Shares in telecommunications group Vocus fell almost 30% yesterday at one stage after the company has unveiled its second profit downgrade in less than seven months.
The plunge took the destruction of value at the wannabee telco major to more than $4 billion as the company’s value has collapsed from around $5.8 million in late May 2016, to just over $1.56 billion yesterday.
The shares plunged more than $1 cents to $2.37, before ending around $2.44, still down 27% on the day.
Vocus triggered the rout after slashing its forecast for underlying earnings from between $205 million and $215 million to $160 million to $165 million.
The trading update, released late Tuesday (well after trading had ended), follows a weaker-than-expected trading outlook issued in late November.
Back then, chief executive Geoff Horth told investors that the company’s full-year results would be skewed to the June half.
But the new profit downgrade suggests that won’t happen and that Vocus is experiencing a major deterioration in its performance.
Vocus said revenue was now likely to be around $1.8 billion, compared with an earlier forecast of $1.9 billion. The explanations given in the update read like a category of continuing disasters and call into question the quality of the company’s management and reporting systems.
Vocus said an accounting review of "negotiated contract terms on a number of large projects included in the 2HFY17 forecast" had found that "the revenue associated with these projects will be predominantly recognised in future periods rather than recognised as an upfront contribution in FY17".
This alone wiped $40 million off the revenue outlook and $33 million off the outlook for earnings before interest, tax depreciation and amortisation (EBITDA).
Another $10 million of EBIDTA has vanished thanks to the “impact of lower than forecast billings combined with an increase in service delivery headcount in the enterprise and wholesale division”.
A further $12 million of EBITDA gone because of higher costs in “group services” while so-called “other trading variances across the group” will wipe out another $10 million in earnings.
The EBITDA forecast for 2016-17 has been cut from $430 million to $450 million to $365 million to $375 million.
Vocus now expects net debt will be $1.1 billion to $1 billion at June 30, but said this was "well within" covenant levels.
Up to Tuesday’s close, Vocus’ share price has plunged more than 60% in the last 12 months. After yesterday’s plunge that’s now closer to 74%.
The problems give every sign of what you might call execution risk. After expanding rapidly through a string of big deals in the past two years, including the $1.2 billion merger with rival Amcom, a $3.8 billion merger with M2 and the purchase of Nextgen for $807 million, Vocus’s poor integration and management oversight has seen all that value vanish.
Those deals cost $5.8 billion or thereabouts – Vocus was worth just $1.56 billion yesterday. Moreover, at its peak a year ago (May 30, $9.30 a share), the company was worth nearly $5.8 billion. So the poor execution of the integration of these businesses over the past year in particular has cost Vocus shareholders well over $4.2 billion in lost value. Heroic.
