Vocus says turnaround on track as profit falls in line with guidance

Vocus is confident it can make the most of good foundations as it eyes the road to recovery.

Vocus CEO Kevin Russell. Hollie Adams/The Australian

Vocus Group boss Kevin Russell is confident Australia’s fourth-biggest telco can make the most of the foundations in place to start turning things around in financial year 2020.

The fibre operator (VOC), still reeling from its botched tie-up with consumer broadband business M2, is on a three-year road to rehabilitation and is struggling to contain the flagging fortunes of its retail broadband business.

The retail business, which contains Dodo and iPrimus brands, has weighed on Vocus full year 2019 results, with statutory net profit falling 44 per cent to $34 million.

Revenue for the period was flat at $1.89 billion, with statutory earnings before interest, tax, depreciation and amortisation (EBITDA) slipping 3 per cent to $349.1m.

“We have had a good first year in our turnaround journey, we are well placed to deliver growth in the core infrastructure business but do face a tough 12 months ahead in retail,” Mr Russell told The Australian.

“We have a good foundation in place but clearly we have a lot of work ahead of us.”

Vocus shares rose over 10 per cent to $3.22 on the results, with the market keen to give Mr Russell more time to execute on the promised revival.

While the retail business saw a 15 per cent decline in revenue, Mr Russell said that a focus on process and people had helped push margins up 1.8 per cent in the full year.

“Process improvement and increasing operational efficiency across the business will help us later down the line, we really didn’t have the clarity nor the people to execute the turnaround 12 months ago.”

However, he said the future growth in the retail business is unlikely to come from fixed broadband services.

“The National Broadband Network squeezes out the value brands like ours but we have growth opportunities in fixed wireless and energy.”

The telco resells mobile services over Optus’s network and renegotiated its agreement last year to include 5G services.

Vocus’s small-to-medium business focused unit Commander has been hit particularly hard by the NBN but Mr Russell said the telco was committed to the brand.

“It’s on a declining trajectory for another two years because it has a lot of legacy copper voice/fixed line revenue attached to it, I think the brand is a good one and SMB is a good market for us to be in.”

“What I don’t want to do is opportunistically give up on the brand that I think can be valuable once it works through its legacy.”

Vocus core infrastructure business, buoyed by the launch of the Australia Singapore Cable, posted revenue and EBITDA growth this year, with recurring revenues up 5 per cent, total revenues up 23 per cent and underlying EBITDA increasing 5 per cent.

Mr Russell is confident Vocus can increase its enterprise market share, with the NBN, in this case, likely to give the telco a boost.

“It does help us as long as we are selective because there are some instances where we compete with the NBN but more broadly it helps us access opportunities that we wouldn’t have otherwise.”

The telco has reiterated its guidance for full year 2020, with underlying EBITDA set to land in the range of $359m -$379m.

“The next year is going to be a flat year, with our core business growing but a tough year for Commander,” Mr Russell said.

“In three years’ time it will be all about how we delivered the growth, that’s what we will be valued on.”

Vocus has been on the radar of suitors this year, with AGL Energy and private equity firm EQT both poring over the telco’s books. With neither overture translating into a firm offer, Mr Russell said the board didn’t want to indulge frivolous approaches.

“We need to execute on our plans if anyone comes knocking we have a responsibility to our shareholders to ensure that they are credible and have done their homework.”

“What we don’t want is another distraction,” he said.