Vocus to sell New Zealand assets

Vocus is preparing its New Zealand assets, which include mobile, broadband, and energy offerings, for sale by June 2018, while also exploring the sale of its 'non-core Australian assets' including datacentres.

Vocus has announced a decision to sell off its New Zealand business, with a proposed completion date by the end of FY18.

"The board has now determined that the Vocus New Zealand (VNZ) business will be prepared for sale finalising appointment of advisors," Vocus said in its investor update presentation on Monday.

"The board has also progressed its review of the non-core Australian assets: Advisors appointed to the sale of the Australian datacentre assets [and] other non-core Australian assets will continue to be evaluated with regard to potential divestment or closure."

Its trading update on New Zealand included a net consumer broadband subscriber growth of 3,365 customers in the first quarter of FY18, with 16 percent share of all Ultra-Fast Broadband (UFB) connections as of the end of the quarter.

In total, Vocus had 192,000 broadband consumer services in operation (SIOs) as of September 30, with 53,000 on the UFB at an average revenue per user (ARPU) of NZ$71.18 per month.

Vocus said it was also the fastest-growing energy retailer in Auckland, with 4,704 active energy customers for a total SIO number of 9,000.

Vocus had 21,000 mobile SIOs by the end of the period.

Despite also selling its stake in Macquarie Telecom for AU$41 million in March, Vocus' full-year results announced in late August saw a turnaround in its FY16 net profit of AU$64.1 million to a net loss of AU$1.5 billion for FY17 due to "higher than forecast net finance costs and a higher effective tax rate", along with what CEO Geoff Horth called "a more competitive business environment" in both Australia and New Zealand.

Underlying net profit was AU$152.3 million, while underlying earnings before interest, tax, depreciation, and amortisation (EBITDA), not including significant items during the year, was AU$366.4 million, up 70 percent.

Revenue grew by 119 percent year on year to AU$1.8 billion, and the company's net debt increased by 35 percent to AU$1.03 billion and is expected to climb even higher, to up to AU$1.06 billion for FY18.

Last month, law firm Slater and Gordon announced that Vocus would be facing a potential class action from its shareholders over having downgraded its financial guidance in May.

According to Slater and Gordon, the proposed class action alleges that "Vocus engaged in misleading and deceptive conduct because it had no reasonable grounds for the original FY17 guidance issued in November 2016"; and that the telco "breached its obligations of continuous disclosure by failing to disclose that it would not achieve the FY17 guidance".

The law firm said the proposed claim will be brought on behalf of those who purchased Vocus shares between November 29, 2016, and May 2, 2017. Between these dates, the claim alleges that the company's shares traded significantly higher than their actual value due to Vocus' alleged misleading and deceptive conduct.

Mathew Chuk, Slater and Gordon principal lawyer, said Vocus' original guidance had relied on assumptions made about growing the business through its AU$1.2 billion acquisition of Amcom in June 2015, its merger with M2 in February 2016 to form the third-largest telecommunications provider in New Zealand and the fourth-largest in Australia worth more than AU$3 billion, and its AU$861 million acquisition Nextgen Networks in July 2016.

However, Chuk said Vocus' presumptions that it would consequently gain efficiencies by combining these businesses "was done without proper visibility of profitability".

Vocus' revised guidance saw forecast revenue reduced by AU$100 million, underlying EBITDA reduced by between AU$65 million and AU$75 million, and net profit reduced by between AU$45 million and AU$50 million.

As a result of its downgraded guidance, the company in June received a takeover proposal from Kohlberg Kravis Roberts & Co (KKR) to acquire 100 percent of its shares at a price of AU$3.50 per share via a scheme of arrangement, with Vocus then allowing KKR to conduct due diligence to explore whether a binding transaction could be agreed upon.

Shortly afterwards, Affinity Equity Partners submitted a takeover proposal in July to acquire 100 percent of Vocus' shares at a price of AU$3.50 per share via a scheme of arrangement to be paid in cash.

Two days before Vocus was due to announce its FY17 full-year financial results, however, both takeover proposals were terminated.

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