Edited Transcript of VOC.AX earnings conference call or presentation 26-Feb-19 10:30pm GMT

Our corporation values eat been launched. The Australia and Singapore Cable is launched. The Optus MVNO deal, which I'll grade almost later, has been renegotiated and set. And then we've worked across strengthening and extending our advantage network capability. And finally and critically getting our network consolidation program off and running.

So finally -- besides because robust then I believe we've got a luck of clarity now can where Vocus is going. And impartial overall, this turnaround is robust and really underway.

So at condition of our econmic action can these 6 months, the results are mixed, compatible with the recommend action reality of the business. Sales at Vocus networks, and that's our Enterprise, Government and Wholesale area, eat been strong. besides the growth tax has been mitigated by bottlenecks at provisioning and more significantly higher than ordinary churn. at consumer, we're making good inroads at cost, besides we eat significant structural revenue declines at both consumer and material segments.

Overall rest division management has been excellent. accordingly mark will walk across this at detail at a join of minutes. My key data is that I understand that because the leadership aligns and changes settle, our execution will exist stronger and it will exist more consistent.

So I wanted to really to confess a slice of time impartial to improve explain what resetting Vocus practically means. accordingly what's really changed or changing and why is it changing. accordingly we eat restructured into 3 distinct businesses. First we've got Vocus Networks, comprising 2 middle areas. Our go-to-market backward teams because Enterprise, Government and Wholesale and then our infrastructure and action teams included network and technology. Second material unit, Vocus Retail, comprising both our consumer and business, go-to-market teams, action support. And they because robust eat their get dedicated IT technique capability. Thirdly, our Vocus New Zealand business, robust established, robust run, no reset or restructure here. This is a material that is performing robust and growing strongly. accordingly 3 divide autonomous businesses with key leaders incentivized with the same overall Vocus crowd LTI. This re-org is greatly done. We are targeting to finish entire price allocation by material unit because our year target reporting.

So next. impartial a clay recognition that our fiber infrastructure is our middle asset and our best platform because tax creation. Strengthening or capitalizing this platform is clearly where our dollars get to advance first. The key components to our fiber infrastructure are laid out here at order of strategic value. We confess the tax of the metro fiber, besides we believe that, that is an increasingly sales and competitive market. Our leadership and differentiation largely lies at our combined national, regional and submarine Cable capability.

Our middle assets are same good. accordingly we're now focused can opportunities to leverage greater tax from them by incremental investments. accordingly impartial some examples to experiment and fetch this to life. We eat a advantage network, advantage NOC and advantage provisioning team. This advantage ability is being invested at accurate now to enlarge the fair opportunity. And we're doing that across expanding geographic attain and service breadth. Secondly, we are reviewing a amount of adjacent strategic builds, including leveraging our regional network to aid solve regional 5G backhaul, connecting the Australia and Singapore Cable and North West Cable across the Scarborough shelf and then because robust looking at connecting the North West Cable up into Southern Indonesia.

Thirdly, happen to impartial broaden our international assets across leveraging our ASC into strategic swaps. And that helps us both at international attain and because robust improve diversity.

As the need because fiber grows, it is crystal clay that our assets are well-positioned and we can leverage a luck more from them. We because robust eat been clay can the priority markets where we can guide and differentiate. Gaining future fraction is no impartial almost being cheaper. We eat to ship value, best at fair experience, and then fulfill with network leadership or differentiation. accordingly again, some examples to fetch that to life. I impartial talked almost our North West Cable and the opportunities because that Cable to run across key areas at the Timor sea and across the Scarborough shelf, blank up good opportunities at fat and gas and because robust into spinoff at mining.

Our advantage ability will exist expanded, broadened and our advance into speak government, we believe, is stronger and because robust opportunities to convert broader and deeper into defense -- department of Defense and defense industries. And at this, our Singapore Cable is clearly lined up with our happen with over-the-top players. And again I repeat, we are same well-positioned to aid service solutions because a regional 5G backhaul. produce ability is because robust clearly key to unlocking these markets and we're investing accordingly. This alignment of markets with our network ability is a keen reset that enable us to double our Vocus network revenue by 2023.

We are looking at fewer programs, bigger opportunities and bolder opportunities, and we are house the ability to play smarter because the climax Cable.

On technology, we eat legacy to trade with. We eat 8 BSS bags, 6 networks. We now eat a clay plot to simplify our systems and consolidate our networks.

The challenge is complex, besides the econmic prize we aspire to is simple. We wish to double Vocus Networks revenue by 2023. We wish to ship a net annual OpEx reduction of $30 million at our infrastructure and operations, and we wish to inspire $30 million of annual inefficient CapEx. And we wish to fulfill total of this from our existing CapEx envelope. The happen here is significant. accordingly we will experiment and fraction -- we plot to fraction a detailed program, including milestones, time lines and an investor update at the middle of May.

Pertaining to Vocus Retail, challenges are clear. However, we believe we eat some big assets, the accurate team and the opportunities to convert this business. at particular, I wish to highlight our new MVNO arrangement with Optus. It is designed to aid us scale aggressively and profitably can mobile, and to enable Commander to capitalize can future opportunities at 5G applications because moment business. This refreshed partnership is absolutely foundational to reshaping Vocus Retail and rebalancing us away from our reliance can fixed. We are at the middle of 3-year reset of role, happen and ability because Vocus Retail. We confess the reality that NBN is an economic challenge because the consumer fair and our strategic concentrate has shifted to mobile, including future 5G and we desire fixed wireless. We believe that Optus has the accurate tactic to monetize 5G, and we are eager to fellow with them to make that strategy.

And finally, people. Any turnaround is often almost leadership change, ability and mindset. We eat comprehensively rebuilt the broader leadership team. 19 senior executives eat left, 19 eat joined. We've done it quickly, we've done it smartly and with a clay concentrate can the ability we need and the civilization we want. I believe the team is of the highest feature at the marketplace, and time will talk if I am accurate at that assessment. Hopefully some valuable context can some points of our thinking and we're ahead at this turnaround. I'd now alike to implore mark to walk us across the econmic results.

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Mark Wratten, Vocus crowd Limited - CFO [3]

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Thank you, Kevin. ago I commence, I will remember everybody that at like to this presentation, we've because robust this morning published our statutory 4D and half year econmic statements also because our operational and econmic newspaper documents, and they contain more detailed information covering our crowd and the operating divisions.

So starting with slip 14. Overall, our half year results are at string with our inner expectations of action at what is a reset year because Vocus. afterward on, I will cover at more detail each of the operating divisions. besides because this slide, I will impartial cover our high-level results.

First half revenues were slightly can those of the foregoing period. revenue growth at Vocus Networks Services and New Zealand was offset by declines at both consumer and the Commander divisions. Our underlying EBITDA, and these numbers are adjusted to exclude noncash share-based payments, was down by 7% and was most impacted by the reject at the Commander business. EBITDA verge reject was mostly due to the shock of the low-margin plot revenue at Vocus Networks Services also because the growth at low-margin -- or lower-margin wholesale NBN revenues.

Underlying NPAT reduction was driven by the EBITDA reject coupled with higher D&A price and finance price expenses.

Pleasingly, our first half money conversion was robust at 98%, and this was assisted by the receipt of a big upfront payment associated with an IRU sold at the ASC Cable system. Sustainable levels of money conversion are at the 90% to 95% range, which I've impartial previously mentioned.

Capex at the first half was tightly managed, and we digest to improve the processes and controls almost this area. Our net debt and net leverage ratios eat both increased during the ripen due to the funding required at the first half to finish the ASC project. Net leverage ratio at December of 3.08 has now peaked, and we to shriek on the material begin to deleverage to beneath 3x when we advantage to explain our entire year results at August of this year.

I won't expend also much time can slip 15 because I'll cover each fraction individually at the coming slides. From a revenue bridge perspective, the expand at revenues at Vocus Networks Services and New Zealand were offset by declines at consumer because I previously mentioned. letter again that the EBITDA can this map excludes noncash LTI. at first half of FY '19, price of $5.7 million were expensed at the LTI plot price versus $0.7 million at the foregoing ripen accordingly a $5 million differential, that's why we've excluded it.

The expand is due to the new LTI plot introduced late the final calendar year, which Kevin mentioned at our entire year results final August, and which we again tabled at the AGM.

We can shriek on that Vocus Networks Services and New Zealand EBITDA growth was offset again by the reject at Commander, which reduced at string with this revenue decline. at addition, increased costs were incurred at what we now shriek our Infrastructure, Operations and crowd and previously referred to because crowd services at past reporting. From increased investment at technique resources, there was because robust an unfavorable shock of nonrepeating benefits that we enjoyed at the first half of final year.

Our consumer fraction managed to hold EBITDA relatively even against the big revenue reject due to significant cost-out initiatives, and I'll grade more almost that shortly.

As mentioned at my earlier slide, our net debt and gearing eat both peaked at the first half due to the funding of ASC. The majority of that CapEx is now incurred. And with our more predictable money conversion at the 90%, 95% mountain and continued controls almost our Capex, we to shriek on the material begin to deleverage at the next 6 months and farther into FY '20. total of our coast covenants are robust within limits and our new facility is providing us the flexibility that we require.

Regards to Capex, it was dominated at the first half by the $133 million of money CapEx we spent can the ASC Cable system, and we eat another $8 million to grow at the early divide of H2. Overall, this plot is coming almost $10 million beneath budget due to robust plot management and favorable hedging strategies employed by our treasury team.

Our business-as-usual CapEx of $73 million is expected to expand at the second half because projects ramp up. However, we calm guide because our entire year CapEx amid $160 million to $170 million.

Our D&A price has increased against the foregoing ripen mostly due to the completion of the ASC Cable system, which we eat started to amortize. And our entire year guidance can D&A is unchanged at amid $160 million to $165 million.

Now turning to divisional performance, allow me begin with Vocus Networks Services, which is our Australian Enterprise, Government and Wholesale business. revenue growth of 27% was driven by big plot revenues, predominantly derived from the construction of the Coral sea Cable system. This plot is scheduled to exist completed at December of 2019. accordingly we will digest to shriek on material plot revenues at the second half of this year also because first half of FY '20.

Looking purely at our recurring revenues, Networks Services delivered a 6% growth can the foregoing period. revenue growth was driven by the accelerating momentum we eat built up at our sales engine, farther helped by investment at sales resources. revenue growth includes new revenue derived from Q2, mail the successful launch of the ASC system also because growth at wholesale NBN.

Our robust first half sales performance, however, was impacted by higher than ordinary churn because Kevin mentioned due at divide to the target of some legacy next gen contracts also because industry consolidation. price erosion has because robust negatively impacted our first half sales growth and continues to eat an impact.

We eat amended our explain management and committee structures to insure that the accurate even of concentrate is applied to consumer -- passenger retention and revenue protection. And we to begin to shriek on the advantage of this because we impress across H2.

Revenue growth has because robust been negatively impacted by our service delivery. Our robust ASC sales pipeline took priority at Q2, which impacted activation of other services. Our manual provisioning processes can multiple networks is calm a headmaster ache point, which highlights the importance of the network consolidation and automated provisioning projects that Kevin mentioned earlier.

Whilst a virgin network is a little years away, we had allocated estate and a amount of projects are underway to improve service delivery cadence at the second half and into FY '20.

Networks Services EBITDA margins declined at first half due to lower verge plot revenues can the Coral sea Cable system also because the lower verge wholesale NBN revenue.

New Zealand, performing strongly, another big arise at delivering both revenue and EBITDA growth at the half. Consumer revenue grew 8% can the foregoing ripen across the bundling at might and mobile services across our Slingshot and Orcon brands.

Enterprise and Wholesale revenues were even due to price erosion across sound and information services. EBITDA verge growth was higher than revenue growth across produce mix and the continuation of SG&A savings across material efficiency programs that mark has underway.

Moving to Consumer. because you total know, our consumer business, which comprises the Dodo and iPrimus brands operates at a highly competitive and complicated market. The first half saw revenue reject across much of our portfolio, led by legacy sound declines of $15 million, which continues the negative tendency from foregoing reporting periods and is a market-wide challenge. Both broadband, $9 million revenue decline, and might revenues, $13 million decline, due to falling SIO numbers. And at the instance of might because robust due to falling passenger custom profiles.

As Kevin mentioned earlier, our concentrate can NBN and at gaining fair fraction has shifted. at the addition to this presentation, we eat included a slip that sets out why NBN is currently no economical, sustainable because our consumer business. at the utilize of time, I will no cover those issues now. I'm blank to Q&A afterward on.

Mobile revenue was even at the first half with higher subscriber numbers being offset by lower ARPUs from new introductory plans. We fulfill shriek on mobile because a robust contributor to future growth, specially given the new MVNO agreements we eat entered into with Optus, which because robust provides us a pathway to the dust of 5G.

Whist revenues eat declined, the Consumer fraction has been extremely successful at driving price down. And because a result, EBITDA is relatively even to the foregoing ripen and verge percentages eat really improved. Our concentrate can digitization and automation is starting to advantage traction at sales and service areas with improved sales ordering funnels completed at both Dodo and iPrimus. at addition, the MyDodo self-service portal was launched at December and these and other initiatives eat enabled us to decrease Manila headcount by 25% against the foregoing period. And we eat farther plans at coach to digest to lower the price to advantage and service our customers.

A new combined material and consumer fraction now led by Antony De Jong is focused can the reinvigoration of the Dodo brand, which was relaunched at August of final year. That relaunch has helped expand our brand awareness and consideration. And with the introduction of multiproduct offerings and a greater concentrate can cross-sell opportunities, we fulfill believe we can convert overall SIOs.

Increased contest at the might material is being addressed with new pricing plans, and we fulfill shriek on this division of our material providing future growth opportunities. Whilst revenues did reject at the first half, the shock of EBITDA -- or can EBITDA was limited due to our robust hedging conditions. Finally, and because Kevin said earlier, the concentrate can the consumer material has shifted to exist strongly focused can profitability and money generation pretty than a convert at any price approach. Our material fraction is based can the Commander brand, which we eat recommitted to and recently relaunched due to the beginning of this month. We eat highlighted -- because we highlight at the entire year results at August, this material is no being given the executive and management attention that was required at a fair division where NBN and new mobile solutions are materially impacting our legacy sound revenue streams.

These legacy products eat continued their reject from the foregoing reporting periods. New NBN and mobile revenue growth is no calm at a point where it can offset the legacy sound declines we are experiencing. And because a result, we wish revenues and margins to farther -- to decrease farther because the next little reporting periods, albeit at a reduced rate.

The material leadership gap has now been addressed with the engagement of Antony De Jong at September final year. And foregoing to taking the leadership of the combined material and consumer material divisions, Antony restructured the Commander material and the executive team and established a program of trade to improve control our existing passenger basis and reinvigorate demand. Commander has because robust established a dedicated passenger retention team and recently introduced 24/7 technical backward because our customers.

As I said, the Commander brand was relaunched earlier this month and has a new marketing camp -- with a new marketing campaign, a fellow rally and a revived, revamped website, which you to advance and visit.

The website includes a refreshed mountain of the new offers, including updated NBN and office phone and mobile plan, and a advance towards a more digital and automated passenger experience.

In addition, we are working difficult with existing and new channel partners to drive increasing sales momentum. Finally, and because vacation by Kevin, Antony is now major a combined material and consumer division, and what we refer to because our retail segment. The blend of these 3 focused brands, Dodo, iPrimus and Commander across fixed mobile and might produce portfolios will enable greater collaboration amid our teams also because shared reporting, BSS systems, digital and automation approaches and confront middle technologies. This will ship farther operational efficiencies and unit price savings because we stand because beneficial growth.

Finally, can guidance, ago I hand you uphold to Kevin, I'll finish out by reaffirming our entire year guidance because FY '19. We wish underlying EBITDA, and this is inclusive of LTI cost, to exist at the mountain of $350 million to $370 million because we guided to at August and main expenditure at string again with what we guided to uphold at August.

This will ask a stronger second half. This will exist delivered across -- with a settled and fully engaged and focused leadership team that Kevin vacation earlier, a entire 6 months contribution from the ASC Cable system, the benefits of the new MVNO council that we eat with Optus and improved service delivery cadence also because a farther concentrate can price savings.

And with that, I'd alike to hand you uphold to Kevin.

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Kevin Steven Russell, Vocus crowd Limited - crowd MD, CEO & Director [4]

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