February 19, 2018 / 10:50 PM / a year ago

UPDATE 2-Australia's Vocus cuts guidance amid broadband squeeze, shares tumble

* Vocus cuts profit guidance issued in October

* Fixed-line business shrinks, broadband margins tighten

* Shares drop 10 percent to four-month low (Recasts, adds analyst and management quotes)

By Tom Westbrook

SYDNEY, Feb 20 (Reuters) - Australia’s fourth-largest phone company, Vocus Group Ltd, cut its profit guidance and paid no half-year dividend on Thursday, as it lost fixed-line customers and conceded it had misjudged the profitability of fibre-optic broadband.

The company, deserted after due diligence by two separate private-equity suitors in the winter, also re-stated parts of its year-ago accounts to reflect the lower broadband margins, and said its underlying interim profit had dropped by a quarter.

Vocus shares fell 10 percent to a four-month low in early trade as the broader market fell 0.3 percent.

“The reality is when earnings are trending downward, and the company here has guided down, then it’s very likely a down-trend in the share price will continue,” said Michael McCarthy, chief market strategist at brokerage CMC Markets.

As with telecom companies around the world, Sydney-based Vocus’s lucrative landline business is shrinking.

Australian telecoms firms also face an additional risk from the rollout of a new government-owned National Broadband Network (NBN) that is hitting profits with higher-than-expected wholesale charges.

“Clearly there are margin headwinds associated with that NBN migration,” Vocus Chief Executive Geoff Horth told investors on a conference call, itself briefly cut by technical problems the company said were being investigated.

Wholesale costs were “a bit more than we originally predicted”.


Vocus has also struggled to make the most of acquisitions it bought in a three-year, $2.4 billion shopping spree. It cut then missed its own guidance in 2017 and cancelled its annual dividend while mulling asset sales to pay debts.

Underlying net profit after tax for the 6 months to Dec. 31 fell 25 percent to A$68.6 million.

It lowered guidance that it had re-affirmed in October, cutting expected annual underlying net profit to between A$125 million to A$135 million, from a range of A$140 million to A$150 million.

Fewer-than-expected customers signed on to its retail gas and electricity business. It restated average NBN margin-per-customer figures from a year ago, revising them downward by roughly a fifth and expecting them to be much lower than copper-wire margins in the future.

“It’s a bit of a mea culpa in terms of our previous reporting,” Chief Financial Officer Mark Wratten said, explaining the company had not been using consistent methodology to calculate the numbers.

“There’s no industry standard in regards to that, that I’ve been able to find.”

The company said it expected to sell its New Zealand business by June. The business reported A$182.6 million in revenue for the half. ($1 = 1.2641 Australian dollars) (Reporting by Tom Westbrook in Sydney. Additional reporting by Devika Syamnath in Bengaluru; Editing by Stephen Coates)

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