Vocus backflips on NZ business sale

Unhappy with any of its sale offers, as they have not 'appropriately reflected the fundamental and strategic value', Vocus has decided to retain and invest in its New Zealand business.
Written by Corinne Reichert, Contributor

Six months after announcing that it would sell off its New Zealand business, Vocus Group has ceased all discussions with potential buyers.

According to Vocus, its board has "concluded that it is in the best interests of shareholders for Vocus to retain the Vocus New Zealand business".

"Although Vocus received multiple offers for Vocus NZ, in the board's view, none of these offers appropriately reflected the fundamental and strategic value of Vocus NZ, nor provided sufficient certainty of funding and execution," Vocus said.

Vocus chair Bob Mansfield added that not only will the company retain the New Zealand arm, but it will also continue to invest in and grow the business.

"Vocus NZ is an excellent business with strong leadership, an attractive growth profile, a clear competitive position, and a track record of delivering solid returns on capital," Mansfield said.

Vocus also provided an update on its debt refinancing on Tuesday, saying its lending syndicate has extended the surge limit on its net leverage ratio for its existing debt facilities, while Vocus is also finalising the appointment of several banks to help arrange a complete refinance of its debt facilities.

The refinancing project is expected to be complete by the end of June, with Mansfield saying this will allow the company to "complete its strategic and transformation initiatives over the next few years".

Vocus had announced in October a decision to sell off its New Zealand business, with a proposed completion date by the end of FY18, and in February confirmed that a formal sale process had begun.

"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," Vocus said last year.

Vocus' New Zealand business drew in AU$165.3 million in revenue in the six months to December 31: AU$90.8 million from enterprise and wholesale, and AU$91.8 million from consumer.

It retains 196,000 broadband consumer SIOs -- 62,000 Ultra-Fast Broadband (UFB) customers and 134,000 copper customers; 22,000 SMB SIOs; 12,000 energy SIOs; and 24,000 mobile SIOs. Broadband average revenue per user was NZ$71.10 per month.

Vocus cited revenue growth across New Zealand enterprise and government, ongoing growth in its Switch energy business, and an increase in its 2talk customers for its Kiwi result.

Vocus had merged 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.

In February, Vocus also had to revise its guidance down for FY18 after its previous downgrade in financial guidance last year opened it up to a potential class action from shareholders.

Describing the revision as "modest", Vocus expects underlying earnings before interest, tax, depreciation, and amortisation (EBITDA) to be between AU$365 million and AU$380 million rather than the originally stated AU$370 million and AU$390 million due to a change in its consumer strategy to "focus on higher-quality digital channels" and a lower number of energy subscribers than originally hoped.

Underlying net profit is additionally expected to be AU$125 million to AU$135 million instead of AU$140 million to AU$150 million due to higher depreciation and amortisation expenses than previously forecast; while capex will total between AU$180 million and AU$190 million rather than AU$190 million and AU$210 million.

Australia-Singapore Cable (ASC) capex will be US$43 million rather than US$38 million; and net financing costs will be AU$45 million rather than AU$50 million. However, revenue is still expected to be between AU$1.9 billion and AU$2 billion, and net debt between AU$1.03 billion and AU$1.06 billion.

For the first six months of FY18, Vocus brought in statutory revenue and income of AU$67.3 million, up 9 percent, while statutory net profit was AU$37.3 million, down 21 percent. Underlying net profit pre significant items and below-the-line costs of AU$31.3 million was AU$68.6 million, down 25 percent.

Vocus reported statutory EBITDA of AU$188.1 million, up 12 percent; while underlying EBITDA pre-significant items of AU$0.7 million was AU$188.8 million, up 1 percent.

The company announced in January that it would be splitting its wholesale and enterprise arms as part of accelerated transformation program. It will soon have four operating segments: Enterprise and Government; Wholesale and International; Consumer; and New Zealand.

Vocus last month kicked off subsea cable laying for its ASC, while also scoping out the design and construction of an Australia-Papua New Guinea-Solomon Islands subsea cable, with the agreement worth AU$2,841,301.10 to Vocus.


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