Vocus : FY17 Financial Results ASX Release & Investor Presentation

Vocus Group Limited (ASX: VOC) today releases its financial results for the full year ended 30 June 2017. Please find attached:

• FY17 Financial Results ASX announcement

• FY17 Financial Results investor presentation.

  The Company will conduct an investor briefing commencing at 9.30am this morning. The briefing will be webcast and can be accessed through the Company's website at www.vocusgroup.com.au. Registration for the webcast is available now via https://edge.media-server.com/m6/p/njd2pxk7. A recording of the briefing will be available on the website later in the day. The investor briefing pack is attached to this announcement.

  Yours faithfully Ashe-lee Jegathesan General Counsel & Company Secretary

  Level 10, 452 Flinders St Melbourne VIC 3000 Australia

  T. 1300 88 99 88

• investor@vocus.com.au

  VOCUSGROUP.COM.AU

  Date: 23 August 2017 Year of Transition as M&A activity absorbed Highlights

  • Revenue ↑ 119% over the pcp includes initial 8 month contribution from Nextgen of $127.1m and a full 12 month contribution from the M2 merger

  • Underlying EBITDA ↑ 70% over the pcp includes initial contribution from Nextgen of $62.5m (post synergies) and a full 12 month contribution from the M2 merger

  • Underlying NPAT ↑ 50% on pcp; impacted by effective tax rate of 33.4%

  • Market share of active NBN SIOs 8.02% up from 6.32% in the pcp

  • UFB market share 13% compared to 11% in pcp; 18% in Q4FY17

  • FY17 capital expenditure inclusive of ASC $219.1m; ASC $29.5m

  • Net debt at the end of the period was $1.0bn; leverage 2.6x, interest cover 9.1x

  • Significant items, below the line cost of $1,650.4m pre-tax; $1,532m non-cash items reflecting impairment of goodwill and amortisation of acquired intangibles

  • FY18 Guidance Underlying EBITDA range of $370m-$390m on $1.9-2.0bn revenue

  Twelve months ended 30 June($'m)	2016	2017	%chg
  Revenue	829.9	1,820.6	119
  Underlying EBITDA¹ ²	215.6	366.4	70
  Underlying EBIT³ 4	170.2	260.2	53
  Underlying PBT 5	92.2	219.3	138
  Underlying NPAT 67	101.7	152.3	50
  Significant items after tax	(37.6)	(1,617.2)	n/m
  Statutory NPAT after minority interests	64.1	(1,464.9)	n/m
  Fully diluted underlying EPS 8 after minority interests (¢)	29.5	24.7	(17)
  Fully diluted EPS after minority interests (¢)	18.6	(237.65)	n/m
  DPS (¢)9	15.6	6.0	(62)

• Pre significant costs $30.9m ($20.7m costs in FY16)

• EBITDA refers to earnings before net financing costs, tax and depreciation and amortisation

• EBIT refers to earnings before net financing costs and tax

• Pre significant items below the line costs of $118.3m (costs of $53.8m in FY16)

• PBT refers to profit before tax

• NPAT refers to net profit after tax

• Pre significant items below the line costs of $1,617.2m (pre significant costs of $37.6m in FY16)

• Pre significant items below the line costs of $1,617.2m (pre significant costs of $37.6m in FY16)

• FY16 does not include the special dividend of 1.9cps paid in April 2016

• N/M not meaningful

Vocus Group Limited (ASX: VOC, 'Vocus') today announced its results for the twelve months ended 30 June 2017. The Company reported 50% growth in underlying NPAT compared to the prior corresponding period on a 119% increase in revenue to $1.8bn. The result reflects a full 12 month contribution from the M2 business activities following the merger in February 2016 (an additional $112m EBITDA compared to pcp) and an 8 month contribution from the Nextgen Networks acquisition, completed on 26 October 2016 ($62.5m EBITDA contribution post synergies for the 8 months of ownership).

Vocus CEO Geoff Horth said, "The underlying result reflects another strong year of growth for Vocus, however it was not at the level we anticipated at the beginning of the financial year and we are working through a number of projects to address this. The FY17 year and in particular 2HFY17, has been a period of transition as the business has focused on the completion and integration of Nextgen; and the implementation of business plans that will maximise returns and leverage the infrastructure platform and operational scale that has been created through recent acquisitions."

As part of the Company's FY17 full year audit process Vocus undertook a review of the carrying value of its assets and in particular goodwill. As a result of a review of the assumptions made to support the carrying value of goodwill, Vocus recognised a non-cash impairment of $1,532m post tax spread across both the Australian, $1,333m and New Zealand, $199m cash generating units (CGUs).

In reviewing the carrying value of goodwill the Company took into account the detailed five year business plans for each of the three operating Divisions and Group Services. These plans were developed over the last few months taking into account the current competitive market environment, in particular in the Consumer broadband sector in both Australia and New Zealand.

Mr Horth said "We recognise that this write off does not reflect well on the prices paid in M&A transactions in recent years and is a reflection in part of the significantly higher earnings multiples the sector has traded on in the relatively recent past. The write down also reflects the more competitive business environment, in particular in the Australian and New Zealand consumer markets that has had the impact of lowering our expectations for future growth rates in the sector. Once again the Board and senior leadership team have moved rapidly over the last six months to address these issues, improve the performance of the business and restore returns to shareholders."

The Australian and New Zealand Consumer businesses have both focused on the opportunity created by Government sponsored fibre rollouts, to secure additional market share in the provision of broadband services to the consumer market. Despite intense competition in both markets, Dodo and iPrimus ended the year with 7.3% market share in NBN (ex-satellite) compared to 6.4% at the beginning of the period; and our New Zealand business ended the year with ~13% market share of UFB with strong momentum in the business which has seen it sign ~18% of new UFB customers in Q4FY17. While the intense competition has created a challenging business environment and the migration activity has added additional costs to the business, churn levels remain materially lower than copper broadband and AMPUs1have remained similar.

The Consumer businesses in both Australia and New Zealand are focused on lowering costs and improving the customer experience through automating the customer interface and backend platforms in turn driving lower churn rates. Both businesses are also focused on brand positioning in the face of intense competition

1 AMPU - average margin per user

to ensure that we have clearly defined target markets and the return from the Group's marketing spend is maximised. This focus will result in the relaunch of iPrimus in Australia in 1QFY18 and a consolidation of the Consumer brands in New Zealand with a reinvigoration of the Orcon brand and business model.

The Enterprise & Wholesale business in Australia has been restructured over 2HFY17 to create one unified business platform reflecting the strongest attributes of the Vocus, Amcom, M2 and Nextgen businesses. The focus of the Division is to leverage the momentum created by the increased scale of the business to grow market share with particular focus on: opportunities in the Government sector as a trusted provider of secure connectivity and redundancy; the Wholesale sector, in particular with other carriers and carriage service providers; and the Corporate market on the East Coast of Australia where the business is under indexing.

The New Zealand Enterprise & Wholesale business is also focused on leveraging its infrastructure platform to grow and rationalising its brand portfolio to leverage the equity in the Vocus Communications brand in New Zealand. The Division believes there are significant growth opportunities in this market, in particular in the Government market and the Wholesale sector as a number of new resellers enter the UFB market.

The New Zealand Division has continued to shape its business portfolio with the sale of its 50% share in the Connect 8 joint venture; and the acquisition of a small energy retailer, Switch which has already created significant momentum in bundling opportunities in the Consumer business albeit from a low base.

Mr Horth said "During 2HFY17 we announced the restructure of our Technology business and the establishment of a Transformation Office to identify and implement a clear set of enterprise wide priority projects, ensuring that the projects are well resourced and funded and that progress is monitored and measured in a consistent way. I was pleased to announce the appointment of a new CTO, Simon Smith and a Head of Transformation, Justin Haddrick who both commenced with Vocus on 3 July 2017. Both Simon and Justin have moved quickly to continue the restructure of business activities and drive the programs that have been established.

"During FY17 the Company made the decision to move to contract in force on the Australia Singapore Cable (ASC) project. The project is a 4,600km submarine cable system linking Australia, Indonesia and Singapore, acquired as part of the Nextgen acquisition. The Company believes that the project has a number of strategic advantages over its competitors and will deliver Vocus the ability to tap into the rapid growth in demand for data capacity on these routes. The Company has recently signed a contract variation to the supply agreement which included the expansion of the project to incorporate the construction of a spur to Christmas Island following significant interest from a range of Government agencies. The project remains on track to be ready for service in 1Q FY19.

"During the year as we restructured and integrated the businesses we made a number of changes to the senior management team to ensure that we have the skill sets in place to manage the expanded platform and the transformation program ahead. To this end as well as the previously mentioned appointments in Technology and Transformation we were pleased to welcome a new CFO, Mark Wratten and new Chief Executive Enterprise & Wholesale, Michael Simmons to our executive ranks. Both Mark and Mick have made significant contributions to the restructuring of the business over 2HFY17."

Vocus has made three new appointments to the Company's Board over the last eight months replacing the two Directors that stepped down in October 2016. The Company was pleased to announce the appointment