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Vocus network services and New Zealand covering for retail declines for FY19

Revenue flat for the full year, while EBITDA declined 3%, and net profit fell 44%.
Written by Chris Duckett, Contributor
Image: Vocus Group

Vocus Group has maintained steady revenue as its profitability fell during the 2019 financial year.

For the year to June 30, Vocus has announced taking in a steady AU$1.9 billion in revenue as its earnings before interest, tax, depreciation, and amortisation (EBITDA) dropped by 3% to AU$349 million, flowing into a 19% reduction in EBITA to AU$106 million, and a 44% reduction in net profit to AU$34 million.

The bulk of EBITDA was produced by its network services business, which saw sales increase 23% to AU$710 million, and underlying EBITDA grow 5% to AU$362 million. Vocus New Zealand gained an extra AU$21 million in revenue for this year, taking its total to AU$356 million, while also increasing its EBITDA by 4% to AU$59 million.

Conversely, the retail business experienced a 15% revenue drop to post AU$826 million, while EBITDA dropped 6.6% to AU$160 million. Common infrastructure, operations, and corporate functions across the group increased by AU$15 million over the year to be a AU$221 million drag on EBITDA.

During the year, Vocus spent AU$139 million in capital expenditure on the Australian Singapore Cable (ASC) that was made ready for service in September last year. The 4,600km $170 million cable was designed to carry 40Tbps at a minimum across four fibre pairs, and is currently carrying 4Tbits of traffic.

The ASC helped lift the revenue of network services, which saw a 29% and 85% increase in its data networks revenue and wholesale NBN sales, respectively, which offset a 3% fall in voice and 8% decrease in data centres.

Non-recurring revenue for network services spiked from AU$12 million to AU$120 million due to the building of the AU$137 million Coral Sea cable. On the cost front, the network services business is looking to automate its currently manual provision process, Vocus said.

Within the retail business, legacy products including copper broadband and PSTN voice saw a 38% sales decline, a 4% drop in mobile, and a 15% drop in energy sales, while NBN product revenue increased 30%.

Vocus Group CFO Mark Wratten said the company would look to diversify away from NBN towards wireless where possible. The company extended its Optus MVNO agreement to access 5G.

"In terms of NBN, our assumptions going forward are that NBN remains as it is -- very uneconomic, that they don't change their pricing structure in any way that's favourable for RSPs or for our customers," Wratten said.

"We'd hope that if common sense does prevail at some point in time, that would be an upside opportunity for us, but certainly we haven't factored that into our thinking for the next few years."

Vocus said in February that it was getting out of the NBN land grab due to the variable nature of the CVC pricing model being incompatible with the fixed rates paid by consumers.

"No profit margin after costs to migrate, acquire, and serve, together with backhaul and other admin and operational costs," the company said at the time.

Vocus added that NBN pricing was "simply too high", and it was cashflow negative after providing modems and backhaul.

On Thursday, the NBN was cited often as a profit drag within the retail business.

For its New Zealand business, the company saw its consumer segment grow 8% while its enterprise revenue remained steady.

Vocus Group CEO Kevin Russell said he was broadly satisfied with the result, highlighting three areas the company needed to work on.

"We have not adequately integrated networks, systems, processes, and cultures from a number of historical acquisitions. We have not invested in people capability, partnerships, products, systems, and strategies to deliver," he said.

"We have to work through and absorb the impact of the NBN, and the erosion of legacy voice revenues in our retail business."

The company upped its guidance for the 2020 fiscal year to underlying EBITDA of between AU$359 million to AU$379 million, a AU$9 million increase.

In July, the company announced its split into three divisions after two potential buyers walked away from acquiring the telco the month prior.

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