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Impairment of retail division lays waste to Vocus statutory results

Almost AU$280 million in significant items turn a AU$101 million underlying profit into a AU$178 million statutory loss.
Written by Chris Duckett, Contributor on

Australian carrier Vocus is unsurprisingly looking to focus on its underlying earnings, after a AU$202 million impairment to the goodwill of its retail division and a AU$56 million purchase price allocation that sent its statutory earnings plunging.

For the year to June 30, the company reported a 6% drop in revenue to AU$1.78 billion, with its recurring revenue down 1.1% to account for all but AU$25.5 million of the total and the remainder flowed from the large infrastructure line item, which was down by AU$94 million due to the completion of the Coral Sea subsea cable.

Statutory earnings before interest, tax, depreciation, and amortisation (EBITDA) increased 3.5% to AU$361 million, before the significant items came into play. Statutory EBIT dropped AU$215 million to a AU$109 million loss, thanks mainly to the impairment, and statutory net profit fell by a similar number to a AU$178 million loss.

In underlying terms, the company said its EBIT was down 7.5% to AU$190 million compared to last year, and underlying net profit fell 4% to AU$101 million.

Broken down by division, both Vocus Network Services (VNS) and its New Zealand business saw 6% increases in recurring revenue to AU$626 million and AU$378 million, respectively, while the impairment retail arm reported a 9.5% decrease in recurring revenue to AU$748 million.

For retail -- which consists of its Dodo, iPrimus, Engin, and Commander brands -- the consumer division reported a steady second half to record a 3% drop in revenue to AU$590 million for the full year. The news was not so good for its business retail segment, which reported a 27% drop in revenue to AU$116 million.

"The retail business is currently skewed to legacy voice and data products, such as PSTN, ISDN and ADSL. This legacy revenue is declining due to migration to VOIP and mobile solutions, and particularly to the NBN which also attracts lower margins," the company said.

"Within the broadband market, one-time costs to acquire and connect customers to the NBN are high and chasing market share is expensive. Accordingly, the focus is to successfully migrate existing ADSL copper broadband customers to the NBN, and leveraging broadband as the entry point into the home, to bundle energy products.

"This has the benefit of lengthening customer tenure whilst growing margin and is a strategy that will be pursued."

Net debt for the company fell from just shy of AU$1.1 billion in the first half of 2019 to AU$980 million at the end of the year.

Vocus CEO Kevin Russell said the results showed the company is on track to complete its three-year turnaround.

"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," he said.

"New Zealand continued to deliver stable and consistent performance with its fifth consecutive year of organic EBITDA growth."

The company said it successfully transitioned 1,700 of its employees to work from home within a week when the pandemic struck.

For the 2021 fiscal year, the company is expecting underlying EBITDA of between AU$382 million and AU$397 million, capital expenditure of between AU$160 million and AU$180 million, and to continue paying down its debt.

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