Vocus Looks Like a New Company Starting Out on a Three-Year Turnaround Journey

S. Soh

Summary Bullets:

  • Vocus’ results for the first half of the financial year do not look great. Revenue is stagnating and EBITDA is declining.
  • There is, however, some optimism as the company embarks on its three-year turnaround journey. The company has a new leadership team and its network assets remain a key differentiator.

Vocus has reported its results for the first half of the financial year (H1 FY 2019) and updated investors on the outlook for the company. Revenue for H1 FY 2019 was flat (growth of barely 1% YoY) and underlying EBITDA dropped 10% compared to H1 FY 2018. Consequently, underlying NPAT declined 29% and net leverage ratio increased to 3.1x. Net debt increased $88 million to $1,089 million. The company grew revenue from its New Zealand operations, its enterprise, government and wholesale (the bulk of the growth is from the project revenue associated with the construction of the Coral Sea cable system). However, the growth was offset by the decline in its retail business in Australia; consumer declined 12% and SMB declined 27%. Overall, the financial results are not looking too good for the first half of the financial year.

However, Vocus is now a revamped company that is ready to pounce. Since the new CEO was appointed in May 2018, several changes have been made, and ‘resetting Vocus’ was his key message to the investor community. The new CEO has restructured the business, put in place a three-year turnaround strategy and refreshed the leadership team. There are now three distinct business units in the company: Vocus Networks Services (enterprise, government and wholesale), Vocus Retail (consumer and SMB) and Vocus New Zealand. Since May 2018, 19 executives have left the business and a new team has been formed.

As part of the strategy, Vocus has set itself the target of doubling the revenue from enterprise, government and wholesale in five years. Another key highlight of the announcement is the MVNO deal with Optus, which includes the access to Optus’ 5G network. While the renegotiated deal does not cover fixed wireless access, this is an area Vocus is very keen to explore. This is part of the strategy to revive its retail business, and Vocus will shift its focus from selling NBN services to growing its wireless broadband customer base instead. The company is also making progress in its own technology transformation. The focus is on developing a programmable network to remove manual processes and reduce provisioning times from weeks and months to minutes through automation. The company is rationalizing its network suppliers and consolidating its BSS. These efforts will deliver significant cost savings and improve customer experience.

Vocus has been embattled with organizational changes for the past few years. Having a new leadership team gives the company a fresh start. The revamped Vocus, which could have hit the bottom, leaves a lot of room for growth. We expect more activities over the next 12 months to grow market share, particularly in the enterprise and government segment. The company’s network asset remains a key differentiator in the market.

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