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Vocus delivers strong turnaround progress with FY20 Results - Vocus Network Services winning market share

Posted on August 19, 2020

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Vocus Group Limited (“Vocus”, ASX: VOC), Australia’s specialist fibre and network solutions provider, today announced strong progress on its three-year turnaround, with Vocus Network Services (VNS) firmly established as the company’s core growth engine.

Group Managing Director and CEO Kevin Russell stated, “Vocus’ FY20 results show that we are firmly on-track in our three-year turnaround, meeting all aspects of financial guidance that was first provided in July 2019.”

  • Three-year turnaround firmly on-track
  • Well positioned to capitalise on accelerating market trends
  • Vocus Network Services winning market share: EBITDA +10%
  • Consumer business stabilising and returning to growth
  • New Zealand delivers 5th consecutive year of organic EBITDA growth

“The Group operated strongly throughout the year and especially during COVID-19, which has reinforced the essential nature of telecoms infrastructure and services. Revenues have been resilient and cash collections strong across the organisation. We demonstrated a robust operational response throughout the crisis, with no interruption to network operations or customer delivery and record service delivery times achieved. Employee health and safety was our top priority, as 1,700 staff across ANZ transitioned to working from home in less than a week.”

“VNS built momentum in FY20, winning market share in our core markets with growing underlying recurring revenue and an improving customer profile. We also launched our new Vocus brand and saw a demonstrable improvement in brand recognition and consideration.”

“VNS is well-positioned to capitalise on the unprecedented demand for bandwidth and diversity resulting from COVID-19. We had record sales in Q4 across all segments and RFP activity remains strong. Customers are not only looking to access our extensive fibre network and direct connection to Asia, they are looking for the speed and agility of service that Vocus provides, and our dedicated highly secure network is increasingly key. VNS goes into FY21 with accelerating momentum in our core markets.”

“New Zealand continued to deliver stable and consistent performance with its fifth consecutive year of organic EBITDA growth. Key highlights for the year were growth in Wholesale and continued increases in Consumer and SMB driven by broadband and energy customers, with the acquisition of Stuff Fibre increasing our broadband subscriber base by 10%.”

“Retail reached a key point in the Consumer segment turnaround, with Revenue stabilising in H2 as the transition from legacy services to the NBN approached completion. Consumer has seen improving performance from the Dodo brand, with growing NBN margins and slowing churn. SMB continues to face strong headwinds as the legacy transition continues. SMB is expected to remain a challenging market environment for the foreseeable future due to COVID-19.”

The accelerating momentum of the core VNS business, together with the strong performance of New Zealand and well-progressed turnaround of Retail Consumer, means we are now in a strong position to strategically consider our options regarding capital allocation and longer-term corporate structure. Further details will be provided at, or prior to, the half-year results announcement in February 2021.

Business Performance

Vocus Network Services delivered EBITDA growth of 10% to $223m, with recurring revenue up 6%. Revenue from high-margin data networks grew 3% for the full year, with NBN revenue up 42% year-on-year as Vocus took a leading position in key NBN product categories of Enterprise Ethernet and Business Satellite. Wholesale and international also contributed to underlying growth, with continued sales momentum of capacity on the Australia Singapore Cable.

New Zealand continued to deliver strong growth of 5% year-on-year and underlying EBITDA growth of 4%. New Zealand saw solid growth in the Wholesale business from new partners, together with increased bandwidth demands due to COVID-19. This was partially offset by a decline in the Enterprise segment with customer losses through the partner network. New Zealand Consumer & SMB benefitted from continued growth in broadband as well as energy and mobile growth through bundling with broadband.

Retail had an overall revenue decline of 9% year-on-year, with an improvement in Consumer revenue decline to -3% for the full year (up from -9% in FY19) and a stable H2. Small Business continues to feel the impact of the transition from legacy services with a -27% revenue decline. Disciplined cost control resulted in a 14% reduction of overheads year-on-year. Underlying EBITDA for the overall Retail business was down -22% to $80.1m driven primarily by SMB declines and migration to the NBN.

In the normal course of preparing these financial statements, Vocus has assessed the carrying value of its intangible assets. The strong growth of the Vocus Network Services and New Zealand business units continues to support carrying values of intangible assets of $781m and $366m respectively. However, due to the uncertainty caused by COVID-19, the outlook for the Small to Medium Business sector will be more challenging for the foreseeable future. Consequently, the carrying value of intangible assets related to the Retail business unit, which operates our SMB unit, has been reduced from $500m to $298m.

Outlook

Vocus provides FY21 guidance of:

Vocus Network Services

  • Recurring revenue growth +5%
  • Underlying EBITDA growth +8% - 12%

Vocus Group

  • Underlying EBITDA - $382m - $397m1
  • Capex range $160m - $180m
  • Net leverage ratio continues to reduce

1. Including the application of AASB-16 leases