Half Yearly Results of Leading Australian Telecommunication Companies – Vocus and Spark

Vocus and Spark are the two leading telecommunication companies preferred by investors. The shares of these two companies have delivered a return of 24.32 percent and 20.93 percent respectively in the last 6 months.

Vocus is an integrated telecommunications provider operating in Australia and New Zealand market. It is the country’s specialist fibre & network solutions provider which connects all mainland capitals with the US and Asia. In Australia, Vocus has backhaul fibre linking most local centres. In New Zealand, Vocus has a wide & modern network that connects capitals and most regional centres. VOC terrestrial network is ~30k route km. Its a high performance and high availability fibre-optic cable backed by 4,600 km of submarine wire. This cable helps in connecting countries such as Indonesia, Australia & Singapore. It also has 2.1K km of submarine wire amid Port Hedland & Darwin and linking offshore oil & gas facilities in the Timor Sea.

Spark New Zealand is the biggest telecommunication & digital services organisation in New Zealand and it aims to assist all of New Zealand to win big in a digital. The management and board of the company are committed to maintain a high standard of corporate governance to maintain elevated ethical standards.

Both the companies have released their half-yearly result for the period ended 31 December 2019, and this is what we will see in this article.

Let’s dig into the results in detail:

Vocus Group Limited (ASX: VOC)

On 19 February 2020, Vocus Group Limited (ASX: VOC) released its 1H FY2020 result and reported a fall in its statutory revenue by 6.9 percent to $901.9 million.

• Statutory EBITDA grew by 7.5 percent to $181.2 million.
• Statutory EBIT declined by 8.2 percent to $45.9 million as compared to the previous corresponding period.
• Statutory NPAT after minority interest declined 22.4 percent to $12.8 million.
• Vocus did not declare an interim dividend as it sealed an expanded Syndicated Facility Agreement with the lenders. Under this agreement, the company cannot pay dividends unless the Net Leverage Ratio is less than 2.25x for two successive testing dates. As on 31 December 2019, Net Leverage Ratio was 2.81x.
• Net cash from the operating activities declined by 15.6 percent to $121.1 million.
• Net cash outflow from the investing activities was $105.6 million, which was $215.1 million in the previous corresponding period.
• Net cash and cash equivalent was $89.290 million.

1H FY2020 Operational Highlights:

Vocus has reached the mid of its three-year turnaround. Over the last 18 months, the company was able to establish its foundations for growth. The company was successful in absorbing the impact of the NBN in the retail. Simultaneously, it invested in new capability to take advantage of the increasing market prospect for Vocus Network Services.

The company is optimistic about good sales momentum, and a channel that is significantly stronger in terms of the size & quality of prospects.

Barossa Offshore Project plus the delivery of the Coral Sea Cable for the Commonwealth Government which is being done within the budget and before the time scheduled has been won by the company. It reflects credentials to win large, complex contracts.

With the communication industry completely focussed towards 5G, the company has positioned itself well as a specialist fibre and network services provider in Australia. NBN Co’s changed method in the Enterprise market will also benefit VOC as it would make effective use of current fibre infrastructure & re-establish NBN Co within its wholesale-only mandate.

Vocus New Zealand has strong momentum as a result of an increase in consumer and enterprise market. The business continues to enhance operating leverage, providing improved revenue from lower headcount & overhead costs.

Outlook:

• Vocus expects its Group underlying EBITDA to lie in between $359 million to $379 million.
• Underlying EBITDA growth in Vocus Network Services is anticipated to fall in between $20 million to $30 million, compensate by a similar drop in Retail.
• Capital expenditure would be in between $200 to $210 million.
• Cash conversion to be in between 90 percent to 95 percent.

Spark New Zealand Limited (ASX: SPK)

On 19 February 2020, Spark New Zealand Limited (ASX: SPK) released its 1H FY2020 results and reported a 4 percent growth in its revenue to NZ$1,824 million. The result was driven on the back of solid result in mobile, with high-margin mobile service revenue growth of 5.5 percent. Thus, enabled market share growth of 1.2pp to 40.1 percent. Revenues were also lifted as a result of a rise in cloud, security & service management by 12.3 percent. Launch of Spark Sport as well as control in the rate of legacy voice declines (low 11.6 percent), also contributed to the revenue growth.

• Spark became more focused on its core business via the divestment of Lightbox as well as assets of Computer Concepts Limited (CCL) along with merger of its cloud and ICT businesses Revera and CCL.
• Finished a substantial capacity upgrade throughout wireless network of Spark.
• Customer & culture performance metrics continue to rise off the back of the Company’s move to Agile working method plus long-term investment in IT & network infrastructure.
• Finalized a substantial capacity upgrade throughout wireless network of Spark

Financial Highlights:

• Revenue from the continuing operations increased by 4 percent to NZ$1,824 million, driven by Stand-out performance in mobile, continued growth in cloud, security and service management revenue, entry into ports media via Spark Sport along with balance in the rate of legacy voice declines. 1H FY2020 was the outcome of the company’s constant focus on delivery and execution which resulted in strong performance and market momentum.
• Operating expenditures went up as the gains of cost-out actions were reinvested to somewhat finance existing as well as future growth in revenue.
• Net profit from the continuing operation zoomed up by 9.2 percent to NZ$167 million.
• Declared 1H FY2020 dividend of 12.5 cents, 75 percent computed.

Guidance:

• EBITDAI in FY2020 to range in between NZ$ 1,100 million to NZ$ 1,120 million.
• Capital expenditure was be ~NZ$ 370 million.

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