CALGARY – Axia NetMedia Corporation has sold its assets in Singapore and Spain for gross proceeds of $39 million, has secured a three year extension on its contract with the Government of Alberta, and repositioned its business into a lasting framework, the company announced Monday.
In an update to its strategic growth plan, Axia, which owns, operates and sells services over fibre optic communications infrastructure in Alberta, France and Massachusetts, added that these initiatives allowed it to sharpen its focus on “attractive opportunities” in North America and France as detailed below:
Alberta
In Alberta, Axia brings innovation and competition to the market. Recently extended a key contractual relationship with the Government of Alberta through to June 30, 2018 and simplified its historically complex relationship with Bell into a standard commercial relationship. Axia is planning two strategic fibre investments to support the ongoing delivery of high quality fibre services to its existing customers and position the business for growth.
Strategic Fibre: Axia has begun a project to deploy fibre and related electronics so that it can offer services to the private sector in all Alberta communities. This project is scheduled for completion over the next 12-18 months and Axia plans to fund this investment with $20 million of senior fixed-rate term debt.
Fibre-to-the-Premise (FTTP): Axia has earmarked approximately $10 million of its cash on hand to be deployed over the next two years to fund, in select locations, the local fibre connections of a FTTP initiative. This project will deliver FTTP to underserved markets where targeted levels of market penetration and financial returns can be met. The related addressable FTTP market revenue opportunity is $225-$275 million per annum.
By mid-2015, Axia will operate what it believes to be the most comprehensive, high quality and resilient fibre network interconnecting communities in the province. The strategic fibre investment coupled with continuing investments in network electronics and Axia's operating and business support systems positions the company to address a large FTTP opportunity across the province. Existing and future customers will benefit from Axia's ability to deliver the highest quality, scalable, flexible and attractively priced fibre-based services.
France
Covage continues to generate positive results. Axia, as a 50% shareholder of Covage, anticipates further growth as it increases penetration of the French market. Annual interest payments on loans advanced by its shareholders are being covered by Covage's maturing cash flow, and the first interest payment of $2.8 million was received in December 2013.
Covage has emerged as the leading independent, pure-play fibre operator in the French market and Axia plans to capitalize on this position.
Growth within Existing Network Footprint: Over the next three to five years, Axia expects Covage to increase its market penetration to 15-20%, from approximately 10% currently. Axia expects a high proportion of incremental revenue to flow through to EBITDA as its cost base should not increase significantly unless the business expands by winning new bids. Covage is free cash flow positive before growth capital investments.
Potential New Wins: Covage is active on several bids for new networks. Given the success Covage has had to date growing its business and the favourable operating and regulatory environment in France, Axia has earmarked $20-$30 million of its cash on hand over the next four years to help fund potential wins and acquisitions.
Deployment of this cash is contingent upon Covage successfully winning bids that adhere to its strict financial return criteria. While there is no certainty with respect to the timing and magnitude of such wins, Covage's current bid pipeline potentially represents an increase to Covage's 2013 revenue and EBITDA of 100%-200% over the next five to ten years. This takes into account the time to build and commission the new networks and grow market penetration to reasonable levels.
