most directly comparable measures.
I will now turn to <unk> to cheat is found a sham under the C.O. <unk>. Please go ahead with him.
Hello, everyone. This is William Thank you for joining us onto the it's cool.
I'm pretty Institute report another good call too with strong the results across all aspects aspects of our business.
In the second quarter, we sign up customers for almost 21.
Sallow square meter.
Oh, that's dishing, though.
<unk>.
Oh, Hi, Ronald of 52, <unk> I.T. problem, we should.
Generates over U.S. dollar 90 million of recurring revenue.
When 40 delivered.
Maintaining data center <unk> continue to to be a critical success factor.
We made a significant.
<unk>.
T resource.
<unk> <unk>.
<unk> enable us to maintain our resource advantage.
During this quarter.
We initiate a stream new project project and the today, we are announcing another new position.
We continue to to deliver appreciate.
Please resulting jean over 50 per cent service revenue growth and the old 180%.
Adjusted EBITDA gross yeah yeah.
Oh, well utilization rate.
Moved up to 70%.
<unk>.
July how and Oh, I imagine too.
53% and adjusted the it'd be the mobbing to 43.5%.
Putting us well I had a pop to guide his truck.
Last but not least.
We are particularly excited about our new strategic partnership with G.I.C.
<unk> <unk>.
<unk> and the all pretty the beauty to suit data center.
Initially focusing focusing on a program for one of our top customers.
Excuse me some milestones achieved much both from a business and the from I find Nancy perspective.
During the second quarter.
We our new business is up with that Runrate for that <unk> six called Cortez.
We'd get it too big deals over 10, P. Meg was each week to existing type of skill customers. We also get a one a deal over five <unk>.
From a brand new lodge input price customer.
A market leader in China, providing smartphone solutions.
We are in that period.
Yeah, there are all kinds of macro effects, which may affect to the <unk>.
We do not know how long it is going to last.
And where it will go.
<unk> the digital economy in China, It's P. was strong.
I'll go according to the I.V.C. research.
<unk>, China is going.
86% yeah.
And the the forecast to grow at 45% Cagar over the next five years.
China has now become the second largest a closet market globally.
<unk> said about China <unk> is local C.S.P.'s.
Each of our <unk> customers is kind of P.D. with with each other intensely for a bit bigger piece of the market.
Everyone in the status centered busy is grown.
They have two weeks.
In order to win the future.
From the bottom up.
<unk>.
We have about solar cells, <unk> and that increasingly diversified the customer base.
<unk>.
Good visibility for the common quotas.
We didn't me can confidence or a cheap our <unk> <unk> <unk> <unk> <unk> ambition note area committed for this year and the pot pie is beauty nicely for next year.
[noise] as you are aware it has become more and more difficult to get approval for new projects <unk>.
As a result, so probably it's kind of strange.
To deal with this challenge we have evolved our resources strategy.
We keep looking for new opportunities with being met true areas.
Well also take taking steps to secure.
Highly strategic sites.
The edge of the time all the time.
We have made significant progress on both counts.
Particularly in Beijing, which is the largest to market in China.
During the second quarter, we initiate it initiated one new project in the Metro area opt Beijing, and then to a new project.
Long files and to the edge of Beachy.
Oh <unk> purchase.
Which we'd just coast not supportive.
As attractive this great customer interest.
Interest.
We recently.
<unk>.
Construction opt at first the beauty on this greenfield site.
And the we are expecting to <unk> <unk> <unk> <unk> very soon.
The long file lengths will cost us a lot of the U.S. dollar 30 million in total which is that a relatively small.
<unk>.
It's <unk> over a 240 megawatts of the total <unk>, which will enable us to create a lot of bad.
We have today signed an agreement for the acquisition of a data center.
Which we call the beating nine.
Located in each song.
A primary data center huh.
Very close to our between one two street <unk>.
But <unk> has an I.T. area of Iran. You solve the square meter.
And is 40 committed it and the stabilized.
The enterprise value is <unk>.
I.M.B.
690 93 million.
We <unk> cozy by the end of this year.
We have a growing demand from customers, we believe that America should be the fence like impeaching nine we become more valuable.
We believe that's the results we are building up impeaching matches, an x. on top.
Will position us to future increase our market share in China, China's largest <unk>.
We are very pleased to announce today I want a mute tight tie up with G.I.C.
The Honda of choice, India fetus into English.
Our business is is a strategically positioned at a two for three with Simon's requirements of the most demanding customers from also also beat us into capacity into other markets.
Well there is a fight buried too.
<unk> endless supply is a scarce.
However, we recognize that the our lodge.
<unk> Internet to end the call service provider customers also <unk> <unk> <unk> <unk> <unk> <unk> capacities at the locations all side <unk> to a whole set of data less latency sensitive data and applications.
In the past customers typically get map of such capacity inhouse.
But I know.
Actively seeking seeking ways to also yes.
<unk>, Oh, yeah look climates as well.
Oh <unk> sorry.
Is is this rebuke due to see would be that sentence incomplete, we'd get a full one <unk> customers last a year.
We gain.
Experiments from these projects and the the outcome is highly successful.
Seems that we have been.
<unk> actively.
<unk> <unk>.
Approach, which will enable us to do more for our customers all signed off till one markets.
Why we're leveraging our professional skills.
Generating this you know the warnings and the continuing to prioritize capital allocation to tell what markets.
The partnership with G.I.C., it's a solution we phone.
It is indeed, that's free weight partnership with stronger endorsement.
By our customers.
It makes us even more unique in that in that we are able to so our customers wherever and whenever.
With that I were heading over to get all the financial and operating review. Thank you.
Thank you and him.
Starting on the slide 12.
So when we strip out the contribution from equipment sales and the effect of exchanges.
We see even stronger gross margin improvement.
Sun is apparent in the reported novelist.
In two Q. 19, Oh service revenue grew by 10.6%.
The underlying adjusted even.
Groupwide, 14.1%.
An underlying adjusted the bit dog, we buy 15.2% in consecutive quarters.
Oh underlying adjusted and why margin reached 53%.
No underlying adjusted EBITDA margin hit 44.3%.
Which is nine percentage points higher than a year ago.
Turning to slide 13.
The two quarters completed.
Revenue as well off with our expectations.
Having reached 46.9%.
The mid point of our original gardens.
Service revenue growth is driven mainly by customers moving into the space, which they previously committed.
Move in during the first talk.
Totals 18781 square meters.
We're expecting moving during the second off to be slightly higher than in the first house.
On top of which we will have additional revenue generating capacity from Beijing nine when the acquisition closes.
Oh, m. as hard as being pretty much flat over the past few quarters.
However, we are expecting a one or two percentage points <unk>.
Next couple of courses.
The decline over the course of 2019, maybe slightly less than we were previously expecting.
[noise] 14 shows quarterly trend in modern improvement, but the underlying adjusted and annoy you at all levels.
Most of the recent margin improvement has been at the data center level.
Last year, we scaled all operations materially.
Now, we're seeing the operating leverage on the enlarge space.
In the next couple of quarters.
We're expecting the N.Y. margin to stay at around the current level.
Because we we have a lot of new capacity coming into service.
Which will lead to a step up and fixed costs.
For reference.
We brought an additional 20000 square meters into service.
First off 19.
And the shuttle flights 17.
We will bring a thought a 40000 square meters into first and second off 19.
Not including the lungs are six invasion nine acquisitions.
We are continuously realizing operating leverage on S.G.N.A.
And so the the tall level, we could see some for the margin improvement in the second huh.
Turning to slide 17.
In the first half of the <unk> is around 1.4 billion R. and B.
Versus out full year guidance of 4.5 to five P.G.N.R. and B.
Oh Catholics will pick up in the second half 19.
With ongoing construction and payments due for acquisitions.
We still expect fully in 19 topics to be within our guidance range.
Well slide 18.
Currently the debt capital market environments in China, it's exceptionally favorable for us.
And we are taking advantage of this to get longer and cheaper facilities.
They're also refinancing out some foreign bank loans, so that we can keep that capacity and reserve.
To use for situations, which may take longer with local banks such as acquisition financing.
A policy has always been to minimize efforts exposures.
Yes business is almost entirely r. and b. denominators across revenue excellent topics.
It was a small exception about Hong corporations.
Income statements.
Book small translations gains and losses each quarter.
As a result of moving U.S. dollars on shore.
When permitted converting it into R. and B.
With regard to the balance sheet, 80% about that it's nominated an r. and b.
Oh, the 20%, which is not r. and b.
Most of it relates to the convertible bond, which we get sued in May 2018, and which we hope will one day become equity.
We only have 118 million U.S. dollars in total loans.
Denomination U.S. dollars no strategies is to keep foreign currency borrowing to a minimum.
Toning to slide 19.
<unk> Williams said about how G.I.C. partnership.
To begin with.
We are trying to binding M. are you with one of our largest customers.
For seven build to suit data centers.
Three campuses to be developed over the next couple of years.
The number of projects can change it is up to the customer.
We're certainly open to doing a lot more.
The fact that this program is concentrated on a few sites.
Makes it very practical for us.
Under the agreement with G.I.C. When these projects complete we will offer them one by one for G.I.C. to acquire 90% equity interest.
The acquisition price is designed for us to recover out development cross cost.
Including the financing element.
We will retain all 10% equity interest and provide management and operation services.
But for the life of the project.
We will learn to return from out yeah equity investment plus recurring service fees.
It may not be all that meaningful.
So talk about return on equity equity participation is relatively small.
But only as <unk> on this metric these projects should look very good.
In terms of accounting the service fees will come in at the top Kline.
And we will account for the equity interest as an associates as we have one board seat out at three.
Initially we will pay the topics for each project, which could be in the order of a few hundred million R. and b.
Which will then be reversed when we sold the 90% equity interest.
Difficult project size is around 5000 to 7000 square meters per data center.
We already have one project on the construction.
Which we expect to complete and so the 90% equity interest she G.I.C. before you're right.
Leave me it is very complicated and challenging.
To establish a partnership like this in China.
It has taken 18 months and required a great commitment from G.I.C.
Well I could customer.
And last but not least from L. team led by L.C.O.J. me too.
I'm really proud of this achievement in grateful to our partners.
It is a great solution to financing built to suit data centres in remote areas.
But more than that.
We believe the the ability to access this kind of capital.
<unk> builds great strategic value to us as we develop how franchise.
Getting back to slide 20.
Oh backdoor consists of binding commitments from customers.
Is increased again to over 93000 square meters.
Representing 74% about current utilize <unk>.
It provides high visibility 12 future growth.
Oh backlog is almost entirely made up of large orders hyperscale customers.
They're all very high quality counterpart is a household names.
55% of the backlog relates to data centres, which are currently under construction.
55% is the highest proportion it has ever been.
Over the past 12 quarters, it was typically 30% to 40%.
The reason why the proportion is increased just because our customers a pre committing earlier.
And because we have a larger number greenfield projects, which take longer to build.
To finish on slide 22.
Verify 19, we all went on track in terms of revenue relative trial guidance.
And therefore, we are raising the bottom then the guidance range to the mid points with the guidance range.
While leaving the top end unchanged.
Oh eat dog growth has been so strong that we are raising the bottom end of the guidance range by 7.3%.
So that it is above the top end of the original guidance range.
And we are raising the top and by 5.9%.
With regard to Catholics will keep the original range unchanged.
Without I will end the formal part of my presentation.
Like to open the pool to questions operator.
Thank you Sir.
Ladies and gentlemen, we will not be in the question and answer session.
If you'd like to ask a question. Please press star one on your telephone keypad and wait for your name to be an obvious.
If you wish to cancel your request.
Please press the pound well the husky.
Ski.
We have the first question from the line of Fat.
Jonathan Atkin from RBC. Please ask your question.
Thanks, So I have two questions one kind of on the topic of M&A and I wondered.
Beijing, nine, which you announced what does the pipeline look like over the next several quarters for additional tuck in acquisitions and would they be roughly this sort of same scale 80000 square meters or would it be markedly larger going forward.
And then on the G. I see.
Arrangement I wondered how soon you would anticipate.
Commencing any additional projects under the under the JV. In addition to what Youve fully agreed upon in Jiangsu province. Thanks.
Hi, John is tied to some specificity on.
M&A.
Yes, I'll add the Parsons up a business plan for this year was to do one to do M&A transactions and.
We've now announced too by the way are closer to six is not yet closed hopefully will close in the next few weeks.
Beijing nine closed very late in the year.
We have an M&A team.
We're identify.
A number of targets, we've done diligence on quite a few data centers.
We're very selective and with with financially disciplined refined.
Relatively smooth.
Few that we.
Want to move forward with.
I think we can sustain one to two.
Deals like the Beijing nine deals that order of magnitude per annum.
However, I would highlight that from time to time larger opportunities come along.
[laughter] long ago, six and Beijing nine.
Being acquired from the same seller, it's a second tier data center, operator, which had.
The porphyria with more than 10 data centers, we diligence them all.
And we found two out of 10 that we wanted to move forward with.
Right now there are one or two situations in the market.
For.
Small portfolios or datacenters or or single datacenter campuses, but there's no certainty about whether we will proceed with those but just to give you. Some some color in terms of that kind of opportunity, which is which is out there.
With regard to G. I see maybe maybe didn't make ourselves.
Quite clear.
We have signed an Mou with one of our largest customers onto that ammo you we're committed to develop.
Seven data centers it three campuses so that means three locations.
We mentioned one location.
In Jang Su. The other two locations are in other parts of China.
And those seven Datacenters instantly.
Aggregate over 130 megawatts of the righty power.
So thats the extent of the commitment under that Emily Liu.
Right now.
But we expect the same customer to have substantially more common than that.
And over time expect the scale of what we undertake through this partnership to increase.
We are also in.
Early stage, but in discussions with three or four other customers.
Who have their own equivalent.
Campuses in remote areas.
And who are old following the trend of seeking to to outsource when we're not close to doing anything but the opportunity is there to expand this to other customers as well does that answer your question.
Yes. It does thank you and then just kind of a commercial question I think you entered this year with them.
Maybe six or seven percentage of your area committed coming up for renewal in COVID-19, and can you maybe provide an update on on what you've seen in terms of.
Customer behavior as they renew contracts maybe they depart for.
Various reasons are you seeing any sort of customer churn beyond the traditional run rate that you have seen and are the contract links that you're signing on with enterprises and with Hyperscalers.
Relatively the same as what weve seen or have there been any changes. Thank you.
Yes, John we already mentioned churn because.
Fortunately for us it statistically insignificant in the last quarter. It was no point.
2% occasionally just yet.
Every few quarters, there may be a churn event, which results from some change in our customers' own organizational or operations, but weak there isn't sufficient churn to be able to characterize it in any way.
With regard to.
Contract lengths.
Yeah, most of the Hyperscale deals now are in the six to 10 year.
And.
She most during the eight to 10 year bond and just take this opportunity to make a comment.
When these contracts are signed NYU is almost invariably pre commitment these days quite often.
Pre commitment one year before the data center comes into service.
So.
Some of the contracts have no right of early termination for the customer to terminate early.
At any time over the life of the contract.
Except of course it is.
It is a serious.
Failure and performance.
The other contracts, where they do have an early termination rights typically only.
Kicks in.
After the end of the move in period, so that would be.
Say two years after the beginning of the service delivery.
And then.
There is a very severe penalties.
Tens of percent of the total.
Contract value.
So our backlog really is.
Very solid.
In terms of.
Underpinning our gross.
Thanks, and maybe maybe a question for William on on that in terms of just demand trends that you're seeing whether its gaming or AI cloud social networking or enterprise, but any.
Any particular industry vertical.
Or types of companies, where you're seeing demand trends, notably different than ER than three months ago.
Yes, so far we didn't see any change right now it is actually our customer base.
And there, but what we can tell you is there is an overwhelming to deploy it in a different vertical right now so I think that thats why our customer Daddy amazed at the power capacity each each ads.
Each order I mean at the size is a much bigger than before.
Yes, so I think the currency there is few of the three key driver in that the our view is that call is still the number one driver and then the second is the Internet company and you add enterprise, especially the data the financial institution as to maintain very strong demand right now and they add the demand profile is that a single order is much bigger than before.
Great. Thank you very much.
Once again, ladies and gentlemen, if you wish to ask a question. Please press star one on your telephone keypad and wait for your name to be announced.
We have the next question from the line of Yang Yu Morgan Stanley . Please ask your question.
And then for the opportunity to ask questions. A those are the first one I think Dan just to mention that that's a.
The Ah that's financing environment is quite favorable for GDS now could you. Please give us some numbers even come off the current affair or that you can fix rate all refinanced interest rate to compare that with Oh, the previous terms from the banks.
Second the question is Oh, one g. I see acquired the 90% Stakes off the Oh off the beat you to steal data center.
What do you what is the a premium in term of the valuation compared to waste a cost Oh of Tds. Thank you.
I am just trying to understand again, that's all on.
Yeah, the current cost of debt.
[noise], Yeah, we've done some refinancing of data centers recently with with Chinese banks and in fact, a new relationships and Weve also done financial lease.
The.
All in cost came to less than 6% which is.
Yeah, three quarters knows one percentage point lower than it was a few quarters ago I stress that is for refinancing or the <unk> or the data centers, where where we would expect to get a slightly.
Uh huh.
Oh no no price.
We also got longer Tenors, we've got.
Eight and 10 year attendance, which is quite exceptional <unk> project.
Term loans.
With Backended amortization.
So really just about as good as good as it gets I think.
Yeah, you asked about the the premium that we pay for acquisitions in in a way yet young you can you can figure it out right because.
It cost us about $5.
To get one dollar of EBITDA.
When we do these acquisitions it costs about yeah.
$8.
To get $1 or EBITDA.
And so you'll see the premium is is around 50%.
But in some ways, it's a kind of academic because we've done the acquisitions because there hasn't been an opportunity for us to do the project.
Well, okay organically.
Oh, sorry.
Sorry, sorry, I I'm I'm pointing out right.
[noise] content, sorry can you repeat the question somebody was talking to me when you asking the question I'm sorry.
Yeah, you can you repeat that second of crashing.
[noise] Hello.
I would request.
The.
Obviously been depressed volume again please.
[noise] Oh My second we just finished a I'll say, okay, sorry, sorry, sorry, sorry, everyone skews excuse me in so if I understand correctly. The question was what is the premium when we sell.
<unk> equity interest.
In a.
To project the build to suit project to G. I see that the premium is is is 8%.
But if we've if weve incurred financing during the construction phase.
That will enable us to recover our financing cost.
[noise].
[laughter].
Yes, Hello, Mr. Yang you. Your line is open I'm sorry.
Oh I have finished my questions. Thank you.
Thank you.
Once again, ladies and gentlemen, if you wish to ask a question. Please press star one on your telephone keypad and wait for your name to be announced.
We have the next question from the line of Frank.
Low from from Raymond James Please ask your question.
Great. Thank you.
The current guidance that you've given out does that include anything for the build to suit projects with with GE I see either on the revenue or the Capex side and then secondly, you generally get a rolling look at your customers business over a several year period updates throughout the year or any change in how they're looking at their business over the next few years going forward based on the current yesterday situation. Thank you.
[noise].
Yeah, Hi, Frank.
The guidance does include.
The capex for the assets the build to suit assets that we are.
Incubating if you like during the construction period.
But it's only a few hundred million.
In terms of.
Income statement.
Once we transfer 90% equity interest in the data centers come into service.
During the first year that customer.
Is moving in and have some flexibility not how fast they move in.
So we will be recognizing any significant.
Service fees.
Yes, probably until nine or 12 months after the data center.
Comes into service, so there will always be that.
That time lag from when we complete the projects.
Just going back to my previous answer about the Capex of course.
When we transfer the 90% equity interest to G. I see.
The capex that we've incurred will then be be reversed for 90% of it will be reversed.
[noise].
Oh.
The company Frank It the second question is that customer lowering demand right.
So I think it's typically the big custom will assure the three years.
Demand slot to us so, especially with the end the larger call in and that Internet company.
So we are we have we are pretty focused on that keep that.
Keep a talk to them and as a.
Resolutely Yep.
Okay. Thank you very much.
Thank you very much.
[noise] once again, ladies and gentlemen, if you wish to ask a question. Please press star one on your telephone keypad and wait for your name to be announced.
We have the next question from the line of.
Robert Gutman from a gun Hemen Securities. Please ask your question.
Thanks for taking my question. So just curious on the MSR.
Which is looking better than you'd originally anticipated I think guidance for the year was a for a decline of 5% year over year, what's underlying the the fact that it's coming in a little better.
[noise].
[laughter] resolve it.
When we talked about 5% type I was talking about for Q1 8 to 14 19.
Uh huh.
So I, yeah, I talked about 5% you hoped it was going to be a little bit less and yeah, I I'm hopeful it will be.
A little bit less.
When we look at the average M.S. off for the whole of 2019 compared with the average I myself for the whole of 2018.
We're still looking at it at something close to about a 5% year on year decline if you calculate it that way.
Okay. Thanks, and then just in terms of the strong results in the quarter.
In terms of revenue would you say it was more from sort of just faster move ins and sort of a pull forward or was it.
Greater than expected sales in the quarter.
Where the media commencement.
I actually relative to revenue.
It was pretty much what we were expecting internally.
Ah you know is tracking the top half for guidance.
At least.
And you know that was that's what we.
That's what we forecast.
What what is surprising was which she even.
It surprised us was.
Was the.
Profit EBITDA.
The NOI.
Gross says, yes, the mounted operating leverage weve been able to realize that that did exceed that has exceeded.
Our own expectations.
Last year.
We increased the headcount by 20% to 25% because our business is going from.
For a 40000 square meter net add business to an 80000.
Square meter net AD business on a on an annual basis. So we had to scale up to take account of that.
And then.
Yes since early this year with.
Debt increased style.
Operating cost base and that's why it's come through in very.
Shop margin improvement.
Great. Thank you very much.
Once again, ladies and gentlemen, if you wish to ask a question. Please press star one on your telephone keypad and wait for your name to be announced.
[noise].
We have the next question from the line of Gokul Hariharan from JP Morgan. Please ask your question.
Yes, hi, Thanks for taking my question. My first question, Dan and talk a little bit about Oh, much oh for dropping leverage that is likely to happen over the next a year or so given you've seen a pretty strong operating leverage improvement and what the last four to five quarters.
Second question I have is maybe for Dan and believe me I've been talking about 80000 square meter pipeline capability in terms of every a potential new pipelines coming in and the ability to prospect that and fill it out now with this Oh Gee I see a partnership also would bad numbers start to go up and be largely dedicated to one and satellite sites or.
Good some of the purpose built side. It also included in this in this 80000 square meter ability to furnish or what.
Each year.
Yeah, I guess will we took about operating leverage who is.
Yes look it at two levels, especially in the data center level.
Well, we look at the margin for the data center stabilized.
And typically I'd say, it's 55% of course, it's a little bit higher than that.
And then we have the dilution effect or dampening effect from data centers, which are ramping up.
And over time as the balance has has has has shifted to a greater proportion things stabilize you know that's been.
Raising raising the margin.
I think over the next you said over the next few quarters, because I think over the next couple of quarters.
I expect the NOI margin stay around the current level.
And go into next year, we could be looking at a.
Just another bond.
Two percentage point.
Improvement.
I think we took a operating leverages the s. DNA level.
I mean, my ambition is to get asked you know down to 5% of revenue because that's lower than any data center operator.
Never disclose anyway.
So that would indicate that we thought you know 3% to 4%.
Still to go but that will take some time, but I think we continue to make steady progress in that in that direction.
The second question about the.
80000 square meters I mean, let me make sure I understood correctly, and then get the wrong answer again.
Yeah, the 80000 square meters refers to what we do in.
And now to in tier one markets.
No we don't including.
The first project.
All the future projects that we undertake.
Through this joint venture and that 80000 square meter one number.
If we did I would be adding another 7000 square meters to L.L. Erika Miss It because you know that that's that's that's what we had in project number one in.
In Jang Su so.
So that's that's that's not being in any numbers that we've talked about before is entirely.
Additive.
Understood. So.
No any any discussion or any interest in.
I'm kind of partnership like there for some of your.
Satellite two tier one kind of city project as well or is it something that from an economic basis.
GDS fees that it's better to actually pull them apart.
On its own.
Well you know our business plan and our capital raising is yes based on what we see in.
In tier one markets, saying, we're well capitalized for the.
So the opportunity in tier one markets.
As I.
Commentary during the.
Presentation.
Uh huh.
Oh.
A lot of work went into.
Developing the structure for this partnership with GE I see and.
And a large customers willing said, it's really a three way partnership as a customer had to provide add to accommodate.
ER as well.
And.
Having done it now.
But adapted specifically for build to suit projects in remote areas.
Yeah, It's certainly something that is a in a box of our mines that we could deploy it.
Similar structure potentially with different ownership level, we could be deployed with us having majority and consolidation.
Well, we could do it without having a.
The largest state, but conceptually it's the same it's a.
The differential return as a result of having an equity investment toss a management and.
And operating fee.
I think in this industry.
Yes, given that a very large part of the demand is coming from.
Relatively short list you know 15 20.
Very large customers.
Uh huh.
It's important to be able to access.
The lowest cost.
Equity capital.
And that's not always the public equity market.
So having established channels and of course, establishing a partnership with you.
A brilliant partner in G. I see.
I think that positions us very well to be able to look.
At our requirements.
Uh huh.
And see whether it's best to use our own equity.
It's effectively comes from the public equity markets.
Well, whether it's best to use.
The equity of a partner like GE I see.
So I don't rule that out at all in future, but it's not something that were specifically contemplating in terms of any actual situation right now.
Okay. That's the if I may on a little bit more on demand, but the rates and I think you could argue you back to you on demand and lot of your custom more on the inside.
Huh.
That's the breach in their current but nothing that you typically see brewing to Hum hats in a bad mood played into or any of the capacity planning biscuits in identifying the patients. They do add the dam and Oh from media and the active are you and began in New York boot kind of gone into into future planning.
[noise].
Let me just.
Summarize went into goodwill was asking.
Yes.
Because of the.
Supposedly Google thinks the hyper scale.
Hospitals in China may be having some challenges in their own cloud businesses.
That may or may not be correct.
[laughter].
But.
Does that come through in terms of what we see with resource capacity planning.
Many changes in capacity planning and how do we adapt to that.
I think parents hour today, and what we commit to the markets. The 80000 square meter right. We can repeat that that's what we are we having see may I think it is this will not change and the biggest.
We have very very strong.
Our customer base and our customer base came from the account from the different verticals and he may end the call sites, we have D.A. or kind of the car in China.
So I think our customer base or whatever from the vertical a point of view or.
Industry point of view, we are we are quite diversified that's how we manage it.
Our.
The men and certainty and the hour. So so that said as I have to say, we will not change our capex plan.
On it it was we accompanied in full to deliver another 80 solvent every year.
We.
We have the.
Next question from the line of Colin.
Mccallum from credit Suisse. Please ask your question.
Thanks for the opportunity hopefully you guys can you hear me okay.
Actually I have two question for you.
I've got a fundamental crew.
I'm just wondering on this key IC transaction.
Why would you choose to do it this way I only recruits in a 10% stake.
Plus service fee.
On the GDS site.
Is it you alluded a couple of times to remote areas is it is it that you view this.
These areas or the risk attached to these areas are this customer.
In particular being.
We above what you think your public shareholders Ive kind of signed up for air or as an issue.
Just with finance freezing.
Or return or that you would expect from from data centers, because you kind of suggested that the returns okay anyway.
Good the customers rely border for the risk wouldn't be so bad and you've said earlier on the financing side is very favorable moment, so distant tree why you've decided to do this particularly with really such a small equity stake.
For for the shareholders of the current shareholders of the business.
Yes, Thanks, Colin said good good question.
First of all let let's.
Let's be clear that the kind of projects, we're talking about is totally different from our mainstream business.
He is a build to suit projects.
On slide swear.
In this case, but typically the customer actually own the real estate and as the power infrastructure and is outsourcing the design the construction fitting out Ana and the long term operation of other data center. So in that respect, it's a different product and talos is a build to suit data center at a customers.
Right.
Secondly, we look at the.
Thanks from all the volume I've I've always said that yes, our value is in fulfilling.
The customer's requirement for.
Somewhere to locate their latency sensitive data and applications.
Our customers have a huge requirement, which is not nascency sensitive as well.
So the volume of what gets put into.
The current remote locations is very substantial.
And yes, our customers are asking us to follow them that.
And you know that's not part of our business plan, it's not part of what I said earlier, it's not part of what we've planned for in terms of how a capital raise and it requires a lot of a lot of.
Additional capital.
And you know for relationship reasons, we want to be able to do this and nobody else can do it.
Now if we can do this is what is what we're doing in tier one markets.
Yeah that gives us an.
Even even more edge and.
So use a term even.
A greater moat.
The third point is about yeah undeniably its about the.
Financial returns.
We started off.
Doing three projects for a customer and herve.
Of course in this kind of situation the customer wants to outsource, but the pricing.
There is no at the returns returns are lower.
In the case of her Bay.
You made it work from a financial perspective by by doing it.
Entirely with debt senior debt and and mezzanine debt.
And you know the project worked out very well and we've got a very good.
Spread.
Over our cost of capital.
But he was very time consuming to do that financing and we have to be sensitive about yeah, all that leverage which gets consolidated on our balance sheet.
So we started looking around to see.
If there was no first of all.
If there was a.
A better way of doing a doing these projects.
Yes, specifically or off balance sheet.
Which was replicatable, where we could scale up.
Well, we could have the capacity to do as much as the customer wants.
And we spoke to a range of different investors.
And the proposal that we received from GE I see.
It was the best one.
Yeah, we are.
Added significant operational involvement we must have a significant operational involvement.
So we wanted to maximize.
Yeah, the fee income and look at it ready as a managed project.
But for the sake of upon shipment sake or the customer it's important to have some.
Equity and more involvement.
And you know 10% was a number that we in.
Our partner and a customer were comfortable with there's no particular magic about 10%, but that's where that's where it came out.
Understood no that makes a lot of front. Thank you.
[noise] [noise].
Ladies and gentlemen.
As there are no further questions I'd like to now turn the call back to compete for closing remarks.
Thank you once again, everyone for joining us today. If you have further questions. Please feel free to contact Tvs Investor relations through the contact information, our web sites or the P. It sounds like Brooklyn Investor Relations. Thank you.
This concludes discourse conference call.
You may now disconnect your lines. Thank you for your line.
Oh.