Kevin Russell, Managing Director & CEO Robert Mansfield, AO, Chairman
We are very pleased to present the Vocus Annual Report for the 2018 financial year.
Throughout what has been a very busy year, we have made significant and tangible changes that will re-invigorate the company and enable us to deliver the growth we are focused on achieving. We will provide an overview of these changes, but first we would like to discuss the performance of the business in FY18.
Kevin Russell, Managing Director & CEO Robert Mansfield, AO, Chairman
Dear Fellow Shareholders,
On behalf of the Board, I am pleased to present our Remuneration Report for FY2018.
I was appointed to the role of Chair of the Remuneration Committee in February 2018 and wish to acknowledge the contribution of the outgoing Chairman, Rhoda Phillippo and the outgoing member, Jon Brett. Rhoda chaired the Committee through a very difficult time and I want to thank her and Jon Brett for their passion, perseverance and support in guiding us through to a renewed remuneration strategy which we believe, will support our objective of creating sustained, long-term shareholder wealth.
As shareholders, you would be aware of our recent difficult journey. A key priority in 2018 has been the renewal of the Board. Four new directors have been appointed to the Board, since the last AGM.
“We are very confident that the business platform we have established, combining the strongest elements of challenger telcos across Australia and New Zealand, is in a strong position to genuinely rival the majors and grow market share in future years delivering on our growth commitment to shareholders.”
Dear Fellow Shareholder,
Following a very busy period of merger and acquisition activity, the FY17 year and in particular 2HFY17 has been a period of transition for Vocus as the business focused on the completion (in October 2016) and integration of the Nextgen Networks acquisition; and the implementation of business plans that will maximise the returns and leverage the infrastructure platform and scale that has been created through recent acquisitions.
We are very confident that the business platform we have established, combining the strongest elements of challenger telcos across Australia and New Zealand, is in a strong position to genuinely rival the majors and grow market share in future years delivering on our growth commitment to shareholders.
We acknowledge this period of transition has created an unacceptable level of share price volatility for shareholders. Contributing to this share price volatility, as you may also be aware, is that the telecommunications sector as a whole has been significantly de-rated by equity markets over the last 12 months and our share price has not been immune to this change in sentiment. Your Board and management team remain focused on the things that are within our control and we have moved as quickly as possible to address the range of issues that have arisen as a result of the rapid period of M&A. We are committed to delivering on the projects outlined at the Company’s investor day in June this year and restoring value for shareholders. We would encourage all shareholders, if you haven’t already, to visit our website and read through the presentation and listen to the recording on the website or read the transcript of the management presentations.
As detailed in the Operating and Financial Review and Financial Statements contained in this report, the Company reported 50% growth in underlying NPAT for the 12 months ended 30 June 2017 compared to the prior corresponding period on a 119% increase in revenue. The record result reflects a full 12 month contribution from the M2 business following the merger in February 2016 (an additional $111.8m EBITDA compared to the pcp) and an 8 month contribution from the Nextgen Networks acquisition, completed on 26 October 2016 ($62.5m EBITDA post synergies).
The result reflects another strong year of growth for Vocus however it was not at the level we anticipated at the beginning of the financial year. There are a number of factors, both internal and external, that impacted the Company’s financial performance this year and the senior leadership team has moved quickly over the last six months to address these issues, improve the performance of the business and restore returns to shareholders.
The Vocus Board made the decision not to declare a final dividend for the FY17 year in light of the current opportunities for investment across the business, including the ASC project and the focus of the Board on reducing the overall leverage in the business. We understand that this will disappoint some shareholders; however, we believe this to be the prudent approach to our capital management while we continue to work to restructure the business.
An interim dividend of 6¢ per share fully franked was paid in April 2017. The Board of Vocus expects to review future dividend payments in line with the growth of the business, taking into account the capital requirements and accretive infrastructure opportunities available at any point in time.
During FY17 both the Australian and New Zealand Consumer businesses have focused on the significant opportunity created by the Government sponsored fibre rollouts, to secure additional market share in the provision of broadband services to the home. Despite intense competition in both markets, Dodo and iPrimus ended the year with 7.3% market share in NBN (ex-satellite) compared to 6.4% at the beginning of the period; and our New Zealand business ended the year with ~13% market share of UFB with strong momentum in the business which has seen it take ~18% share of UFB connections in Q4 FY17. While the intense competition has created a challenging business environment, churn levels remain materially lower than copper broadband levels at ~1.5% and AMPUs have remained similar or in New Zealand slightly higher than copper margins.
Our Consumer businesses in both Australia and New Zealand are also both focused on lowering costs and improving the customer experience through automating the customer interface and backend platforms in turn driving lower churn rates. Both businesses are also focused on brand positioning in the face of intense competition to ensure we have clearly defined target markets and that the return from the Group’s marketing spend is maximised. This focus will result in the relaunch of iPrimus in Australia in 1QFY18 and a consolidation of the Consumer brands in New Zealand with a reinvigoration of the Orcon brand and business model. The Enterprise & Wholesale business has been restructured over 2HFY17 to create one unified business platform reflecting the strongest attributes of the Vocus, Amcom, M2 and Nextgen businesses. The focus of the Division is to leverage the momentum created by the increased scale of the business to grow market share with particular focus on: opportunities in the Government sector as a trusted provider of secure connectivity and redundancy; the Wholesale sector, in particular with other carriers and carriage service providers; and the Corporate market on the East coast of Australia where the business is under indexing compared to the west coast.
The New Zealand Enterprise & Wholesale business is also focused on leveraging its infrastructure platform to grow; and rationalising its brand portfolio to leverage the equity in the Vocus Communications brand in New Zealand. The Division believes there are significant growth opportunities in this market, in particular in the Government market and the Wholesale sector as the number of new entrants in the reseller market grows. The New Zealand Division has continued to restructure its business portfolio with the sale of its 50% share in the Connect 8 joint venture; and the acquisition of a small energy retailer, Switch, which has already created significant momentum in bundling opportunities in the Consumer business in the first few months of ownership, albeit from a low base.
During 2HFY17 we announced the restructure of our Technology business and the establishment of a Transformation Office to identify and implement a clear set of enterprise wide priority projects, ensuring that the projects are well resourced and funded and that progress is monitored and measured in a consistent way. We were pleased to announce the appointment of a new CTO, Simon Smith and a Head of Transformation, Justin Haddrick who both commenced with Vocus on 3 July 2017. Both Simon and Justin have moved quickly to implement the restructure of business activities and drive the programs that have been established.
During FY17 the Company made the decision to move to contract in force on the Australia Singapore Cable (ASC) project. The project is a 4,600km submarine cable system linking Australia, Indonesia and Singapore. The project was acquired as part of the Nextgen acquisition. The Company believes that the project has a number of strategic advantages over its competitors and will deliver Vocus the ability to tap into the rapid growth in demand for data capacity on these routes.
Australia Singapore cable completed under budget &