STRATEGY BRIEFING 3 July 2019 - Investors
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STRATEGY
BRIEFING
3 July 2019
AUSTRALIA’S SPECIALIST FIBRE AND NETWORK SOLUTIONS PROVIDER
CONNECTING ALL MAINLAND CAPITALS WITH ASIA
WELCOME Bob Mansfield Chairman
09:10 – 09:30 Overview
Kevin Russell
09:30 – 11:00 Vocus Network Services
Kevin Russell, Andrew Wildblood,
Mark Callander, Ellie Sweeney
11:00 – 11:15 Coffee Break
AGENDA 11:15 – 11:45 Vocus Retail
Antony de Jong
11:45 – 12:15 Vocus New Zealand
Mark Callander
12:15 – 13:00 Key Takeaways and Q&A
Kevin Russell
Lunch
3
EVALUATING VOCUS
ASSETS & MARKET EXECUTION &
OPPORTUNITY TIMING
WE ARE IN THE EARLY STAGE OF A 3 YEAR TURNAROUND
4
THREE YEAR TURNAROUND UNDERWAY
• New leadership
1 PEOPLE AND CULTURE • LTI introduced
• New Vocus values introduced
• FY19 guidance will be met
PLANNING AND EXECUTION • Cash and balance sheet well managed
2 • Cost out program established
• 3 year operating plan and goals established
VOCUS NETWORKS • Clear market priorities
3 REVENUE ENABLERS • Australia Singapore Cable operational
• Invest in key products (SD-WAN, Secure)
4 STRATEGIC FIBRE BUILDS • 5 year pipeline established
• Steady operational improvements
TECHNOLOGY SIMPLIFICATION • Network Operations Centres consolidated
5 AND MODERNISATION • SuperCore network consolidated
• Future State plans agreed and vendors selected
• Commander brand relaunched
RETAIL TURNAROUND • Optus MVNO renegotiated, with a path to 5G
6 • NBN price increases implemented
• Cost and operational improvements underway
5SIMPLIFYING TO THREE INDEPENDENT
OPERATING BUSINESSES
VOCUS NETWORK SERVICES VOCUS RETAIL VOCUS NZ
Strong performer with
Untapped growth potential Reset and turnaround
strategic options
Full service offering of fibre
Leading fibre and network Reseller of broadband, mobile,
OVERVIEW solutions provider voice, energy
connectivity, broadband, voice
energy and mobile
• Enterprise • Consumer
TARGET • Federal, state and local • Price sensitive consumers • Enterprise
MARKETS government • Small to medium enterprises • Government
• Wholesale • Wholesale
• c.25,000km fibre
NETWORK • 4,200km of inter capital fibre
• 5,500+ on-net buildings • 3 owned data centres
ASSETS • 17 owned data centres
6SIMPLIFYING TO THREE INDEPENDENT
OPERATING BUSINESSES
VOCUS NETWORK SERVICES VOCUS RETAIL VOCUS NZ
Strong performer with
Untapped growth potential Reset and turnaround
strategic options
Full service offering of fibre
Leading fibre and network Reseller of broadband, mobile,
OVERVIEW solutions provider voice, energy
connectivity, broadband, voice
energy and mobile
• Enterprise • Consumer
TARGET • Federal, state and local • Price sensitive consumers • Enterprise
MARKETS government • Small to medium enterprises • Government
• Wholesale • Wholesale
• c.25,000km fibre
NETWORK • 4,200km of inter capital fibre
• 5,500+ on-net buildings • 3 owned data centres
ASSETS • 17 owned data centres
OUR CORE BUSINESS
7NEW TIER ONE EXECUTIVE LEADERSHIP TEAM
KEVIN RUSSELL ANDREW WILDBLOOD MARK CALLANDER ELLIE SWEENEY
Managing Director & Chief Executive, Enterprise Chief Executive, New Zealand Chief Operating Officer
Chief Executive Officer & Government Chief Executive, Wholesale
and International
ANTONY DE JONG MARK WRATTEN ASHE-LEE JEGATHESAN AMBER KRISTOF
Chief Executive, Chief Financial Officer General Counsel Head of People & Culture
Business & Consumer & Company Secretary
8PEOPLE ARE THE LEAD INDICATOR
OF PROGRESS IN A TURNAROUND
Employee NPS Voluntary Attrition Alignment with goals,
“How likely are you to recommend objectives and values1
Vocus as a place to work?”
8 7.1
20%
6.5
6
15%
-1
-3
May-18 Sep-18 Current May-18 Sep-18 Current
9 1 Out of 10VOCUS RETAIL
More than halfway through navigating the structural headwinds
in Voice and Broadband
Voice SIOs1,2 Copper and NBN SIOs1,2
(‘000s) (‘000s)
IP Voice Legacy Voice NBN Copper Copper
402
• ARPU: $59
(187) Voice 589 (84) • AMPU: $27
505
215 • ARPU: $49
138
402 • AMPU: $26
404 NBN
181 367 • ARPU: $64
185 +182
36 • AMPU: $21
Jun-17 Jun-19* Jun-17 Jun-19*
• Material margin dilution due to loss of legacy voice and copper ADSL SIOs, together with the migration to
lower margin NBN products
• Expect the impact of erosion to be fully offset by new revenue streams and cost savings during H2 FY21
* End May-19 SIOs + 1 month forecast. ARPU and AMPU based on H1FY19
1 Services in operation
10 2 Retail (including Consumer and Commander)GUIDANCE
2019 2020 2021+
$350m – $370m $350m – $370m Vocus Network Services
Underlying EBITDArange Underlying EBITDArange accelerating
Capex to be (excl. ASC) EBITDA growth in EBITDA growth
$160m – $170m Vocus Network Services of
Retail business
$20m – $30m offset stabilised during H2FY21
Cash conversion by similar decline in Retail
90 – 95% and primed for growth in
Expect stronger FY22
NLR1 H2 performance
2.90 – 2.95 X New Zealand
Capex to be steady growth
Underlying D&A $200m – $210m
less than $160m ~$15m on FSTP2 / ~$30m on IRU’s3
Cash conversion
Above financial metrics
all within original guidance 90 – 95%
NLR continues to reduce
1
Net Leverage Ratio (Net Debt/EBITDA)
2 Future state technology program
11 3 Indefeasible Rights of Use (“IRU’s”)VOCUS NETWORK SERVICES Kevin Russell, Andrew Wildblood, Mark Callander, Ellie Sweeney
VOCUS NETWORK SERVICES What are we building? AUSTRALIA’S SPECIALIST FIBRE AND NETWORK SOLUTIONS PROVIDER 13
VNS Overview
WHAT WE DO WELL
Customers People Delivery Fibre Secure
Great relationships, Passionate, Industry-leading Complex and Trusted partner
easy to do capable and capability unique builds for highly secure
business with customer-focused networks
Proven track
record
14VNS Overview
WHY OUR CUSTOMERS CHOOSE VOCUS
We have you covered Trusted
Dedicated, local account management by leading brands and Government agencies
24/7 local network operations centres Security-cleared staff operating secure network
Make it easy Crazy about customers
The nimble challenger that’s The challenger brand our
easy to do business with customers deserve
Innovative and Australia and NZ wide network
commercially disruptive with reliability, resilience and reach,
Disruptive pricing for competitive products and growing International capability
Innovative solution design
15VNS Overview
SUBSTANTIAL Enterprise market Government market Wholesale market
OPPORTUNITY
TO GAIN
MARKET $5.5b $0.6b $3.5b
SHARE
Current Vocus Share Current Vocus Share Current Vocus Share
c. 4.5% c. 11.5% c. 8.5%
$9.6b
directly addressable A challenging time for all of our competitors
connectivity, network
security, voice and
collaboration market1
Current Vocus Share:
c. 6% Impacted by Cost out of Vastly more
challenges and customer facing complex product
priorities in their activity and IT portfolios
1 Excludes mobile of $4.3b
core consumer transformations
Sources: Management estimates based on Vocus billing
data, Ovum, Gartner, IDC, company annual reports business
16VNS Overview
MARKET DEMAND IS DRIVING
UTILISATION OF VALUABLE ASSETS
All mainland capitals connected with Asia
Market demand Valuable assets
Digitisation, automation, Secure inter-capital
AI and Machine Learning network is the only
Driving increasing demand complete alternative
for data connectivity over to Telstra
Australia’s long distances Vocus was built to be
the ‘carrier’s carrier’
Hyperscale cloud Australian mobile
companies are operators deploying 5G
consuming significant Need to deploy or upgrade
capacity across backhaul to existing and
Australia and into Asia new greenfield sites
Acceleration of Addressing the
Australian enterprises digital divide
adopting private and between metro and
public cloud regional Australia
17VNS - E&G
ENTERPRISE &
GOVERNMENT
CUSTOMERS TODAY
Enterprise Government
EG revenue
(excludes Coral Sea Cable) 5,300 200
Enterprise customers Government customers
DC & Cloud
(Federal, State, Local)
Other
7% 1.84 3.06
8%
Average products Average products
per customer per customer
Voice 15%
Geographically diverse
54%
54% Fibre Trusted, secure network
customer base across States
16%
16%
60% of ASX200 On procurement panels
Internet are Vocus customers for Federal, State and Local
Government customers
70% of revenue Top 200 customers
is from Fibre and Internet = 50% of total revenue
18VNS - E&G
KEY DRIVERS OF GROWTH IN
ENTERPRISE & GOVERNMENT
Targeted approach Products Channel People Partnerships
to market
Aligned to our Rationalised Reinvigorated The right skill set Disruptive
unique assets and updated indirect sales and incentives to plays with
and offering product set model support growth big tech
19VNS - E&G
TARGETED
APPROACH Government and
Special Projects
Enterprise
E&G Indirect
& Alliances
TO MARKET Co-funded, Large Local Govt Small and
secure or departments Niche industry mid-sized
high- and agencies corporates
capacity across Fin Services
Key verticals networks Federal and Prof Services
Small System
Integrators
State
requiring different Governments
Oil & Gas
Mining
products and go to Broadcast
Media
market approach
Cloud services
Niche industry offers
Voice Collaboration / Unified Comms
Secure network services
Ethernet, private and IP wide-area networks
Internet access
Dark fibre, wavelength
20VNS - E&G
PRODUCTS ALIGNED TO THE NEEDS
OF OUR TARGET MARKETS
Now FY20 - FY22
Networks and Limited product set Invest in team capability and Grow our voice and
Connectivity relevant products collaboration portfolio
Expand reach through NBN On-demand product
Cloud, Wholesale products experience
Open new markets through
Platforms retrofitted to serve productising international capacity Integrated network to
and Security Enterprise customers provide enhanced
Secure network products
customer experiences
for government
Workplace
Collaboration Leverage our network
to capitalise on growth
in cloud services
Product Simplification Industry Solutions
21VNS - E&G
NBN Why partner with NBN?
Complements
Vocus’ long-haul
network, enabling
us to disrupt and Complementary Customers Sales Economics Capital
take share Vocus long-haul
fibre,
Ability to win major
customers beyond
Up-sell existing
customers with
Use NBN as an
alternative to other
Preserve capital
for strategic Vocus
NBN access the reach of our new products and wholesale networks fibre builds, leverage
network own network reach enabled for highest NBN to connect
by NBN overall return customer tails
Growing NBN product suite
Launched Launched August
Jan 2019 April 2019 July 2019 July 2019 2019 Q1 FY20
NNI Business NBN Fibre Wholesale NBN Enterprise
Linking Internet Upgrades NBN Business Symmetric Ethernet
Grade Access
22VNS - E&G
SEPARATE AND SECURE NETWORK
FOR GOVERNMENT CUSTOMERS
Specialised network to
grow Government share
• Existing contracts with major
~$600m 35% 65% Federal Government customers
Addressable Government State Federal
Market (FY19) • Partitionable network and
management systems
• Security-cleared staff
35% of market 65% of market
opportunity opportunity • Reach remote locations
is in State is in Federal
• Australian-owned company and
local network operations centres
23VNS - E&G
INVEST IN CHANNEL, PEOPLE & PARTNERSHIPS
Reinvigorate indirect Invest in Strategic
sales channel our people Partnerships
2019 2023 • Upskill to match growth ambition • Grow in public cloud, voice
350 partners 50 partnersVNS – W&I
TARGETED
APPROACH Wholesale and International
TO MARKET Global Data centres System
technology, Tier III & IV Integrators
content and MSPs
media carriers
Key verticals RSPs
focusing on high
bandwidth
services to deliver
maximum returns Cloud services
Niche industry offers
Voice Collaboration / Unified Comms
Secure network services
Ethernet, private and IP wide-area networks
Internet access
Dark fibre, wavelength
25VNS – W&I
TOP 100 CUSTOMERS Vision
REPRESENT 80% OF To be the first-choice network into and within
Australia and New Zealand
WHOLESALE REVENUE
Data Centre 1,100 $24,000 4.5Tbps $7.5m Strong
International Total Average International Revenue relationships
Carriers Customers MRR data per team with all key
9%
2% member players
Domestic
Global Carriers
Technology 31%
12% Wholesale revenue distribution
Top 50 customers
65% of total revenue
Managed 17% Top 100 customers
Service 80% of total revenue
Provider
29%
Retail
Service
Provider
Top 200 customers
90% of total revenue
26VNS – W&I
FOUR DISCRETE MARKETS WE PLAY IN WITH
TARGETED PRODUCT SET AND SELECTIVE CLIENT BASE
Typical
Contract Competitive Capex
Competition Terms Advantage Intensity Business Model Market dynamics
Telstra 2-5 years Low • NBN enabler with nationwide reach • Challenging market for RSPs,
Resale
• Leverages core infrastructure but Wholesale floats on the tide
Reseller Optus Low assets • Low operating leverage
MyNetFone • Voice pull through for improved
margins
Telstra 2-5 years High • Connecting where our customers • Cloud adoption driving bandwidth
need to be in every instance and connectivity
Optus IRUs
Data Centre Medium • Combination of leased and IRU • Requirement for diversity and pushing
10+ years contracts content to the edge
Connectivity
• Customer funded builds that • Leverage international relationships
reduce cashflow impacts
Connectivity
Telstra 2-5 years Medium • Long-term, high bandwidth deals • Stable recurring annuity revenue streams
• High operating leverage • On-net; minimal costs and high margins
Managed Optus IRUs High
• Deal structure important • Network coverage and reliability
Data Services 10+ years
• Low competition outside Telstra • Positioned as alternative to Telstra
Indigo 1-3 years High • First mover advantage with ASC • Strong demand for data and traffic
International • Network ownership economics moving to the West
Hawaiki IRUs High • Protected solutions with swaps • Resiliency and diversity needs for large
Data SXC 10+ years bandwidth users such as OTTs
• Strong established relationships
27VNS – W&I
VOCUS CAN HARNESS INTERNATIONAL ASSETS
FOR DOMESTIC AND INTERNATIONAL GROWTH
ASC is Vocus’ ticket to play in the
International market
• Customers include major global technology
companies, OTT players and international carriers
with high bandwidth demands
• Internet traffic is moving to the West with low latency
and diversity the key requirements for OTTs and
international carriers
• Vocus has sold nearly 10x the capacity of the entire
SMW3 cable system in the first six months of
operation
• Leverage ASC ownership economics for strategic
swaps that strengthen our position and reach in
international market
AUSTRALIA
SINGAPORE • Leverage customer relationships established through
CABLE
ASC on other international assets and cable routes
Global technology companies and international
carriers will only deal with cable owners
28VNS – W&I
THREE DISTINCT Global International and Content Distribution
INTERNATIONAL Technology Giants Domestic Carriers Networks (CDNs)
• Adoption of cloud-based • Increased focus on • Growth in bandwidth
COHORTS Trends
services, big data diversity, service uptime in all market segments
• Live video streaming, • Protection within and • Connectivity is the critical
better quality between Data Centres enabler of CDN partners
What makes Vocus different? • Augmented reality • Bandwidth explosion with • Delivers lowest cost and
and virtual reality double digit CAGR lowest latency content
• Design of the Australia Singapore
Cable with 4 fibre pairs, breakout Customer • Network scale and • Network scale and • Commercial flexibility
into Indonesia capacity capacity and content reach
Value
• Capacity advantage 60Tbps Proposition • Network reach
throughout Australia
• Pull through services
and network reach
• Network scale and
capacity
with one owner versus competitor
36Tbps with four owners • Ownership economics • Ownership economics • Ownership economics
Capability
• Ability to deliver data anywhere Leverage • Relationships • Relationships • Relationships
in Australia on our network • Software enabled • International voice, • Software enabled
Future
• Protection solution can be offered customer experience bi-laterals customer experience
Capability
with strategic swaps at ownership • Low commit with • Online ordering and APIs • Flexible bandwidth
high burst flexibility • Realtime provisioning provisioning in real time
economics
• Realtime provisioning • Zero touch provisioning
• Australia Singapore Cable is
wholly Australian owned
Bandwidth
sold on ASC 68.7% 31.2% 0.1%
(in excess
of 3.5 Tbps)
29VNS – W&I
WHY CONSIDER SWAPS ON ASC -
WHAT ARE THE KEY DRIVERS
Swap considerations
International Go To Market
Sell Swap A B
Yield Management Value Accretion
Capacity Value of
Lease Earnings Improvement offered to the capacity
IRUs Extended Reach Vocus to Vocus
Capex Avoidance
Align ASC value
to capacity offered
International Network Planning
Sales Management and Commercial
C
30VNS – W&I
KEY DRIVERS Sales enablement Pricing and
OF GROWTH IN Development of sales operations
commercial
WHOLESALE AND to increase selling effectiveness Leverage dedicated
INTERNATIONAL and customer engagement
Enhanced customer delivery
pricing team across VNS
Maximise profitability across
with team focused on end to segment opportunities
process, not just sales effort
Align incentive programs
Product simplification, with the optimal returns
online ordering and APIs for the business
GTM enhancements International
Dedicated product resource Build specialist international
for Wholesale and International sales team to capitalise on market
business opportunity created by ASC
Increased base management Focus on pull the through
capability, white space management of domestic services
and customer marketing
Potential new presence
Consistent selling methodology and in Singapore and US
marketing supported campaigns
31VNS – I&O
LEADING FIBRE ASSETS
CONNECTING AUSTRALIA WITH ASIA
Our fibre and core transport network are our key assets
• 15,020km of inter-capital network in Australia
• Over 9,500km of metropolitan and regional fibre
in all major centres
• 4,200km of inter-capital network in New Zealand
• More than 5,500 on-net buildings
• Connectivity to 17 major sports stadiums
• Australia Singapore Cable gateway to Asia
• North West Cable System connecting offshore
oil and gas facilities
• Own and operate portfolio of 17 data centres
in Australia
• Delivering Secure network and operations
for Government customers
32VNS – I&O
PROVEN TRACK RECORD
OF RUNNING NETWORKS
Operating ahead of target metrics
Customer Network Systems
Satisfaction Resilience Availability
Customer Service Delivery Targets beaten Targets beaten
NPS Score
40
IP Core Network Operating Support Systems
(OSS)
30 Edge network
20
Business Support Systems
Voice Network (BSS)
10
Transmission Network IT Systems
0
Feb-19 Mar-19 Apr-19 May-19 Jun-19
33VNS – I&O
PROVEN TRACK RECORD OF WINNING
AND BUILDING LARGE SCALE CABLES
Delivery date Description
• 2,100km, 12TB capacity
North West Cable
Oct 2016 • Connecting offshore oil and gas facilities in the Timor Sea, between Port
System (NWCS)
Hedland and Darwin
• 4,600km, 60TB capacity
Australian
• New high capacity route to Asia (and onto Europe) replacing ageing and
Singapore Sep 2018
unreliable SeaMeWe3 system
Cable (ASC)
• Delivered ahead of time and under budget
• 4,800km, 40TB capacity Sydney to Honiara and Port Moresby
Coral Sea Cable Dec 2019 • 800km Domestic submarine cable network between 4 islands in Solomon
System Islands
34VNS – I&O
OUR OPPORTUNITY IS TO SIMPLIFY,
MODERNISE AND ENABLE GROWTH
Phase 2
Future State
Phase 1 FY20+
Initial integration • Simplify and
2017-2019 modernise
• NOC Consolidation
• Network consolidated
M&A Activity to Supercore
• Ipera, Amcom, • Stabilised Delivery
Nextgen, Vocus, • Voice consolidation
M2, IPTel • Isolated Secure Network
• Secure gateway
35VNS – I&O
TECHNOLOGY FUTURE STATE
Simplify and modernise
BSS Phase 2 – 2020 to 2023
• Commencing H1FY20
Phase 2
• Consolidate six Edge Networks into one
Edge • Consolidate eight BSS environments into two
non-customised, cloud-based environments
• Implement Programmable Network to automate
network actions
Core
Transmission City A • Digital customer self-service
Phase 1
• Software Defined Networking
City C City B 2017 - 2019
• Network Functions Virtualisation
• Simplified network planning and operations
Physical
fibre • Optimised customer provisioning
Fibre
36VNS – I&O
Financial efficiency
• Reduce cost to serve and improve speed of service provisioning,
assurance and monitoring
• Annual Opex savings of c.$30m and Capex reductions of $30m by FY23
Customer experience
• Provide customers with enhanced control over consumption, activation,
billing, monitoring
• Expand our market reach through enabling Channel Partners
BENEFITS
OF FUTURE Disrupt
• Potential to disrupt the market with new commercial models including;
STATE Bandwidth on Demand, Pay by minute, SLA, Capacity, Latency
Partner ecosystem
• Participate in the ecosystem of Global Cloud and Software Providers
• Extend network to global players using virtualisation and open standard
interfaces
Product innovation
• Easier product innovation with new software, product catalogue and
simplification of product
• Improve speed to market and ability to white label with Challenger Partners
37VNS – I&O
TARGETED MILESTONES – FUTURE STATE
Current
Milestone FY20 FY21 FY22 FY23
state
1
Capex spend $15m $30m $33m $5m
New Edge Network build1
Network - 55 110 160 41
(No. sites)
Consolidation
and Simplification Edge Networks 6 12
BSS Stack consolidation 8 2
BSS Consolidation
and Modernisation New BSS platforms Front end Back end
-
implemented systems systems
NFV
Programmable NW
Management Advanced
Network and New Systems implemented - Orchestration
Basic Automation
Automation SDN Control
Automation
Infrastructure and
$165m $161m $150m $145m $135m
Operations Opex
1 Does not include customer fibre builds
38 2 Excludes secure networkLONGER TERM OPPORTUNITIES
IN OIL AND GAS MARKET
North West Cable System
The Opportunity
Sunrise
• Numerous scoping studies
underway with potential oil and
Evans Shoal
gas partners along NWCS route
Bayu
• Vocus is uniquely placed and
Undan
Cash
has unparalleled expertise in
Maple
submarine cable connectivity
CRUX
Poseidon
Prelude
• Typically 15 year annuity
Torosa
Ichthys
revenue structure, frequently
Brecknock
Calliance
Burnside
customer funded
39LONGER TERM OPPORTUNITIES
STRATEGIC FIBRE BUILDS UNDER REVIEW
Projects assessed against financial and strategic Project Opportunity
returns and are potentially customer funded • Vocus regional fibre assets well positioned
5G fibre
A to service 5G and NBN Fixed Wireless
backhaul
backhaul
Indonesia • Close proximity to burgeoning Eastern
B Indonesian market of 60m people
Cable
B
• Ability to connect to offshore projects
including Scarborough gas shelf
C
Port Hedland
C branch cable • Completes the loop around Australia,
improving redundancy credentials with key
D clients
• Ability to connect mining clients that are
A demanding high capacity fibre
Geraldton
D • Mining region generates 1/3 of Australia’s
to Port
GDP
Hedland cable
• Makes Vocus the only competitive option to
incumbent provider
40VOCUS RETAIL Antony de Jong
VOCUS RETAIL
Strategic direction
Vocus Retail Turnaround Leverage three Diversification Deploy low cost,
being established strategy underway strong brands of revenue and digital operating
as a separate to return business (Dodo, iPrimus, growth through model – move
standalone to revenue and Commander) mobile and away from
Business Unit profit growth in to clear market energy legacy systems
FY22 segments
42VOCUS RETAIL IS EXECUTING A MULTI-BRAND STRATEGY
Dodo Be the simplest choice for For individuals on the go who The small business telco
iPrimus household services – always want to stay in touch that disrupts, to give Australian
Revenue
fixed, mobile and energy “The most flexible internet small businesses better value
by brand Commander
“Simple Not Stupid” you can get” at speed
Other “Making business faster, faster”
• Price conscious consumers • Consumers who value superior • SMBs up to 50 staff
• Skew to lower income service and reliability • Value speed and service
Target segment and youth • Willing to pay more for more from a well established,
• Movers, renters and switchers trusted brand
Broadband • Broadband - NBN • Broadband - NBN • Broadband – NBN
Voice • Mobile • Voice • Voice
Revenue
Mobile
by product • Energy • Mobile • Mobile
Energy
Other
• Entertainment • Energy
43VOCUS IS THE FOURTH LARGEST NBN PROVIDER
The reality of NBN economics
21.6%
• One-time NBN costs to acquire and connect
14.2% are high - chasing share is costly
• NBN variable pricing constructs for RSPs are
not aligned with end customer fixed price
8.3% • Majority of customers are on unlimited plans –
higher speed tiers and higher usage impact AMPU
SIO Market Share 6.8% The Vocus approach
• Increase price in market consistent
49.2% with increasing costs
• Migrate to higher ARPU plans where possible
• Develop Wireless Broadband options as cost
effective alternatives
Telstra TPG Optus Vocus Other
44NBN INDUSTRY Accessibility and affordability
PRICING Broadband for all Australians, especially price-conscious
CONSULTATION and disadvantaged
An opportunity • lower entry level pricing
• support voice only customers
to make NBN
more economically
and operationally Simplicity and certainty
sustainable Pricing aligned to support unlimited data plans
• abolish CVC, variable cost is incompatible with fixed prices
• range of consumer speed tiers to support various
customer needs
Fairness
Promote competition, level the playing field
• complexity benefits larger players and hurts competition
45OPPORTUNITY FOR MOBILE TO DRIVE GROWTH
Grow aggressively in Mobiles to reflect Fixed share
Vocus participates in $12.8bn market • High brand awareness relative to other challenger brands
$5.1 $4.9 $4.2 $3.7 • Strong consideration for Dodo in broadband
100% • Optus MVNO has path to 5G and Fixed Wireless Broadband
Fixed Fixed Fixed Fixed • 3x SIO growth across 3 brands in next 3 years
80% 21%
revenue share
Commander to drive disruption in SMB and take
7% 6%
revenue share revenue share share from majors
60% • Commander is uniquely placed as SMB-only brand
Segments targeted by Vocus represent • Competes with larger multi-segment brands focused
72% of AU Telco Market elsewhere
40% • Commander heritage built over 30 years with 36%
awareness is a platform for growth
Mobiles Mobiles Mobiles Mobiles
• Most customers need an NBN sales conversation with 80%
20% yet to migrateBUNDLING ENERGY EXPANDS TENURE AND MARGINS
Broadband is the entry point into the home Customer tenure improves with
Almost 70% of Dodo customers with 2 products and over every additional product
90% with 3 products have Broadband as the core
BB Customers Incremental av tenure (months)
2% 8% 10
Mobile + Mobile + 77%
30% Electricity Electricity + Gas
6
2 BB + Mobile/ 3
products Electricity/ Gas products BB + 2 of 20%
Mobile/
Electricity + Gas 0 3%
68% Electricity/ Gas
92% BB BB + Mobile/ Energy BB + Mobile +
Energy
• Brand awareness of 40% for • Draw from Vocus NZ experience • Regulatory changes
Dodo in Energy is approx. double – broadband led sales with and price transparency will
other retail Energy challengers attachment of energy and accelerate customer switching
mobile and single acquisition
• Only 10% of current NBN and billing experience • Commander also uniquely
and Mobile customers take placed to offer Energy to SMB’s
Energy from Dodo today
47ESTABLISHING THE BUILDING BLOCKS IN VOCUS RETAIL
NBN margin
Launched
Dodo brand Customer base focus, $10 price
$5/$10 discount
relaunch 76% management increase to out
“Bundle and
prompted focus, refreshed of contract New mobile
Save”
awareness and NBN migration customers and offers, digital
Optus MVNO campaign. New GM Energy
14% consideration program updated plans improvements
Agreement, Energy price commenced
MyDodo service refresh leading rebuilding
portal launched to SIO growth Energy team
Sep-18 Dec-18 Feb-19 Mar-19 Apr-19 May-19 Coming
Mobile and Bundle Online New brand and ‘Back to New offshore sales New simplified
refresh reducing in- sales Business’ campaign launch team to drive cross- bundles and
market plans by 50% capability attracting +380k unique sell/upsell mobile plans
launched website visitors
AU labour and marketing
20% year on year offshore Ombudsman complaints
efficiencies implemented post
headcount reduction improved 15%
formation of Retail BU in March
48VOCUS NEW ZEALAND Mark Callander
VOCUS NZ, SUSTAINED GROWTH WITH
SIGNIFICANT MARKET SHARE OPPORTUNITY
Consistent and sustained revenue growth over five years from core telco and energy bundles.
Incremental EBITDA delivered, whilst consolidating merged companies and investing for growth.
Revenue EBITDA
363.5
340.6 350.4
331.7 61.3
55.6
53.6
50.3
H1
H1
188
30.6
FY15 (A) FY16 (A) FY17 (A) FY18 (A) FY19 (F) FY15 (A) FY16 (A) FY17 (A) FY18 (A) FY19 (F)
FY15-17 financials represented on a pro-forma basis for one-off and non-recurring items and contribution of acquired entities throughout the historical period
50NZ TELCO MARKET MARKET INSIGHTS
– $5.4BN
Data Consumption Market Share
Significant market share opportunity exists for Vocus NZ’s core telco Intensifying
• Consumer broadband
products, leveraging network reach and capability. Targeted growth • Streaming services market share 13%
in the non-core energy market through cross sell and bundling. • Catch up services of total connections
• Video and user content • Enterprise and
• Rugby World Cup Government revenue
Addressable Addressable
share at 5% of market
Market Market
Consumer Telco Business Telco Network Ownership Critical Rationale Market Structure
Bandwidth explosion positive Less price discounting as fibre
Fixed Mobile Fixed & ICT Mobile for infrastructure owners uptake reduces switching
c. $1.4bn c. $1.9bn c. $1.1bn c. $1.0bn compared to Resellers, key numbers, but some aggressive
enabler of Wholesale market short term discounting still
opportunity exists
Business Industrial
Consumer Energy
Energy Energy Differentiation based Lifetime value of
c.$3.5bn
c.$3.1bn c.$3.4bn on network performance customers increasing
a reality driven by through effective bundling
unconstrained and and service reputation
Source: Commerce Commission Telco Market Monitoring report 2018 unlimited fibre based plans driving organic growth
Electricity company annual reports, Electricity authority – Electricity Market Information website
Chorus and MBIE UFB Quarterly connectivity update; management estimates
51INCREASED BANDWIDTH DEMAND MAKES NETWORK OWNERSHIP
AND ECONOMICS CRITICAL TO DELIVER SUPERIOR VALUE
SAN JOSE
(USA)
SYDNEY WHANGAREI ~4,300km fibre backhaul Three core network data
(AUSTRALIA)
network throughout New centres, interconnection with
AUCKLAND Zealand over 30 major data centres in
TAURANGA
HAMILTON NZ and 100% UFB coverage
NEW PLYMOUTH
NAPIER
PALMERSTON NORTH
Spare capacity across 360+ 200Gbps wavelengths over a
NELSON
fibres nationwide providing multi-terabit optical transmission
WELLINGTON ability to generate future growth network with market leading
at relatively low marginal costs partners including Infinera,
Juniper, Cisco and Nokia
CHRISTCHURCH
DUNEDIN Vocus NZ
Third Party Netw ork
Disciplined investment in network In-house team manages and
INVERCARGILL
International Connectivity and equipment upgrades has resulted develops technology and applications
in efficient capital requirements across a single framework
52LEVERAGING BRANDS, PRODUCTS AND NETWORK
ECONOMICS TO GROW ADDRESSABLE MARKET SHARE
Mass market Business
Wholesale
Consumer SE Medium Enterprise Corporate and Government
• Dual brand strategy to win customers • Credible and trusted brands that • Proven experience in Government • Harvesting the network to
• Well established brands that are compete in all enterprise market sector with involvement in One.govt maximise profitability
household names and pioneers of segments • Appointment to the TaaS panel • Highly motivated wholesaler that
the internet • Carrier grade network that provides under a direct supply relationship offers flexible solutions
the only real alternative to the last year
• Broadband led strategy with • Customised solutions including
incumbents
compelling reasons to bundle • Infrastructure assets key to deliver SaaS platforms
• Brands sit on common platforms and • Longstanding reseller partnerships network solutions and earning • New market entrants driving growth
infrastructure to enable singular scale due to flexible approach and focus leverage and new opportunities
on providing complementary
• Digital leadership is a key competitive services • Strong voice and carrier
advantage relationships
FY19 Revenue by Segment (%)
55% 45%
Mass market Enterprise, Government and Wholesale
53NZ STRATEGIC PILLARS
Focusing on what moves the needle
Increase bundling Harvest the network
Significant opportunities to increase broadband Utilise the scale and capacity of Vocus NZ's
and energy bundles, along with mobile to reduce network to drive profitability and reinforce its
churn and increase customer lifetime value position as a motivated wholesaler for existing
and new market entrants
More focus and investment
Continuing to grow share in UFB into new market segments
Continue to capitalise on network performance Leverage the Vocus brand and networks in the
and customer experience to take share in UFB Enterprise sector with further investment in both
and high value segments direct and indirect sales channels
Government Reduce cost to serve
Capitalise on strong Government Singular focus driving business simplification and
relationships and the product investment in automation to reduce costs, increase productivity
TaaS to drive further results in this sector and lead on customer experience to win
54CONSUMER MARKET
Opportunity and strategy UFB1 provides a generational
opportunity to grow our
New Zealand consumer broadband market current 13% market share
Vocus NZ Consumer strategy
1.8 50% 92% Significant c.1.4 million
million connected broadband broadband UFB homes Dual brand strategy targeting
homes UFB homes uptake data usage passed data hungry households with
growth unlimited plans for simplicity
Vocus NZ Consumer strategy
Price competitiveness without
8% compromising on the customer
15% 33%
experience
50%
24% 62% 71%
6%
Broadband led strategy with
21% compelling reasons to bundle
8%
32% 16% 12%
26% 13%
17% 17% Grow UFB to take unfair
21% 14% 4% 14%
2%
market share - goal to
9% 5%
1% connect 1 in 4 kiwi homes
2014 2015 2016 2017 2018
Less than 20 GB 20-50 GB 50-100 GB 100 GB or more No cap
Source: Statistics New Zealand, Internet service provider survey.
55 1 UFB – Ultra Fast BroadbandBUSINESS MARKET Highly attractive connectivity market,
with UFB and the move to the cloud
Opportunity and strategy providing an opportunity as
customers make their next long term
New Zealand business telco market dynamics choice of telco partner
Vocus NZ Business strategy
310k 50%+ network High adoption 61% -1% NPS
enterprise issues moving to of fibre at 52% planning for Unloved Target growth in key telco segments with high
customers the cloud SD-WAN Customers fixed data requirements with market share upside
New Zealand business telco market (NZ$m)1 Core focus is market share gains in Medium
Enterprise, Corporate and Government
Fixed Mobile
Brand Proposition Market1 Market1 Increased investment in sales capability and
Enterprise Connectivity
resources to deliver on the market opportunity
$550m $220m
and ICT Agnostic Provider
Leverage our agnostic network position with
Connectivity
Corporate and $300m $220m
partners
Solution Flexibility Dedicated
Government Service
Enhance product development using the service
Solution Flexibility
Medium $130m $280m
proposition built for the Government (TaaS)
Competitive Pricing
Enterprise Dedicated Service
Migrate small business to mass market life
Simple Bundles
Mass Market Data Performance $160m $240m
cycle management
Value Bundling
$2.1bn
56 1 Management estimatesWHOLESALE MARKET
Opportunity and strategy
A motivated wholesale partner, leveraging and harvesting our national network scale
New Zealand wholesale telco market Vocus NZ wholesale strategy
Service Carrier Enhance product suite and
New Entrants Provider Market portals for online ordering and
Community customer management.
Key enabler of full white label
Companies with no Telco Companies with limited Large Telcos solutions.
capability that require an Telco capability with
effective white label existing customer base • Large international Providing access to
solution for market entry carriers network infrastructure, both
• Smaller providers that domestically and
• New industry sectors now require network reach to • Domestic carriers internationally, for data and
offering Telco services enhance their services voice solutions.
• Network diversity for core
• System integrators and IT • Ability to evolve and grow data routes Leveraging network scale
companies that require with these customers and expertise in voice at an
network connectivity interconnection level. A key
provider of diversity to other
network operators.
57VOCUS NEW ZEALAND
A platform for future growth
Focus on market share gains Mobile growth with Launch of Orcon into Market share gains in
in Medium Enterprise an MVNO structured the Small Enterprise the Consumer segments
for success market segment
• Increased investment in • Harvest the network
sales channels • Improve mobile offering • Simple and compelling to deliver high growth
to increase market share market proposition focused across retail brands and
• Leveraging new product on network performance wholesale enablement
capability and software • Test the market for a and ‘always on’
enablement of the network mobile partnership focused • Continue the broadband
for consumption of bandwidth on growth • Leverage low cost led strategy with energy
operating platform while and mobile bundling, it
delivering exceptional has only just begun
service
58KEY TAKEAWAYS Kevin Russell
KEY TAKEAWAYS
This is a three year turnaround
Team and plan in place and now we have to execute and deliver
The core business is Vocus Network Services and we see
sustainable profitable growth in FY20 and beyond
Simplification and modernisation of technology has a significant
market and financial prize
Diversification of revenue and cost saving opportunities will
return Retail to growth as it transitions through legacy headwinds
Strong New Zealand business positioned for further growth
60Q&A
DISCLAIMER This presentation (Presentation) contains summary information about Vocus Group Limited (Vocus) and its activities which is c urrent as at the date of this Presentation. The information in this Presentation is of a general nature and does not purport to be complete nor does it contain all the information which a prospective investor may require in evaluating a possible investment in Vocus or that would be required in a prospectus or product disclosure statement prepared in accordance with the requirements of the Corporations Act 2001 (Cth). This Presentation does not constitute investment or financial product advice (nor tax, accounting or legal advice) or any recommendation to acquire shares in Vocus. Vocus' historical information in this Presentation is, or is based upon, information that has been released to the Australian Securities Exchange (ASX). This Presentation should be read in conjunction with Vocus' other periodic and continuous disclosure announcements lodged with the ASX, which are available at www.asx.com.au. All financial information in this Presentation is in Australian Dollars ($ or AUD) unless otherwise stated. This Presentation contains pro forma and forecast financial information. The pro forma and forecast financial information, and the historical information, provided in this Presentation is for illustrative purposes only and is not represented as being indicative of Vocus' views on its future financial condition and/or performance. The pro forma financial information has been prepared by Vocus in accordance with the measurement and recognition requirements, but not the disclosure requirements, of applicable accounting standards and other mandatory reporting requirements in Australia. A number of figures, amounts, percentages, estimates, calculations of value and fractions in this Presentation are subject to the effect of rounding. Accordingly, the actual calculation of these figures may differ from the figures set out in this Presentation. This Presentation contains certain ‘forward looking statements’, including but not limited to projections, guidance on future revenues, earnings, margin improvement, other potential synergies and estimates and the future performance of Vocus. Forward looking statements can generally be identified by the use of forward looking words such as, ‘expect’, ‘anticipate’, ‘likely’, ‘intend’, ‘should’, ‘could’, ‘may’, ‘predict’, ‘plan’, ‘propose’, ‘will’, ‘believe’, ‘forecast’, ‘estimate’, ‘target’ ‘outlook’, ‘guidance’, ‘potential’ and other similar expressions within the meaning of securities laws of applicable jurisdictions and include. The forward looking statements contained in this Presentation are not guarantees or predictions of future performance and involve known and unknown risks and uncertainties and other factors, many of which are beyond the control of Vocus, its Directors and management, and may involve significant elements of subjective judgement and assumptions as to future events which may or may not be correct. Actual performance may differ materially from these forward-looking statements. A number of important factors could cause actual results or performance to differ materially from the forward looking statements, including the ris k factors set out in this Presentation. Investors should consider the forward looking statements contained in this Presentation in light of those disclosures. The forward looking statements are based on information available to Vocus as at the date of this Presentation. Except as required by law or regulation (including the ASX Listing Rules), Vocus undertakes no obligation to provide any additional or updated information whether as a result of new information, future events or results or otherwise. Indications of, and guidance or outlook on, future earnings or financial position or performance are also forward looking statements. Past performance, including past share price performance of Vocus and pro forma historical information in this Presentation, is given for illustrative purposes only and cannot be relied upon as an indicator of (and provides no guidance as to) future Vocus performance including future share price performance. The pro forma historical information is not represented as being indicative of Vocus' views on its future financial condition and/or performance. To the maximum extent permitted by law, Vocus, and their respective advisers, affiliates, related bodies corporate, directors , officers, partners, employees and agents make no representation or warranty, express or implied, as to the currency, accuracy, reliability or completeness of information in this Presentation This Presentation is for information purposes only. 62
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