The fire which destroyed an OVHcloud data center in Strasbourg in March could cost the French cloud operator more than €105 million ($122m), according to documents filed with a French financial authority. Some of that cost is a contingency fund, and much of the actual expense of the fire has been covered by insurance.
On March 10, a fire on OVHcloud's Strasbourg campus destroyed its SBG2 data center, and disabled three other buildings, one of them permanently. The incident happened the same week the company announced plans to float on the French stock market, with an IPO expected to take place by the end of 2021. This month, OVHcloud has filed a transparency document with the French stock market regulator, which reveals the direct cost of the fire to the cloud firm's business - although the reputational damage could add a great deal to that cost.
Filing reveals OVHcloud's fire costs
The headline figure of €105m includes some elements such as potential customer claims for damages resulting from the fire, and the company has only laid out €61m, an OVHcloud source has told DCD, and €58 million of that has already been covered by OVHcloud's insurance.
OVHcloud provides bare metal servers and other public cloud offerings. The IPO (initial public offering) will pitch it as a European alternative to US and Chinese hyperscale giants like Amazon, Google, Microsoft, and Alibaba. and could raise €400 million ($469m). reportedly valuing the company at around $4.7 billion.
The Strasbourg fire was an exceptional event, affecting some 65,000 customers, many of whom lost data and business. The incident could damage the prospects for the IPO - though OVHcloud has said it is working with insurers and other authorities, and cannot reveal the full story of the cause of the fire until 2022, after the IPO has taken place. Initial reports suggested that the fire may have started in UPS systems.
However, to allow the IPO to proceed, OVHcloud has had to file a registration document with the French stock market regulator AMF (Autorité des Marchés Financiers) - and this 300 page document gives some details of the fire, along with the direct financial costs it caused, cutting revenues from affected customers, and increasing the company's expenses in dealing with the after-effects.
The document details the events of the night of 9 to 10 March, beginning at Section 4.3 on p.18, adding one crumb of information: "Forensic expertise is underway to determine the cause of the fire, it says, adding: "Based on the information currently available, it appears that the fire started in an energy room housing electrical equipment. about the fire: Based on the information currently available, it appears that the fire started in an energy room housing electrical equipment."
The detail on the financial impact reveals that OVHcloud suffered a shortfall of €2.9 million ($3.4m) in revenue, and had to provide €5.2 million ($6.1m) in credit to compensate customers for billed services that weren't delivered, according to a summary in L'Usine Nouvelle. OVHcloud also issued €28.3 million ($33m) in vouchers, of which €20.5 million ($24m) were cashed before the company's financial year ended on August 31, 2021.
OVHcloud also had very large expenses: It had to spend €15.8 million ($18.4m) scrapping fire-damaged servers, and then spend €18.4 million ($21.4m) replacing them with new servers hastily made in its Croix factory. The fire also incurred "exceptional charges" of €39.2 million ($45.6m), which inlcudes €32.3 million ($37.6m) for expert appraisals, procedures, and potential liability actions.
"Many customers, unhappy at having suffered a service cut, or even a loss of data, have turned against OVH," reports L'Usine Nouvelle, adding that the outcome of any lawsuit for damages is "uncertain": Many customers did not subscribe to OVHcloud's data backup and redundancy options, and did not understand the risk they were taking.
Sources at OVHcloud have told DCD that the level of churn is now back to normal, with a high level of goodwill resulting from its transparency.
Another cost to OVHcloud was an investment of €10 to €12 million for complete repairs and rolling out a "hyper-resilience" plan.
The total direct cost of the fire could come to €105 million, according to L'Usine Nouvelle. Of this, €58 million has already been covered by insurance, the site notes, while a large proportion is contingency funds for possible future payouts. However, it adds that the sum is large compared with OVHcloud's €632 million ($734m) annual turnover in 2020.
The filing admits that the direct cost will be larger than this, as the company is losing disaffected customers, and not gaining new ones as fast as it would like, because of the damage to its reputation. OVHcloud management says this slowdown could last till early 2022, and predicts a three or four quarters delay to its expected growth.
As the company points out, it may suffer other incidents in the future, and even the impact of minor incidents "could be exacerbated by the Strasbourg fire, especially if these incidents occur in the near future. The resulting impact on customer relationships and OVHcloud's future revenues is impossible to determine, but it could be significant."
The filing predicts growth of 4.4 percent over the fiscal year 2021, considerably less than the 8.9 percent it enjoyed in 2020. But the company is bullish about future prospects, predicting an acceleration to growth of around 25 percent in 2025.
There's a big note of caution within the report. OVHcloud is proud to make its own servers, and uses a proprietary liquid cooling system which allows it to install equipment row by row in existing industrial buildings. The use of these old buildings could represent a risk factor; and the SBG2 facility reportedly had wooden floors and elements of a shipping container-based construction, according to a ZDNet report.
"Some of the OVHcloud factories may have existing structural and environmental defects that may present risks in terms of security and compliance or require OVHcloud to spend large sums of money to fix it," the filing says, adding that these failings may not be picked up by the audits OVHcloud carries out before occupying a property. .