VNET Group (21Vianet Group, Inc.) — Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2014; this is an annual report, not a standalone 2014 fourth-quarter filing. Financial statements are prepared under U.S. GAAP. Amounts below are RMB unless otherwise noted; USD equivalents are those reported by the company.
Business context and financial performance
The company provides carrier-neutral data center hosting and related services, managed network services, CDN and VPN services, last-mile broadband, and public, private and hybrid cloud services, primarily in China. It reported 21,522 cabinets under management across 89 data centers at year-end, up from 14,041 cabinets in 2013. The filing reports annual results; it does not provide a clear standalone Q4 financial result.
| Metric | FY 2014 | FY 2013 | Change/comment |
|---|---|---|---|
| Net revenue | RMB 2,876.4m (US$463.6m) | RMB 1,966.7m | +46.3% |
| Hosting and related services | RMB 1,980.7m | RMB 1,259.3m | +57.3%; 68.9% of revenue |
| Managed network services | RMB 895.8m | RMB 707.5m | +26.6%; share of revenue fell to 31.1% |
| Gross profit / margin | RMB 810.1m / 28.2% | RMB 516.9m / 26.3% | Margin improved 1.9 percentage points |
| Operating income (loss) / margin | (RMB 114.7m) / (4.0%) | RMB 41.8m / 2.1% | Moved to operating loss |
| Net income (loss) | (RMB 328.5m); attributable to ordinary shareholders: (RMB 348.5m) | (RMB 47.0m); attributable to ordinary shareholders: (RMB 48.2m) | Loss widened substantially |
| Adjusted EBITDA (non-GAAP) | RMB 558.9m (US$90.1m) | RMB 365.6m | +52.9% |
| Adjusted net profit (non-GAAP) | RMB 79.4m | RMB 120.5m | Down 34.1% |
Non-GAAP measures exclude specified items and are not substitutes for U.S. GAAP results. Basic and diluted loss per share was RMB 0.89 (US$0.14) in 2014, versus RMB 0.13 in 2013.
Cash flow, liquidity and debt
- Operating cash flow was RMB 325.4m, versus RMB 64.5m in 2013. Investing cash outflow increased to RMB 2,261.8m from RMB 1,507.3m, including RMB 1,308.2m of acquisitions and RMB 800.5m of property and equipment purchases. Financing cash inflow was RMB 1,121.7m; cash and cash equivalents declined RMB 814.4m to RMB 644.4m.
- At year-end, cash and cash equivalents were RMB 644.4m, restricted cash RMB 283.1m, and short-term investments RMB 911.2m, totaling RMB 1,838.7m (US$296.3m). The company reported net current liabilities of RMB 122.5m.
- Outstanding bank and other borrowings were RMB 1,177.5m and bonds payable RMB 2,264.1m; reported total outstanding debt was RMB 3,441.6m. Total liabilities were RMB 6,639.5m. The 2017 bonds carry a 6.875% coupon and mature in 2017; RMB 264.3m principal remained on the 2016 bonds after a 2014 tender.
- Interest expense rose to RMB 232.0m from RMB 136.8m. The company also reported capital lease obligations, including RMB 583.6m present value of minimum lease payments.
- Contractual obligations totaled RMB 6,877.8m, including RMB 1,713.2m of purchase commitments and RMB 1,228.8m of bandwidth and cabinet-capacity commitments. Data center capital expenditures planned for 2015 were RMB 700m–900m.
Material changes, outlook and risks
- FY 2014 revenue growth reflected expanded cabinet capacity, higher hosting demand, acquisitions, cloud services and other complementary offerings. Acquired businesses contributed RMB 598.8m of revenue and RMB 55.7m of net profit in 2014, as reported by management.
- Gross margin improved with a higher share of self-built capacity, greater utilization at newer self-built centers, and acquisition and cloud-service contributions. Annualized cabinet utilization was 71.9%, versus 70.8% in 2013 and 74.4% in 2012.
- Operating expenses rose 94.7% to RMB 924.8m. Share-based compensation was RMB 233.7m, including RMB 117.2m related to fully vested ADSs issued to Galaxy ENet. Acquisition-related intangible amortization was RMB 127.7m, up from RMB 58.9m. A RMB 41.6m loss arose from extinguishing debt, and foreign-exchange loss was RMB 16.3m.
- Management planned to add a similar number of cabinets in 2015 to the more than 7,400 added in 2014, continue data-center and network expansion, and grow cloud services. It cautioned that managed-network pricing pressure could persist and that this business could fluctuate or decline. No formal consolidated revenue or earnings guidance is provided in the filing.
- After year-end, Kingsoft, Xiaomi and Esta completed equity investments totaling US$296m in January 2015. Management said this supported near-term working capital needs. Under a cooperation memorandum, the company may lease Kingsoft and its designated third parties at least 5,000 cabinets over three years, subject to conditions.
- Two putative securities class actions, filed in 2014 after short-seller allegations, remained preliminary; the company could not estimate a potential loss range. It said it intended to defend the cases. The filing also identifies substantial uncertainty around PRC regulation of the contractual VIE structure, telecommunications licensing and the proposed Foreign Investment Law.
- Further risks include execution and financing of expansion, integration of acquisitions, dependence on China Telecom and China Unicom for bandwidth and partnered facilities, power costs and availability, service outages, competition, currency controls and FX changes. Management and the auditor concluded internal control over financial reporting was effective, but their assessments excluded Sichuan Aipu and Dermot, both acquired in 2014.
Important facts for investors to verify
- Whether the 2015 expansion and RMB 700m–900m capex plan were funded and achieved, and whether new capacity sustains utilization and margins.
- How much of reported growth and profitability depends on acquisitions, contingent consideration, share-based compensation and acquisition amortization; compare GAAP results with non-GAAP reconciliations.
- Debt maturities, bond and borrowing covenant compliance, cash availability by entity and location, and the practical availability of restricted cash and short-term investments.
- Subsequent developments in the shareholder litigation, VIE enforceability and PRC licensing or foreign-investment rules.
- Integration and performance of Aipu and Dermot, including related earn-outs, redeemable noncontrolling interests and acquired intangible assets.
- Customer collection trends and credit quality: receivables rose to RMB 739.9m and the doubtful-account allowance to RMB 10.4m; verify subsequent collections and aging.