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Vocus H1FY21 results - turnaround complete, moving towards growth

  • Three-year turnaround complete ahead of schedule, VNS guidance upgraded
  • Strong momentum in Vocus Network Services: Recurring Revenue +11%
  • Consistent growth in New Zealand +5%, IPO preparation progressing steadily
  • Vocus moves into investment and growth stage

Vocus Group Limited (“Vocus”, ASX: VOC), Australia’s specialist fibre and network solutions provider, today announced that the company’s three-year turnaround program is complete, with strong momentum in Vocus Network Services (VNS) as the company moves into a stage of investment and growth.

Group Managing Director and CEO Kevin Russell stated, “Vocus’ first half FY21 results clearly demonstrate the company’s strong financial performance, strong operational performance, and that we are executing a clear and consistent strategy. We can confidently say that our three-year turnaround program is complete ahead of schedule, and the company is now moving into a new stage of investment and growth”.

“Fibre is the critical infrastructure of the modern economy, and Vocus’ high-capacity, highly-secure fibre network is key to our momentum in market. Only Vocus has an Australian-owned and dedicated secure intercapital fibre network, with a wholly-owned cable system to South East Asia. Our network assets are scalable to meet both current and future market requirements, with a clear technology upgrade path and the operational expertise to meet future demand.”

“Consistent with the strategy outlined since 2018, Vocus Network Services has solidified its position as the core growth engine of the company with 11% recurring revenue growth and 8% EBITDA growth for the half. VNS continues to win larger customers with higher contract value, with an increasing presence in the Federal Government market. We’re investing in our network to deliver capacity upgrades, as well as constructing the first Low Earth Orbit (LEO) Satellite ground stations in Australia, leveraging Vocus’ extensive high-capacity regional fibre footprint.”

“New Zealand continues to be a strong and stable performer, delivering 5% revenue growth for the half and record growth of 11% in Consumer and Business. Our acquisition of Stuff Fibre is on track to meet integration targets, and we secured a major new wholesale customer in Sky Broadband. Preparations for an IPO of the New Zealand business are progressing well, and the proceeds will enable us to make strategic investments in our network and capability.”

“The Retail business turnaround continues to show solid progress with the Consumer business returning to growth during the half. We’ve seen SIO growth across NBN and mobile, along with ongoing cost reductions of 9%. Consistent operational improvements in the Retail business are reflected in the latest customer service results, which showed our Dodo brand as having the lowest level of customer complaints of all major retailers.”

Mr Russell also used the H1 results announcement to outline Vocus’ capital allocation framework, pending the completion of the New Zealand IPO. “Our three key priorities post-NZ IPO are to invest to capitalise on key market opportunities in Vocus Network Services, to maintain a net leverage ratio of below 2.5x net debt to EBITDA, and to consider a sustainable dividend policy,” he said. Additional information on the framework will be provided after the completion of the NZ IPO.

Group Performance

Vocus Network Services delivered strong recurring revenue growth of 11% for the half, and EBITDA grew by 8% driven by higher margin data network revenues. Data networks grew by 8% (up from 3% in FY20) with data network revenues accounting for 63% of VNS recurring revenues and 77% of VNS gross margin.

New Zealand continued to deliver consistent growth in the half, with revenue and EBITDA up by 5% (NZD). The successful integration of Stuff Fibre helped the Consumer and Business division grow by 11%, with the underlying EBITDA growing by 5% largely driven by organic growth in UFB and bundling of energy services.

Vocus Retail continues to be on-track in its turnaround trajectory, with Consumer revenue returning to growth of 1% (compared to a 3% decline in FY20) and overall revenues declining by 6% in the half compared to 9% in FY20. Disciplined cost control led to 9% reduction in overheads for the half. Business continues to navigate the decline in legacy which has lagged the Consumer transition from legacy to current products. EBITDA declined 20%, a slight improvement from 22% decline in FY20.

Outlook

Vocus has updated its FY21 guidance to:

Vocus Network Services

  • Recurring revenue growth +8% (up from +5%)
  • Underlying EBITDA growth +10% to +12% (up from +8% to +12%)

Vocus Group

  • Underlying EBITDA $382m to $397m (unchanged)
  • Capex range $185m to $200m (up from $160m to $180m)
  • Net leverage ratio continues to reduce