This is what you get when you spend nearly $6 billion expanding to become a major player in a key Australian business sector, and it all turns to mush – shareholders see the value of their shares plunge and they end the day more than $600 million poorer.
Vocus Communications shares lost nearly a quarter of their value yesterday after the company’s annual meeting in Sydney was shocked by a weak trading upbeat and gloom about the outlook for the next year.
The shares lost nearly 25% to end at $4.35 – wiping out more than $850 million in value after the country’s fourth biggest telecommunications group delivered a grim trading update on the financial impact of its rapid expansion.
In the past 18 months, Vocus completed a $1.2 billion merger with Amcom, then a $3.8 million merger with M2 and finally acquired Nextgen Networks midway through this year for $807 million
And the news wasn’t pretty. Vocus warned that its most recent acquisition, Nextgen, will not contribute as much to 2016-17 earnings as it first thought.
Nextgen, which operates a national fibre telecom network, is now expected to deliver underlying earnings of around $41 million for eight months in the current financial year, excluding cost savings.
CEO, Geoff Horth said that was below Vocus’ expectations at the time of the acquisition, and blamed what he said were “the high level of customer cancellations, the impact of re-signing of contracts on lower profit margins and slower sales performance” since $800 million deal was announced.
Vocus also reported that overall broadband customer growth was below expectation due to outages on its primary consumer network. As a result, the company expects net growth in broadband subscribers to be lower in 2017 than in the previous year.
But he told the group’s annual meeting in Sydney that the value of the Nextgen business is "strong" and it can rebuild momentum.
Vocus has forecast annual underlying EBITDA of between $430 to $450 million, down from “upper $400 million”, according market expectations.
Vocus expects its full-year result will be skewed towards the second half, partly because of a delay in finalising the Nextgen deal and its underperformance.
Additional investment in consumer sales, marketing and disappointing revenue growth will also weigh on the result. The group forecast annual underlying profit after tax of between $205 million to $215 million and revenue of around $1.9 billion. The result will be up sharply from a year earlier because of its numerous acquisitions, including Amcom, M2 and Nextgen.
The announcement was released ahead of its annual meeting and then reconfirmed to the meeting, which saw a boardroom fight earlier this year re-fought in a series of eight resolutions put to shareholders including the election and re-election of five different directors.
The company said in yesterday’s update (one wasn’t issued in August because the Nextgen deal had been delayed) the expected synergies from the Amcom merger – $13 million to $15 million annually by the end of this financial year – and the M2 merger – $40 million annually by the end of the 2018 financial year – were on track.
Vocus shares are now down more than 40 per cent since the company’s results in August. Former directors James Spenceley and Tony Grist sold large chunks of their holdings in that time.
The pair, founders of Vocus and Amcom respectively, left the company in October after a failed coup to replace CEO Geoff Horth.
Vocus shares have been caught up in panic about shrinking margins from the switch over to the national broadband network, sparked by TPG Telecom which was caught up in the backwash yesterday with its shares losing more than 7% to end at $7. In contrast, Telstra shares ended unchanged on $5.014.
