This morning Vocus Group Ltd (ASX: VOC) reported its half-year results for the period ending December 31 2018. Below is a summary of the results with comparisons to the prior corresponding half year.
- Revenue of $974.2m, up 1%
- Statutory net profit after tax of $16.5m, down 21%
- Underlying net profit after tax of $48.8m, down 28.9%
- Underlying EBIT of $96.3m, down 19.5%
- Net debt increased to $1,089.2m from $1,001.2m, (cash on hand of $56.2m)
- Net leverage ratio of 3.08x (Net debt to LTM / EBITDA) limit of 3.75x
- Net interest costs increased $5m, to $26m
- Confirmed guidance for full year "underlying EBITDA" between $350m – $370m
This is another mixed result from the dark fibre and internet services group, with the legacy consumer-facing M2 business once again dragging overall performance down, while the original dark fibre enterprise-facing business performs reasonably well.
The ex-M2 businesses that provide internet services to the home and businesses under the Dodo, Commander and Primus brands disappointed again being hit by margin erosion under the NBN and on the back of a tough competitive environment among other issues. Once again of all the operating groups the New Zealand internet services business was probably the best delivering 10% EBITDA growth on 4.3% revenue growth.
Once again the group forecast a stronger second half than first half based on a full 6 months contribution from its newly-constructed Australia Singapore cable and further cost savings among other factors.
Outlook
Vocus has some attractive assets in terms of its fibre networks and the continued growth potential they boast, however, it has too many issues including its NBN-hit businesses, cost controls, and growing debt pile (see bullet points) to be investment grade in my opinion.
In fact unless it can achieve an asset sale or restructure its debt (net interest costs look to be rising relatively) its debt pile looks likely to remain a big weight on the business and share price indefinitely.
I sold around 90% of my stake over a year ago now and will likely sell the largely immaterial holding left in the year ahead.
Elsewhere in the telco space other NBN-hit strugglers include Telstra Corporation Ltd (ASX: TLS) and TPG Telecom Ltd (ASX: TPM).
