8 April 2016 Asia Pacific/Australia Equity Research Alternative Carriers Vocus Communications

(VOC.AX / VOC AU) Rating OUTPERFORM Price (08-Apr,A$) 8.58 INCREASE TARGET PRICE Target Price (A$) (from 8.0) 9.2 Target price ESG risk (%) 0.0 Market cap (A$mn) 4,565.9 Vocus/M2 completes fixed telco 'big four' Yr avg. mthly trading (A$mn) 204.8 Projected return: ■ Enlarged Vocus can become a major telco: Vocus has been transformed Capital gain (%) 7.2 following the recent mergers with Amcom and M2. The enlarged Vocus now Dividend yield (net %) 2.4 has national network capability, a strong data/internet product set, scale Total return (%) 9.6 presence in all key customer segments (medium/large corporate, wholesale, *Stock ratings are relative to the relevant country benchmark. ¹Target price is for 12 months. SME and consumer), and an enhanced national sales and dealer network to

Research Analysts sell its products. The merged group has the footprint and capabilities that it Fraser McLeish needs to win share in all its key markets and to grow into a major telco over 61 2 8205 4069 [email protected] time. Execution will now be the main factor determining success. In this Lucas Goode report we undertake a detailed review of Vocus' operations and key drivers. 61 2 8205 4431 [email protected] ■ Market share gains to accelerate: The enlarged Vocus is expanding its sales force and investing in marketing, which we expect to drive continued growth in market share as corporate/business customers re-assess their telcom requirements as they transition to an IP/cloud environment. Vocus' share in each of its key segments is still relatively low (e.g., c5% share of corporate/wholesale data market) and there is plenty of potential for growth. We still see scope for acquisitions to drive additional growth. ■ Opportunity for efficiencies: We believe that there is plenty of opportunity to drive cost efficiencies across the enlarged group. Vocus is targeting A$13- 15m in synergies from the Amcom merger and A$40m from M2. ■ Target price raised to A$9.20 (from A$8.00). Outperform: We increase our target price to A$9.20 and set it at a 10% premium to valuation to reflect Vocus has a track record of creating shareholder value, a strong forecast EPS growth (+25% FY17F proforma), and high peer multiples. On a P/E of 20x FY17F, Vocus trades below TPG on 24x, despite TPG facing a more significant EBITDA headwind from the transition to NBN. OUTPERFORM rating retained.

Performance 1M 3M 12M Financial and valuation metrics

Absolute (%) 6.19 23.40 44.95 Year 6/15A 6/16E 6/17E 6/18E Relative (%) 10.44 24.47 61.71 Revenue (A$ mn) 149 898 1,880 1,984

EBITDA (A$ mn) 52 229 431 476 EBIT (A$ mn) 33 181 354 394 Net Income (Adj.) (A$ mn) 18 112 223 257 EPS (Adj.) (Ac) 16.96 30.29 41.97 48.18 Change from previous EPS (%) n.a. (1.3) 4.3 (0.0) EPS growth (%) 5.1 78.6 38.5 14.8 Consensus EPS (Ac) 17.00 31.30 41.70 49.50 P/E (x) 50.6 28.3 20.4 17.8 Dividends (Ac) 8.30 18.50 21.00 24.10 Dividend yield (%) 1.0 2.2 2.4 2.8 Price/Book (x) 4.4 1.5 1.4 1.4 Net debt/EBITDA (x) 2.0 2.7 1.2 0.8

Source: Company data, Thomson Reuters, Credit Suisse estimates

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION® Client-Driven Solutions, Insights, and Access

8 April 2016

Vocus Communications (VOC.AX / VOC AU) Price (08 Apr 2016): A$8.58; Rating: OUTPERFORM; Target Price: A$9.20 Income Statement 6/15A 6/16E 6/17E 6/18E Earnings 6/15A 6/16E 6/17E 6/18E Revenue 149 898 1,880 1,984 Equiv. FPO (period avg) 107 371 532 532 EBITDA 52 229 431 476 (mn)EPS (CS adj.) (c) 17.0 30.3 42.0 48.2 Depr. & Amort. (18) (48) (77) (82) EPS growth (%) 5.1 78.6 38.5 14.8 EBIT 33 181 354 394 DPS (c) 8.3 18.5 21.0 24.1 Associates - - - - Dividend Payout (%) 48.9 61.1 50.0 50.0 Net interest exp. (5) (21) (35) (28) Free CFPS (c) 7.0 11.7 45.9 51.9 Other 0 0 0 0 Valuation 6/15A 6/16E 6/17E 6/18E Profit before tax 28 161 319 367 P/E (CS) (x) 50.6 28.3 20.4 17.8 Income tax (10) (48) (96) (110) PEG (x) 9.8 0.4 0.5 1.2 Profit after tax 18 112 223 257 EV/EBIT (x) 139.5 28.6 14.3 12.5 Minorities -0 -0 -0 -0 EV/EBITDA (x) 90.6 22.6 11.8 10.4 Preferred dividends - - - - Dividend Yield (%) 1.0 2.2 2.4 2.8 Associates & Other (0) 0 0 (0) FCF Yield (%) 0.8 1.4 5.4 6.0 Normalised NPAT 18 112 223 257 Price to book (x) 4.4 1.5 1.4 1.4 Unusal item after tax 0 (31) (83) (83) Net profit (Reported) 18 81 140 174 Returns 6/15A 6/16E 6/17E 6/18E Return on Equity (%) 9.2 3.6 7.1 7.9 Balance Sheet 6/15A 6/16E 6/17E 6/18E Profit Margin (%) 12.2 12.5 11.9 12.9 Cash & equivalents 15 103 109 87 Asset Turnover (x) 0.4 0.2 0.5 0.5 Inventories 0 0 0 0 Equity Multiplier (x) 2.0 1.3 1.3 1.2 Receivables 23 137 247 261 Return on Assets (%) 4.7 2.8 5.5 6.4 Other current assets 4 4 4 4 Return on Invested Cap. 7.2 3.4 6.7 7.6 Current assets 42 244 360 352 Gearing(%) 6/15A 6/16E 6/17E 6/18E Property, plant & equip. 205 455 485 511 Intangibles 125 3,259 3,185 3,107 ND/ND+E (%) 34.8 16.6 13.9 10.5 Other non-current assets 11 11 11 11 Net Debt to EBITDA (x) 2.0 2.7 1.2 0.8 Non-current assets 341 3,725 3,681 3,629 Int Cover (EBITDA) (x) 9.8 11.1 12.4 17.1 Total assets 383 3,969 4,041 3,981 Int Cover (EBIT) (x) 6.3 8.8 10.2 14.2 Payables 24 101 211 223 Capex to Sales (%) 23.3 12.2 6.2 5.7 Capex to Depr (%) 281.2 313.8 179.7 165.8 Interest bearing debt 120 720 620 470 Other liabilities 43 43 43 43 Total liabilities 187 864 874 736 MSCI IVA Rating BBB Net assets 196 3,105 3,167 3,245 TP ESG Risk (%): 0.00 Ordinary equity 196 3,105 3,167 3,245 10 G MSCI IVA Risk: Neutral Minority interests 0 0 0 0 L MSCI IVA Risk Comment: We believe the MSCI Preferred capital - - - - rating is appropriate given VOC's programs to S Total shareholder funds 196 3,105 3,167 3,245 8 ensure privacy and data security of its S Net Debt 105 617 511 383 C C customers and anti-corruption policy to prevent 6 L unethical business practices. Cash Flow 6/15A 6/16E 6/17E 6/18E C G GL EBIT 33 181 354 394 4 Net Interest 0 (21) (35) (28) S Depr & Amort 18 48 77 82 2 Tax Paid (5) (39) (71) (85) Change in Working capital 0 (37) (0) (2) 0 Other cash and non-cash items (5) 21 35 28 Operating cash flow 42 153 360 389 Environment Social Governance Capex (35) (110) (116) (113) Global Local Country Stock Capex - expansionary - - - -

Capex - Maintenance - - - - Share price performance Acquisitions & Invest (51) (3,353) 0 0 Asset sale proceeds 0 0 0 0 Other - - - - Investing cashflow (86) (3,463) (116) (113) Dividends paid (2) (17) (104) (120) Equity raised 1 2,835 0 0 Net borrowings 16 600 (100) (150) Other financing cash in/(outflows) (0) (21) (35) (28) Financing cashflow 14 3,398 (239) (298) Total cashflow (29) 88 6 (22) Adjustments 0 0 0 0 Movement in cash/equivalents (29) 88 6 (22)

On 08-Apr-2016 the S&P ASX 200 Index closed at 4937.6 On 08-Apr-2016 the spot exchange rate was A$1.33/US$1

Source: Company data, Credit Suisse estimates

Vocus Communications (VOC.AX / VOC AU) 2 8 April 2016

Executive summary The recent mergers with Amcom and M2 have transformed the Vocus business. The enlarged Vocus now has national network capability, a strong data/internet product set, scale presence in all key customer segments (medium/large corporate, wholesale, SME and residential), and a substantial national sales and dealer network to sell its products. The merged group has the footprint and capabilities that it needs to win share in all its key markets and grow into a much larger telco over time. It operates in large market segments but still has relatively small market share in each individual area. We see significant opportunity to generate efficiencies and grow margins in the merged business, particularly by bringing more of M2's traffic onto the Vocus network. The lack of network infrastructure was always a key risk for M2, but this risk has essentially been removed with the Vocus merger. Vocus is targeting A$13-15m synergies from the Amcom merger and A$40m from M2. We believe that the enlarged Vocus is well positioned to start challenging Telstra/Optus for market share on a broader basis. Execution will now be the key factor determining success. There is execution risk given the number and size of recent acquisitions. However, growth by acquisition has been a key element of both the Vocus and M2 strategies over the last few years and they have demonstrated an ability to manage the integration process well. M2 does face some headwinds in its consumer business from the transition to NBN, but the headwinds are less than peers and there is the opportunity to mitigate the impact by growing market share as regional markets open up to competition. Our earnings forecasts are broadly unchanged from most recently published. We raise FY16F and FY17F proforma EPS by 4% to reflect lower D&A following a review of our D&A forecasts. We forecast proforma EBITDA growth of 16% in FY16F and 18% in FY17F (driven by synergy savings from both Amcom and M2). We forecast eps growth of 79% in FY16 (+28% proforma) and 39% in FY17F (26% proforma). We raise our target price to A$9.20 (from A$8.00 previously). Our target price is now at a 10% premium to DCF valuation to reflect Vocus' strong track record of creating shareholder value (we attach a similar premium to TPG), potential for further value enhancing acquisitions and high peer multiples. On a P/E of 20.4x FY17F, Vocus trades at a discount to TPG on 23.6x. We would argue that a discount is unwarranted given our forecast for Vocus to generate higher revenue and earnings growth and Vocus is less exposed to NBN margin headwinds. Applying a TPG P/E multiple to Vocus FY17F earnings would imply a bull case share price of 9.90. At the current share price and multiple the stock is not obviously 'cheap'. However, we do expect it to deliver strong earnings growth driven by market share growth and synergy savings. We therefore see Vocus as an attractive large cap growth holding in a portfolio. Outperform rating re-iterated. Figure 1: Vocus and TPG peer multiples Share Mkt Cap P/E EV/EBITDA Dividend Yield Price A$mn FY16PF* FY17F FY18F FY16PF FY17F FY18F FY16F FY17F Vocus 8.55 4549 25.6x 20.4x 17.7x 14.3x 12.1x 11.0x 2.2% 2.5% TPG 11.20 9503 27.0x 23.6x 21.3x 13.7x 12.2x 11.3x 1.3% 1.6%

Source: Company data, Credit Suisse estimates. *Vocus FY16 multiples based on proforma merged group forecasts

In this report we take a detailed look the key drivers of revenue and margins across each of Vocus' business lines and highlight the main opportunities for revenue and earnings growth.

Vocus Communications (VOC.AX / VOC AU) 3 8 April 2016

Focus charts

Figure 2: Corporate IP and data market size* A$m Figure 3: Corporate & data market share FY15E*

4.0 5% 5% 2% 3.5 8% 4% 3.0

2.5 3% 2.0 15% 1.5 2% 52% 1.0 1% 0.5 0.0 0% 18% FY14E FY15E FY16F FY17F FY18F

Market size A$bn Market growth (RHS) Telstra Optus TPG NextGen Vocus Other

Source: Company data, Credit Suisse estimates *ex data centre, Includes wholesale Source: Company data, Credit Suisse estimates *ex datacenter, includes wholesale

Figure 4: M2 consumer broadband subs/growth Figure 5: Fixed broadband market subscriber share

700 20% 50% 45% 600 40% 35% 15% 30% 500 25% 20% 400 15% 10% 10% 300 592 5% 548 498 0% 449 FY14 FY15 FY16F FY17F FY18F FY19F 200 414 350 5% Telstra 46.1% 45.8% 46.2% 46.3% 46.1% 44.6% TPG/iiNet 26.5% 26.4% 26.0% 25.9% 25.9% 26.2% 100 Optus 15.7% 15.2% 14.4% 13.9% 13.5% 13.3% M2 7.5% 7.6% 7.9% 8.2% 8.5% 8.7% Other 4.2% 5.0% 5.6% 5.7% 6.0% 7.2% 0 0% FY13 FY14 FY15 FY16F FY17F FY18F

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Figure 6: Vocus Fibre & Ethernet revenue A$m Figure 7: Vocus fibre buildings added

250 45% 350 332 40% 300 200 35% 234 A$142m proforma 30% 250 222 150 25% 200 236 20% 163 100 70.0 205 176 15% 150 128 32.0 10% 50 100 5% 28 40 0 0% 50 FY14 FY15PF FY16F FY17F FY18F 0 Vocus FX Amcom growth % (proforma) 1H14 2H14 1H15 2H15 1H16

Source: Company data, Credit Suisse estimates Source: Company data

Vocus Communications (VOC.AX / VOC AU) 4 8 April 2016

Vocus part of the new telco 'Big Four' The combination of Vocus, Amcom, and M2 largely completes the consolidation of the Australian second-tier telecoms sector. There are now four remaining large full service fixed line players that we expect to be competing for share across all product lines going forward (Telstra, Optus, TPG and Vocus). The acquisitions in the last 12-24 months have been particularly transformational for both Vocus and M2 (see table below). Figure 8: Vocus and M2 acquisition history A$m Date Price Revenue EBITDA Multiple* Comment Vocus Perth IX datacentre May-11 6 na 1.5 4.8x Data centre Digital River Networks May-11 4 na na na Dark Fibre provider Maxnet Jun-12 9 na 2.0 4.8x NZ data centre Ipera Communications Dec-12 10 na 2.5 3.9x Newcastle fibre and data centre provider FX Networks Sep-14 108 55 12.0 9.0x NZ fibre network Bentley Data centre Aug-14 12 4 2.0 5.9x Perth data centre Enterprise Data Corporation Apr-15 24 12 4.7 5.0x Sydney and Melbourne data centres Amcom Jul-15 686 166 49.0 14.0x A$13-15m synergies by end FY17 M2 Feb-16 2000 1328 211.0 9.5x A$40m synergies by end FY18 First Path Feb-16 na na na na Fibre access network M2 Commander Jun-09 19 100 na na SME voice and broadband customers Clear Telecoms Feb-11 25 70 8.0 3.1x 20k SME customers Primus Jun-12 192 280 40 4.8x Customers, metro fibre and data centres Dodo/Eftel May-13 250 400 50 5.0x 400k broadband customers Call Plus Apr-15 245 231 42 5.6x NZ ISP. 400k voice and broadband subs Source: Company data, Credit Suisse. * Pre synergies, where synergies separately disclosed

Vocus revenue mix has changed substantially following the Amcom and M2 acquisitions. Revenue is now split approximately 50/50 business and consumer. The core fibre/ethernet and internet business on which Vocus was built is now 15% of revenue (FY15 proforma). 82% of merged group revenue is from Australia and 18% from New Zealand.

Figure 9: Vocus revenue mix (FY15 proforma) Figure 10: Vocus revenue mix (FY15 proforma)

Other 7%

Energy 9%

Voice 34% Mobile 6%

Business 49% Internet 5% Consumer 51% Data centres 3%

Fibre & Ethernet 10%

Broadband 27%

Source: Company data (MTU scheme booklet) Source: Company data (MTU scheme booklet)

The charts below show how recent acquisitions have driven a sizeable step up in revenue and overall scale for both Vocus and M2.

Vocus Communications (VOC.AX / VOC AU) 5 8 April 2016

Figure 11: Vocus (ex M2) proforma revenue profile Figure 12: M2 proforma revenue profile

350 1400 A$1327m proforma A$303m* proforma 300 1200 A$1043m proforma 237

250 1000 136 200 800 400

150 600 45 1089 16 100 400 634 643 50 92 106 200 393 45 66 0 0 FY12 FY13 FY14 FY15PF FY12 FY13 FY14PF FY15PF

Vocus Bentley/EDC FX Amcom M2 Dodo/Eftel Call Plus

Source: Company data, Credit Suisse * Ex A$28m revenue from Amcom IT services business Source: Company data, Credit Suisse sold in December 2015

The charts below show our revenue and EBITDA forecasts for the merged group. We forecast revenue to grow 8% on a proforma basis in FY16F and EBITDA by 16%.

Figure 13: Vocus merged group revenue (proforma) Figure 14: Vocus merged group EBITDA (proforma)

2500 10% 600 20% 18% 1974 476 1880 500 2000 1773 8% 431 16% 1632 14% 400 366 1500 6% 316 12% 300 10% 1000 4% 8% 200 6% 500 2% 4% 100 92 33 2% 0 0% 0 0% FY14 FY15PF FY16PF FY17F FY18F FY14 FY15PF FY16PF FY17F FY18F

Revenue A$m growth % EBITDA A$m Growth %

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

In the sections below we look at the key product lines for Vocus and M2 and outline our growth forecasts. Amcom enhances position in corporate market Vocus has its original roots in the wholesale market and has built an emerging position in the corporate market focused primarily on the provision of direct fibre links. However, prior to the Amcom acquisition in mid-2015, Vocus was still a relatively small scale niche player in the corporate market. The acquisition of Amcom has provided enhanced scale and capability in this important segment, which we believe leaves Vocus much better placed to compete for corporate customers going forward. Corporate/wholesale connectivity – A$3.2bn market We estimate that the total market for corporate/wholesale IP and data connectivity in Australia is worth around A$3.2bn (ex. data centres). We calculate that Vocus currently has around 5% market share. Telstra remains the dominant player with c52% share. The market is growing relatively slowly (we estimate c2% per annum) as customers transition from high-priced legacy products to lower priced IP products. The main opportunity for challengers such as Vocus is to win market share from the incumbent as customers review their telecoms requirements as they shift to an IP/cloud environment.

Vocus Communications (VOC.AX / VOC AU) 6 8 April 2016

Figure 15: Corporate IP and data market size* Figure 16: Corporate & data market share FY15E*

4.0 5% 100% 5.3% 6.4% 7.3% 8.2% 9.1% 9.8% 90% 7.6% 7.1% 3.5 6.9% 6.6% 6.4% 6.2% 4% 80% 15.0% 15.2% 15.7% 3.0 16.1% 16.5% 17.0% 70% 2.5 3% 60% 17.8% 17.5% 17.4% 17.3% 16.9% 16.6% 2.0 50% 1.5 2% 40% 30% 1.0 52.3% 51.8% 50.8% 49.8% 49.0% 48.3% 1% 20% 0.5 10% 0.0 0% 0% FY14E FY15E FY16F FY17F FY18F FY15E FY16F FY17F FY18F FY19F FY20F

Market size A$bn Market growth (RHS) Telstra Optus TPG NextGen Vocus Other

Source: Credit Suisse estimates, Company data *ex data centre, Includes wholesale Source: Company data, Credit Suisse estimates *ex datacenter, includes wholesale. TPG excludes Vodafone dark fibre contract

The enlarged Vocus is attempting to leverage its increased scale by ramping up its sales capability and investing in brand marketing to raise awareness. The chart below shows its plans to almost double its direct sales capability (ex M2).

Figure 17: Vocus planned sales force increase Figure 18: Vocus + Amcom to step up marketing

30

25 13 20 9 10 15 10 10 15 16 13 5 8

0 Direct East Direct West Wholesale NZ

Current Increased

Source: Vocus 2015 investor day presentation Source: Vocus 2015 investor day presentation

Including M2, Vocus now has 150+ direct sales force, over 400 channel partners, and 80+ Commander dealers. Vocus key product lines targeting the wholesale/corporate market are:

■ Fibre & Ethernet – Vocus has a core competency in point to point fibre products for both wholesale and large corporate customers. Amcom brings capability in IP WAN networks and solutions for large corporate customers ■ Internet – IP transit for wholesale customers and fibre internet connections for corporate customers ■ IP voice – Vocus has an existing business terminating voice traffic for wholesale customers. Amcom has added IP voice capability for corporate customers ■ Data centre – Vocus offers co-location services for ISP/content and wholesale customers. Amcom adds capability in cloud and managed hosting solutions for corporate customers

Vocus Communications (VOC.AX / VOC AU) 7 8 April 2016

We take a more detailed look at each of the individual product lines and key drivers in the sections below. Fibre and Ethernet product line – high growth and returns Fibre & Ethernet is Vocus' fastest growing revenue stream and its highest quality business in terms of quality of customer base and attractiveness of financial returns. The acquisition of Amcom has almost doubled Vocus Fibre & Ethernet revenues and significantly enhanced its capabilities in this segment. Amcom has added scale, customers, network, product capability and sales capacity. Vocus generated $142m in Fibre & Ethernet revenue in FY15 (proforma), with cA$40m of from the core Vocus business, cA$70m from Amcom Data Networks Division and cA$32m from FX networks in NZ. Vocus standalone Fibre & Ethernet revenue grew by 40% on an organic basis in FY15 (ex Amcom and FX Networks) and we forecast 24% growth on a proforma basis in FY16 (inc. FX and Amcom).

Figure 19: Fibre and ethernet revenue A$m Figure 20: Buildings connected AU

250 45% 4,000 40% 3,500 200 35% 3,000 A$142m proforma 30% 1917 150 2,500 25% 236 2,000 70.0 20% 100 205 1,500 176 15% 1,000 50 32.0 10% 1,730 1,270 1,398 5% 500 814 1,048 28 40 0 0% 0 FY14 FY15PF FY16F FY17F FY18F 1H14 2H14 1H15 2H15 1H16

Vocus FX Amcom growth % (proforma) Vocus Amcom

Source: Company data, Credit Suisse estimates Source: Company data

Strong growth in buildings connected and fibre added Our Fibre and Ethernet revenue growth forecast is underpinned by strong growth in buildings connected and fibre kilometers added. These are the key drivers and forward looking indicators for customer growth. Total buildings connected were 3,647 at the end of 1H16 (including 1917 from Amcom). Vocus added a record 332 new connections in 1H16, equivalent to growth of 20% on an annualised basis. Fibre kilometers increased 11% in 1H16 (22% growth annualised).

Figure 21: Fibre buildings added in half (organic) Figure 22: Fibre km added (organic)

350 332 200 185 180 300 160 141 234 250 222 140 120 200 102 163 100 81 150 128 80 73

100 60 40 50 20 0 0 1H14 2H14 1H15 2H15 1H16 1H14 2H14 1H15 2H15 1H16

Source: Company data Source: Company data

Vocus Communications (VOC.AX / VOC AU) 8 8 April 2016

Fibre and ethernet – network and product overview Vocus owns 1,606 km of metropolitan fibre network connecting to the major data centres in all of the Australian capital cities. Vocus leases intercity fibre capacity from Nextgen. In New Zealand Vocus owns 4,369 of Intercity backbone fibre network connecting all of the major towns and cities in New Zealand. It is one of only three backbone networks in NZ. The ownership of fibre assets in both Australia and NZ makes Vocus the only trans- tasman fibre network operator. Figure 23: Vocus buildings connected

Source: Company data

Vocus sells three core products across the Fibre network to enable customers to connect their corporate offices and data centres to create private high speed data networks:

■ Dark Fibre: This is a fully dedicated point-to-point connection. The customer takes a Fibre pair and provisions its own network equipment to run the network to its own requirements. This product is not available from Telstra and Optus who collectively control ~70% of the addressable market for data networks. ■ Ethernet: This is a guaranteed level of bandwidth connecting two sites whether they are local, interstate or international locations. The service is delivered over Vocus layer 2 carrier-grade network. This product is typically cheaper than a comparative dark fibre service as the customer ultimately has less control over the service. Ethernet is also sold as a multipoint to multipoint service. ■ IP WAN: This is a managed IP Wide Area Network (WAN) where Vocus/Amcom designs and implements the customers' corporate networking solution and provides ongoing proactive management of routers and firmware. ■ Cloud connect: Vocus has also recently added a fourth product called Cloud Connect which can be sold as a derivation of either Ethernet or IP WAN. This services delivers secure high speed links into Amazon Web Services (AWS), Microsoft Azure or IBM Softlayer over a private Vocus network connection. Vocus' value proposition is to price at significant discount to Telstra and Optus, offer a superior service proposition and unique products such as dark fibre, and to simplify customers data networks.

Vocus Communications (VOC.AX / VOC AU) 9 8 April 2016

Figure 24: Vocus dark fibre product

Source: Credit Suisse

Fibre & Ethernet – attractive economics The economics of the Fibre & Ethernet business is very attractive. The majority of the cost is in the capital spending to extend fibre into a customer's building. Once a customer is connected the variable costs of servicing are low (Telstra duct rental cost is the main ongoing expense) and the cost of adding additional customers is minimal. Vocus aims for revenue from the initial customer to cover the cost of extending fibre to the building and then to sign up more customers in the building to grow profits and returns. The table below outlines the economics of a standard connected CBD building based on a cost of A$35k capex per building (500m of fibre at A$70 per meter) and a conservative ARPU of A$1000 per customer per month (we understand that ARPU is currently averaging well above this amount). Figure 25: Economics of direct fibre connections

Services per building ----> 1 2 3 4 Returns $pm $pa $pa $pa $pa Revenue 1,000 12,000 24,000 36,000 48,000 Duct Rental -375 -4,500 -4,500 -4,500 -4,500 Fixed Cost per building -188 -2,250 -2,250 -2,250 -2,250 Variable network cost -70 -840 -1,680 -2,520 -3,360 Gross Profit 368 4,410 15,570 26,730 37,890 Depreciation -146 -1,750 -1,750 -1,750 -1,750 Gross Profit after D&A 222 2,660 13,820 24,980 36,140 Sales / O'head allocation -6,000 -6,000 -6,000 -6,000 EBIT estimate -3,340 7,820 18,980 30,140

ROIC (before o'head allocation) 8% 39% 71% 103% ROIC (after o'head) -10% 22% 54% 86%

Gross Margin 37% 65% 74% 79% EBITDA margin -13% 40% 58% 66% EBIT margin -28% 33% 53% 63%

Source: Credit Suisse estimates

Vocus Communications (VOC.AX / VOC AU) 10 8 April 2016

Internet products – opportunity to grow corporate internet Vocus has four key lines of business making up the 'Internet' division:

■ Wholesale internet (A$37m FY15) – this is the core Vocus international IP transit product ■ Corporate internet (A$26m FY15PF) – primarily from Amcom ■ FX Networks – A$9m of proforma revenue from FX networks in NZ (primarily wholesale) ■ Amnet residential internet (A$10m FY15PF) – Vocus has said that this will be merged with M2 consumer business going forward Prior to Amcom, the majority of Vocus' internet revenues were from wholesale IP transit. Amcom has brought greater capability in corporate internet connections, which we expect to be a key driver of growth going forward, particularly as Vocus can use the M2 Commander sales force to boost distribution. We forecast 11% pro forma revenue growth to $88m in FY16 driven by both wholesale and corporate internet products.

Figure 26: Vocus internet revenue A$m Figure 27: Vocus internet volume and yield index*

120 45% 1600 120 11 40% 1400 100 A$80m proforma 100 35% ($70m ex Amnet) 10 1200 10 30% 80 80 10 1000 25% 800 60 60 26 20% 103 600 90 15% 40 40 9 78 10% 400 20 5% 200 20 38 37 0% 0 0

0 -5%

2H13 2H10 1H11 2H12 1H13 1H14 2H14 1H15 2H15 1H16 FY14 FY15PF FY16F FY17F FY18F 1H10

Vocus FX Amcom Amnet growth proforma % SX traffic Yield

Source: Company data, Credit Suisse estimates Source: Company data, *Index 100 at Dec 2010 (excludes Amnet)

Wholesale Internet (IP Transit) The IP transit business was the original product on which Vocus was founded. Vocus sells internet capacity on international submarine cables to Australian and NZ residential ISPs, global telcos, and large cloud/media companies. Its product offers them guaranteed bandwidth, redundancy, bandwidth flexibility and contract flexibility. It has PoPs located all around the world at various peering exchanges and data centers. The majority of Vocus capacity is on the Southern Cross international cable where it has a long-term IRU (Indefeasible Right of Use). This cable runs from Australia to NZ and through to the West Coast of the USA with dual redundant paths. Vocus has the right to 700GB of capacity of Southern Cross, which it can draw down by 100GB per annum. Vocus also buys capacity on smaller cable systems and owns 10% of the Sea-Me-We 3 cable (Perth to Singapore). Vocus is currently undertaking due diligence to invest in a 50/50 JV with Nextgen to build a new Australia-Singapore cable (ASC). This is expected to cost US$120-130m to build and will have an 18-month construction period (starting from early 2016). Vocus says that it has qualified sales demand of over US$200m within the first three years of operation and estimates a project NPV of >A$100m over the 25 year economic life of the cable. However, Bevan Slattery backed Subpartners has also recently announced that it has signed an MOU with Telstra and Singtel to build a competing cable (ASX-West) on the same route. It is therefore not clear that the ASC cable will go ahead.

Vocus Communications (VOC.AX / VOC AU) 11 8 April 2016

Key drivers IP transit revenue is a function of volume and yield. Volume growth is strong, driven by rapid growth in data usage (Australian household total internet traffic grew by 40% over the year to Jun-2015). However, price per GB typically declines by around 20-30% per annum as upgrades to cable systems increases available capacity and drives down price. Vocus has been able to successfully win market share, which has meant that its volume of traffic has grown faster than yield has declined, and it has been able to grow revenue overall (Vocus internet traffic grew 64% in 1H16). We expect this to continue going forward. We note that Vocus' IP transit revenue declined slightly in FY15 (ex. acquisitions). This was primarily due to a scheduled step down in pricing in its Vodafone wholesale contract, which we estimate resulted in A$5-6m lower revenue in FY15. Excluding this impact, we estimate that Vocus internet revenue would have grown 10-12% in FY15.

Figure 28: Vocus network Figure 29: International IP transit market

Source: Company data, Credit Suisse Source: Company data, Credit Suisse

Corporate Internet – Amcom has boosted capability Vocus sells high speed fibre internet connections to corporate customers as a standalone product or as an additional service that runs on top of the Corporate's data network connection (which is likely a Fibre service from Vocus). The majority of Vocus corporate Internet revenue is from Amcom. Vocus only started selling Internet direct to corporates in the east coast late in FY15. Internet is typically sold as an unlimited usage product. The customer then pays for the bandwidth (or speed) that they want. For example, Vocus sells a 500Mbps unlimited internet product for A$499 per month. We see corporate internet as a high growth area for Vocus as this will be a key product that will be sold by the M2 Commander sales force. We expect the core Vocus branded product to be aimed at the larger end of the market (corporates with 50+ seats) and for Commander to target the smaller end of the market. The Commander fibre internet product is being priced below Vocus, with entry level unlimited 400Mbps speed for A$398 per month (same as TPG Fibre 400 product which offers 400Mbps speed and unlimited usage for A$399 per month).

Vocus Communications (VOC.AX / VOC AU) 12 8 April 2016

Figure 30: Vocus fibre internet Figure 31: Commander fibre internet

Source: Company data A$2500 installation cost Source: Company data. A$2198 installation costs Voice product line – IP voice to drive growth Vocus has three lines of business making up the merged "Voice" revenue line of Vocus and Amcom.

■ Wholesale voice ($12mn FY15) ■ IP voice and unified communications on the Broadsoft platform ($13mn FY15) ■ IP voice / Cloud collaboration on the CISCO platform ($2mn FY15)

Figure 32: Voice revenue A$m Figure 33: Voice call minutes (m)

40 600 568

35 496 A$28m proforma 500 30 23 25 394 25 20 400 20 16 302 300 15 252

10 200 14 15 14 5 12 9 7 100 0 FY13 FY14 FY15PF FY16F FY17F FY18F 0 Wholesale (Vocus) Corporate (Amcom) 1H14 2H14 1H15 2H15 1H16

Source: Company data, Credit Suisse estimates Source: Company data

We forecast 20% pro forma revenue growth to $34m in FY16. We expect growth to be driven primarily by corporate voice services on the Broadsoft IP voice platform. We expect limited growth form the CISCO product which Amcom invested in during FY14 and FY15. Broadsoft IP Voice and Unified Communications Broadsoft is a cloud-based IP telephony and unified communications platform that operates across a Corporate's IP based data network. Vocus said that it had 39,957 Broadsoft licenses in operation at Dec 2015, with 5,075 new licenses added in the 6M to December (equivalent to 29% growth annualized). The Broadsoft IP telephony solution operates as a regular telephone, but removes the need for the customer to have its own PABX on site (replacing it with a Cloud based system). It also offers additional unified commination's features such as instant messaging, presence, email, mobility and call center functionality.

Vocus Communications (VOC.AX / VOC AU) 13 8 April 2016

This product was part of Amcom and Vocus has now made it available across its east coast network. The product is sold direct to corporates and also via Vocus wholesale channel. Amcom was generating around 10% p.a. revenue growth in this division prior to the Vocus acquisition, and we see it as a key area of growth for the combined business going forward. We expect the Broadsoft product to be particularly relevant to M2's Commander business voice customer base as they transition to an IP environment under NBN (we look at the economics of this transition in more detail in the M2 section of this report). We expect all Corporates and SMEs to ultimately move their voice services to a hosted IP telephony solution. Wholesale voice Vocus offers a number of voice services to wholesale customers including:

■ Call termination services ■ Porting traditional voice numbers to VoIP for ISP's ■ Provision of wholesale phone numbers to ISP's Wholesale voice volumes and revenues are still growing (minutes +44% in 1H16). However, we expect this growth to flatten out as voice traffic moves to IP under NBN. Data Centre product line – grown through acquisition Vocus has a total of 22 data centre facilities across 18 sites with 8,027sqm of space. This business line has been built through acquisition including:

■ Perth iX data centre in 2011 ■ Maxnet NZ data centre in 2012 ■ Bentley data centre in Perth in 2014 ■ Enterprise Data Corporation Sydney and Melbourne data centres in 2015 ■ Amcom added 7 data centres in Perth

Figure 34: Data centre revenue A$m Figure 35: Data centre capacity and utilisation

70 20% 9,000 90% 8,027 8,000 80% 60 A$52m proforma 15% 7,000 70% 50 5,788 6,000 60% 16 40 5,000 50% 66 10% 3,670 30 12 61 4,000 3,300 40% 56 3,000 30% 20 4 5% 2,000 20% 10 19 20 1,000 10% 0 0% 0 0% FY14 FY15PF FY16F FY17F FY18F FY13 FY14 FY15 1H16

Vocus Bentley EDC Amcom growth proforma % Capacilt sqm Utilisation %

Source: Company data, Credit Suisse estimates Source: Company data

Vocus sells co-location services to Corporate and Wholesale customers. It sells racks, dedicated suites, dedicated cages, and hot Aisle containment systems. It offers customers flexibility in power from 1KW racks through to 30KW racks. It does not own any of the underlying land and buildings for its data centres, but it does own the data centre assets. The data centre business also includes the "Cloud" division of Amcom. Amcom Cloud division generated around $6mn of revenue in FY15. Primary products are compute,

Vocus Communications (VOC.AX / VOC AU) 14 8 April 2016

backup and disaster recovery. University of Western Australia is the largest customer of Amcom cloud. The data centre acquisition strategy has been key to driving growth in Vocus Fibre business through its start-up phase. Data centres are full of customers needing Fibre data network connections back to their offices. This has allowed Vocus to cross sell Fibre into the established DC customer bases. We expect data centre demand to continue to grow over the next 5 years to as Corporate IT shifts to hybrid cloud deployments. Vocus data centre utilisation is currently at 76%. We expect this to increase to close to 100% over the next few years and for higher utilisation, rather than new facilities, to be the key driver of revenue growth. Data centre churn tends to be very low (due to the cost and difficulty for customers to move their equipment) and pricing is relatively stable as new supply is quickly absorbed by the market. We would expect Vocus to continue to look for acquisitions in this space, with Next DC (NXT.AX, A$670m market cap) and Macquarie Telecom (MAQ.AX, A$188m market cap) potential targets in this segment. The table below summarises the major existing and planned carrier neutral data centre facilities in Australia. Figure 36: Australian carrier neutral data centre facilities and space Operator Facility Location To City Status Tech Space (km) (m²) NXT B1 Brisbane, CBD 0 Open 1,650 M1 Melbourne, Port Melbourne 3 Open 6,000 S1 Sydney, Macquarie Park 17 Open 5,600 P1 Perth, Malaga 13 Open 3,000 C1 Canberra, Bruce 5 Open 2,260 B2 Brisbane - Open 2H17 3,000 M2 Melbourne - Open 2H17 10,000 Equinix SY1 Sydney, Mascot 6 Open 3,088 SY2 Sydney, Mascot 6 Open 1,586 SY3 Sydney, Alexandria 5 Open 9,189 SY4 Sydney, Alexandria 5 Mid 2016 12,680 ME1 Melbourne, Port Melbourne 3 Open 6,000 Global Switch Sydney East Sydney, Ultimo 1 Open 15,500 Sydney West Sydney, Ultimo 1 Open 20,788 Digital Realty Sydney Sydney, Eastern Creek 37 Open 8,000

Source: Company data, Credit Suisse M2 – scale in small business The A$2bn acquisition of M2 (completed 22 February) takes Vocus into the consumer broadband segment for the first time and increases the exposure to NZ. M2 brings scale in terms of revenue (A$1.4bn revenue) and a strong presence in the small/business segment. The M2 business model is primarily based on re-selling basic internet and voice access services. Its key strength is in sales and distribution. The combination with Vocus/Amcom will enhance M2's product offering and give M2 access to fibre infrastructure. M2 does face some headwinds from the transition to NBN in Australia and UFB in NZ, but we believe that these headwinds are not that significant in the context of the enlarged group.

Vocus Communications (VOC.AX / VOC AU) 15 8 April 2016

M2- Consumer fixed broadband and voice We calculate that M2 generated around A$400m in consumer fixed-line broadband and voice revenue in FY15, equivalent to just under 40% of M2's total revenue (22% of Vocus Group). The consumer broadband market is experiencing solid growth in terms of number of subscribers and M2 has been steadily gaining share. M2 has two key products/brands in consumer broadband: Dodo (acquired in May 2013) and i-primus:

■ Dodo - we estimate Dodo makes up around 75-80% of the M2 consumer broadband base. The Dodo product is focused on the lower value end of the market, with prices similar to TPG (eg., Dodo's main plan is unlimited broadband and line rental for A$59.80 per month). The Dodo subscriber base is primarily off-net, with the service provided over a Telstra wholesale ADSL connection (under a 'whole of business' service agreement with Telstra). ■ I-primus – we estimate that the i-primus brand makes up around 20-25% of M2 consumer broadband customers. The i-primus service is priced above Dodo and more in-line with competitors such as iinet (eg A$79.90 for unlimited data and line rental). The i-primus customer base is mainly on-net with the service primarily provided over M2 owned infrastructure (M2 has DSLAM's in around 260 exchanges). The i-primus brand is strongest in the Melbourne market. Broadband market experiencing solid growth The overall broadband market is experiencing a period of robust growth, with 235k net adds across the market in the 6M to December (vs 209k in pcp). This is equivalent to annual subscriber growth of around 7%. We expect total broadband connections to grow at 5-6% over the next few years as broadband penetration continues to rise driven by the roll-out of the NBN and uptake of new services such as subscription video on demand (SVOD). The NBN accounted for all net new additions for the first time in the 6M to December 2015 with non NBN connections declining for the first time (239k NBN net adds in 6m to June vs 235k total market net adds). The transition to NBN will continue to accelerate as the roll- out gathers pace and all connections will have transitioned to NBN within the next six years.

Figure 37: Broadband market adds (000s) & growth Figure 38: Fixed broadband subs (total market)

500 10% 10.0 100% 454 452

410 417 8.0 80% 400 366 8% 6.0 60% 302 291 300 6% 250 4.0 40%

200 4% 2.0 20%

100 2% 0.0 0%

FY14 FY15

FY22F FY16F FY17F FY18F FY19F FY20F FY21F 0 0% FY12 FY13 FY14 FY15 FY16F FY17F FY18F FY19F Legacy NBN Penetration (RHS)

Source: Telstra, NBN Co, Credit Suisse estimates Source: Telstra, NBN Co, Credit Suisse estimates

Vocus Communications (VOC.AX / VOC AU) 16 8 April 2016

M2 steadily growing market share M2 consumer broadband customers increased by 22k in 1H16, which represented a return to solid growth after a weaker 2H15. M2 has said that 2H16 has got off to a solid start and it expects subscriber growth to improve in the half (we forecast 27k net adds in 2H16).

Figure 39: M2 consumer broadband net adds by half Figure 40: M2 consumer broadband subs/growth

40 700 20% 35 35 600 30 29 30 15% 27 500 24 25 22 400 20 10% 300 592 548 15 498 11 449 200 414 10 350 5%

5 100

0 0 0% 2H13 1H14 2H14 1H15 2H15 1H16 2H16F FY13 FY14 FY15 FY16F FY17F FY18F

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

M2 had 471k consumer broadband customers at December 2015 and we estimate around 545k in total including business subscribers. Market share has been growing steadily and we estimate was up to 7.7% at 31 December. We forecast M2 broadband subscribers to grow 11% in FY16 and for market share to increase to 8.5% by FY18F (see chart below). Figure 41: Fixed broadband subscriber market share forecasts

50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% FY14 FY15 FY16F FY17F FY18F FY19F Telstra 46.1% 45.8% 46.2% 46.3% 46.1% 44.6% TPG/iiNet 26.5% 26.4% 26.0% 25.9% 25.9% 26.2% Optus 15.7% 15.2% 14.4% 13.9% 13.5% 13.3% M2 7.5% 7.6% 7.9% 8.2% 8.5% 8.7% Other 4.2% 5.0% 5.6% 5.7% 6.0% 7.2%

Source: Company data, Credit Suisse estimates

Churn reduction an opportunity Vocus has highlighted the potential to improve churn in the consumer business as a major opportunity for the merged group. Vocus expects to be able to improve Dodo service quality by shifting traffic from high users onto the Vocus network and freeing up Telstra wholesale capacity, which should improve speeds for other customers. Vocus has disclosed that M2 added c300k consumer customers on a gross basis in 1H16 (across all product lines), but only 62k on a net basis after churn. This implies churn of 16% in the 6 month period and over 30% in a full year. This compares to TPG monthly churn of 1.4% in 1H16 (i.e., 17% in full year).

Vocus Communications (VOC.AX / VOC AU) 17 8 April 2016

We assume some improvement in churn in our forecasts, but believe there upside to our estimates. For example if Vocus is able to reduce broadband churn by 5-10% per annum then this would equate to an additional 20-40k consumer broadband subscribers each year.

M2 has sizeable voice revenue base which will come under pressure M2 has a large base of customers that subscribe to voice as well as broadband. We expect voice revenues to come under increased pressure as more voice calls get bundled in NBN plans and as fixed to mobile substitution accelerates (driven by the fact that most mobile plans now have unlimited voice). M2 reported 411k consumer voice customers at end of 1H16, implying around 87% of consumer customers are on a voice/broadband bundled package. M2 reported broadband ARPU of A$44 in 1H16 and voice ARPU of A$38 (we estimate A$32 excluding equipment revenue). This implies ARPU for bundled subscribers of around A$82 (A$76 estimated excluding equipment revenue).

Figure 42: M2 broadband and voice ARPU (A$) Figure 43: Voice lines (000s) and bundle %

90 450 411 100% 392 80 400 384 90% 350 363 70 350 80% 70% 60 41 41 40 39 38 300 60% 50 250 50% 40 200 40% 30 150 30% 43 43 44 20 40 41 100 20% 10 50 10% 0 0 0% 1H14 2H14 1H15 2H15 1H16 1H14 2H14 1H15 2H15 1H16

Broadband Voice Voice customers % broadband/voice bundle

Source: Company data Source: Company data

NBN to have –A$15m EBITDA impact on M2 consumer earnings The Australian fixed line telecoms sector is entering a period of significant structural change as the market transitions to NBN. For most operators, the transition to NBN will result in a substantial increase in costs as they move from current low priced copper access products to much more expensive NBN fibre access products.

Figure 44: Telstra regulated access charges A$ Figure 45: NBN wholesale access cost A$

35 50 29.56 30 13 26.81 40 13 25 22.84 13 20.65 13 13 20 30 16.21 14.65 15 20 38 34 10 30 24 27 10 5 1.8 1.63 0 0 ULL LSS WLR Wholesale ADSL 12/1 Mbps 25/5 Mbps 50/20 Mbps 100/40 Mbps Average

Previous New (from 1 Nov 15) AVC CVC (average)

Source: ACCC Fixed Access Determination 2015 Source: NBN Corporate Plan and 1H16 results update

Vocus Communications (VOC.AX / VOC AU) 18 8 April 2016

We calculate that M2 will face a reduction in EBITDA as a result of the move to NBN. However, the headwind that M2 faces is much less than its peers as it is not currently benefiting from the same network efficiencies as other operators in the sector and is incurring high access costs due to:

■ Subscriber base mainly offnet – we estimate that over 80% of the M2 subscriber base is offnet and connected using relatively expensive Telstra wholesale broadband/voice access products (we estimate costs cA$40 per subscriber per month on average). ■ On-net network relatively inefficient – M2 has a fairly small base of on-net customers (we estimate around 75k), which are spread over a large number of exchanges (M2 has DSLAM's in 260 Telstra exchanges) and using expensive backhaul provided by Telstra. Overall we calculate that the move to NBN will have an approximate – A$15m impact on Vocus/M2 consumer voice and broadband EBITDA (3.5% of Vocus group EBITDA). This impact will be spread over the next few years as customers transition to NBN (so impact in any one year will be <1% of EBITDA). Our analysis takes into account an uplift in broadband ARPU under NBN, but this is more than offset by lower voice access line and calling revenues. We expect customers to increasingly sign up to standalone broadband plans, or plans with a bundled net phone but that don't include any calls, as they migrate to NBN. We outline our calculations in the table below.

Figure 46: Gross profit comparison ADSL vs NBN for M2 consumer base

i-Primus On-net bundle i-Primus Off-net bundle Dodo Off-net bundle Dodo broadband only A$ per sub per month ADSL NBN Diff ADSL NBN Diff ADSL NBN Diff offnet NBN Diff Total Broadband ARPU 53 71 18 53 71 18 40 57 17 40 57 17 60 Voice ARPU 32 4 -28 32 4 -28 32 4 -28 0 0 0 4 Bundle ARPU (ex GST) 85 75 -10 85 75 -10 72 61 -11 40 57 17 64

Broadband access cost -26 -39 -13 -40 -39 1 -40 -38 2 -40 -38 2 Voice access and call cost -5 -1 4 -5 -1 4 -5 -1 4 0 0 0 Telstra backhaul -5 0 5 Total access costs -36 -40 -4 -45 -40 5 -45 -39 6 -40 -38 2

Gross Profit per subscriber 49 35 -14 40 35 -5 27 22 -5 0 19 19 Gross margin 58% 47% 47% 46% 38% 37% 0% 34%

Number of subscribers 1H16 (000s) 74 19 278 60 431 EBITDA per annum (A$m) -12 -1 -16 14 -15 Source: Company data, Credit Suisse estimates

We expect M2 to be able to offset the impact of higher NBN costs through higher market share driven by:

■ Winning share in new regional markets that will open up to competition under NBN ■ Vocus/M2's competitive position will be improved as competitors (such as TPG) will no longer have the significant access cost advantage that they enjoy currently. ■ Lower churn under NBN We calculate that Vocus/M2 will need to add an additional 55k broadband subscribers (0.7% market share) under NBN to offset the A$15m negative impact from higher NBN costs. Telstra agreement – opportunity for better prices M2 currently has a 'whole of business' agreement with Telstra for wholesale voice and broadband products. The current contract comes up for renewal in June 2016 and there may be some opportunity to get better terms from Telstra given the c10% reduction in regulated fixed access prices from 1 November.

Vocus Communications (VOC.AX / VOC AU) 19 8 April 2016

Any impact would prove transitory given the transition to NBN, but could provide a short term boost to EBITDA in FY17. M2 – strong position in SMB market We believe one of the key attractions for Vocus in merging with M2 was its strong position in the difficult to access small business market. M2 has 47k small business broadband customers and 274k voice SIO's. We estimate M2 has around 90k SMB customers (assuming average of 3 voice lines per customer). We estimate this equates to around 10% share of the SMB market by number of customers (750k small businesses, with 2-20 employees). We estimate M2 generates total revenue from the small business segment of A$250m per annum (c25% of total Vocus Group revenue).

Figure 47: M2 business & wholesale revenue* A$m Figure 48: M2 business broadband and voice SIO's*

500 300 272 269 268 273 274 263 250 400

200 300 150 200 100

100 41 43 46 47 50 37 38

0 0 FY14 FY15 FY16F FY17F FY18F 1H13 2H13 1H14 2H14 1H15 2H15

Voice Broadband Other (mobile and equipment) Energy Broadband SIOs Voice SIOs

Source: Company data, Credit Suisse estimates. Australia only Source: Company data. Australia only

M2 services the small business market through the Commander brand and distributes to these customers through its direct sales force and indirect dealer channel. We do not expect the transition to NBN to be as disruptive to operator margin/earnings in the small business market as we anticipate in the consumer market. This reflects a number of key factors:

■ We expect that small businesses are more likely to sign up to the higher speed NBN plans. This means that there is an opportunity for a material step up in broadband ARPU as SMB customer's transition to NBN. For example, Commander charges A$134.95 for an NBN 50Mbs plan with 1000GB and A$144.95 for 100Mbs speed. This compares to M2's current business broadband ARPU of A$55 per subscriber. ■ We believe that the structural pressure on voice revenue will not be that severe in the SMB market. We expect businesses will still require land lines and will continue to value PABX type functionality (eg ability to route calls around the business, call conferencing etc.). Commander's Broadsoft IP telephony solution can offer a variety of value added features that we expect to be attractive to business customers. ■ The transition to NBN will be a major churn event for business customers as they review all their telecoms needs as they switch to an IP environment. We see this as an opportunity for M2 to win share in a market where Telstra still has a very high share. Customers sunk investment in legacy PABX equipment will no longer be a barrier to switching supplier. ■ Upsell opportunity – M2 has 274k business voice SIO's, but only 47k business broadband SIO's. There is an opportunity for M2 to upsell voice customers to a bundled voice/broadband solution as they transition to NBN.

Vocus Communications (VOC.AX / VOC AU) 20 8 April 2016

■ Fibre sale opportunity – Commander is now offering Vocus fibre internet products to its SMB customers (eg Unlimited internet 400Mbs for A$398). The diagram below shows how M2 sees the impact of the transition to an IP solution for SMB voice customers. Figure 49: Impact of NBN on M2 business customer

Source: M2 investor presentation

M2 NBN wholesale product M2 has entered into a 15 year IRU (indefeasible right of use) with Telstra to buy capacity to all 121 NBN points of interconnect (POI's). This has enabled M2 to launch a wholesale service that allows third party providers to sell NBN services without requiring network to get to the NBN POI's. Figure 50: M2 wholesale NBN Connect

Source: M2 2015 investor day presentation

Telstra, Optus and TPG all offer an NBN wholesale service, but we believe that M2 is the only provider, other than Telstra, that can currently access all the NBN POI's.

Vocus Communications (VOC.AX / VOC AU) 21 8 April 2016

We also believe that M2 offers a more flexible offering than other providers. For example M2 offers a range of services from just connecting to NBN POI's to a full service offering where M2 does all the billing and customer service. M2 says that it has been in talks with a number of potential customers over its wholesale NBN service and we believe that it could be a meaningful revenue contributor going forward. For example, on the assumption of 5% market share and 10% margin, we calculate potential revenue of A$300m and EBITDA of A$30m within 4-5 years. Vocus will be able to use its own fibre (rather than the Telstra capacity) to reach some of the POI's. We believe that it is trying to renegotiate the deal with Telstra in order to be able to just use the Telstra capacity to connect to the remaining POI's. If it can achieve this then this would increase overall available wholesale capacity and improve margins from the product. M2 is paying total capital contributions of A$41.8m over 6 years for the Telstra IRU (A$6.6m in FY16). M2 Energy – growing and profitable add-on M2 got into the energy reselling business with the acquisition of Dodo in 2013 and energy accounts for 9% of merged group revenue (FY15 proforma). M2 offers energy in VIC, NSW, QLD and SA. We estimate that market share is currently low at c1.5% in the markets in which it operates. Energy customers have been growing well, with 126k residential customers at 31 December 2015 and 20k net adds in the 12 months to December (equivalent to 19% customer growth). M2 also cross sells energy services to its business customers, with 3000 business energy subscribers when last reported at 31 June 2015.

Figure 51: Consumer energy net adds Figure 52: Consumer energy customers

30 200 25% 180 25 24 160 20% 140 20 120 15%

15 13 13 13 13 100 181 80 159 10% 10 137 7 60 113 93 40 5% 5 56 20 0 0 0% 2H13 1H14 2H14 1H15 2H15 1H16 FY13 FY14 FY15 FY16F FY17F FY18F

Source: Company data Source: Company data, Credit Suisse estimates

Energy re-selling has relatively low gross margins (19-20%), but the other incremental costs are low, particularly as it is generally cross sold with M2's broadband and voice services. M2 buys its capacity on a wholesale basis and then engages in hedging strategies to minimize the risk of being caught out by major price movements. M2 now has a number of years of experience and track record operating in the energy segment and we believe that energy offers a growing and profitable add on to its core broadband business. We took an in-depth look at the dynamics of M2's energy retailing business in this report: MTU.AX: M2 Group - A 16% organic growth story on 11.2x P/E; uncovering what the bears have missed..

Vocus Communications (VOC.AX / VOC AU) 22 8 April 2016

New Zealand – 18% of revenue The enlarged Vocus group has a sizeable exposure to New Zealand, with NZ accounting for 18% of revenue on a FY15 proforma basis and we estimate a similar proportion of EBITDA. Vocus's NZ assets consist of two main businesses:

■ Call Plus – this is a consumer and business ISP that was acquired by M2 in June 2015 for NZ$250m, equivalent to 5.5x FY16F EBITDA. The main brands are Slingshot (consumer ISP) and Call Plus (business ISP). When it acquired the business M2 said that it expected revenue of over NZ$250m and EBITDA of NZ$45m in FY16 (including NZ$5m synergies). ■ FX Networks – long distance fibre network servicing wholesale and large corporate customers. Vocus acquired FX in September 2014 for a price of A$108m, equivalent to c9x EBITDA. FX generated revenue of NZ$60m in FY13 and EBITDA of NZ$13.5- 14.5m annualised. Vocus includes FX revenue within its Fibre and Ethernet division. In the remainder of this section we focus on the Call Plus business and examine the key drivers and shifts going on in the NZ market as it transitions to UFB (ultra-fast broadband). Call Plus – No3 NZ ISP Call Plus is the No3 ISP in the NZ market with 187k broadband customers. Consumer broadband is its largest revenue stream and we calculate makes up c50% of revenue. Call Plus does have a fairly sizeable exposure to consumer voice, with 146k total consumer voice lines and consumer voice makes up c20% of revenue. The broadband subscriber base is currently only growing marginally (data subscribers were 187k at December 2015 vs 186k at June 2015) and we forecast revenue growth to be minimal in FY16. We are forecasting 25% growth in EBITDA to NZ$45m, in-line with M2 guidance at the time of the acquisition.

Figure 53: Call Plus revenue and EBITDA NZ$m Figure 54: Call Plus revenue profile A$m

300 300 258 260 244 250 234 250

79 200 200 72 74 77

150 150 50 52 50 47

100 100

45 124 50 36 50 114 117 120 19 24

0 0 FY13 FY14 FY15E FY16F FY15 FY16F FY17F FY18F

Revenue NZ$m EBITDA NZ$m Consumer broadband Consumer voice Business

Source: Company data, Credit Suisse estimates. FY15E at time of acquisition April 2015. M2 Source: Company data, Credit Suisse estimates said targeting revenue >NZ$250m and EBITDA NZ$45m in FY16 (at M2 FY15 results)

NZ fixed broadband market growing There were a total of 1.45m fixed broadband subscriptions in NZ at June 2015 according to the OECD. The official OECD stats show fixed broadband penetration of 32.5% of the population at June 2015, above Australia at 28%. This equates to penetration of total fixed lines of c78%. The NZ fixed broadband market added 60k new connections in 2015, equivalent to growth of c4% per annum.

Vocus Communications (VOC.AX / VOC AU) 23 8 April 2016

Figure 55: NZ market fixed broadband connections Figure 56: NZ market fixed broadband net adds

120 10% 1.6 1.45 90% 1.39 1.32 80% 100 9% 1.4 100 1.24 90 8% 1.14 70% 1.2 1.05 80 7% 60% 80 70 6% 1.0 60 50% 60 5% 0.8 40% 4% 0.6 40 30% 3% 2% 0.4 20% 20 1% 0.2 10% 0 0% 0.0 0% FY11 FY12 FY13 FY14 FY15 FY10 FY11 FY12 FY13 FY14 FY15 Net adds 000s Growth % Connections m Penetration population Penetration fixed connections

Source: OECD, NZ Commerce Commission Source: OECD, NZ Commerce Commission

We calculate that the three largest players have around 85-90% of the NZ broadband market, with Spark on 44%, Vodafone on 30% and M2's Call Plus No3 with c13% share. Structural change due to shift to UFB The NZ broadband market is undergoing significant structural change as a result of the shift to UFB (Ultra Fast Broadband). The network will reach around 75% of the population by 2020 and is currently around 20% complete. The UFB is a wholesale network, which is being built by Chorus in the main metropolitan centres and by a variety of individual LFC's (local fibre companies) in regional areas. The NZ Commerce Commission has set regulated access prices at which Chorus and the LFC's sell to RSP's (retail service providers). Unlike the NBN in Australia, there will be no mandated switch-over to fibre and no set time line for the copper network to be shut down. RSP's will therefore be selling both standard ADSL and fibre services to customers in the same areas for a number of years to come.

Figure 57: Chorus and LFC fibre connections 000’s Figure 58: Chorus and LFCs fibre penetration

180 100% 160 90% 80% 140 70% 120 60% 100 50%

80 40%

60 30%

40 20%

20 10% 0% 0 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25 LFC penetration CNU penetration LFC connections growth CNU connections growth

Source: First NZ estimates Source: First NZ estimates

Copper access prices are increasing There has been a lot of uncertainty and changes regarding regulated wholesale ADSL access pricing in NZ over the last 2-3 years. However, the uncertainty has now come to an end following a Commerce Commission final access determination handed down in December 2015. The outcome of that determination is that prices for ADSL access lines will increase by NZ$6-7 for both on-net and off-net lines from 31 December (see table below).

Vocus Communications (VOC.AX / VOC AU) 24 8 April 2016

The majority of the higher cost was immediately passed on to customers by RSP's, with all the three main operators increasing retail prices by cNZ$5 from the start of 2016 (including Call Plus).

Figure 59: Copper wholesale regulated access price (NZ$ per line per month) YE Dec NZ$ per line per month 2015 2016 2017 2018 2019 Comments UCLL (unbundled copper local loop) 23.52 29.75 30.22 30.70 31.19 UBA (unbundled bitstream access) 10.92 11.44 11.22 11.01 10.83 NZ$21.64 pre December 2014 On-net (UCLL only) 23.52 29.75 30.22 30.70 31.19 Increase of NZ$6.23 from 1 Jan 2016 Off-net (UCLL + UBA) 34.44 41.19 41.44 41.71 42.02 Increase of NZ$6.75 from 1 Jan 2016

Source: Commerce Commission NZ 15 Dec 2015, Spark 1H16 results presentation

Taking the higher wholesale and retail prices into account, we calculate a net cNZ$2.00 per customer per month negative impact on EBITDA as a result of the final pricing decision. Across a base of 187k broadband customers, this equates to –NZ$4m impact on Call Plus annualized EBITDA. This will start to impact from 2H16. Call Plus access costs will increase further under move to UFB Call Plus will face a further increase in its access cost as the customer base transitions to UFB fibre. However, we expect this to be largely offset by higher ARPU under fibre. The wholesale price for the entry level UFB Fibre 30 product is NZ$39.50 in FY16 and will rise to NZ$40.50 for FY17. This is broadly equivalent to the latest off-net copper access pricing, so there will be no material change in access price for Call Plus off-net subscribers. Figure 60: UFB fibre wholesale regulated access price (NZ$ per line per month) YE Jun NZ$ FY15 FY16 FY17 FY18 FY19 Comments Fibre 30 38.50 39.50 40.50 41.50 42.50 Copper equivalent cost $29.75 on-net and $41.19 off-net Fibre 100 54.00 53.00 52.00 51.00 49.90 Copper equivalent cost $29.75 on-net and $41.19 off-net

Source: Commerce Commission NZ 15 Dec 2015, Spark 1H16 results presentation

However, there will be a cNZ$10 per line increase in access price for Call Plus on-net customers that transition to UFB fibre. We estimate that on-net accounts for around 50% of the subscriber base. We expect the higher access cost to be offset by higher broadband ARPU for fibre customers. ISP's are generally setting fibre pricing at similar levels to ADSL (see table below). However, we expect rising usage under fibre to push customers up into the higher priced products.

Figure 61: NZ ADSL and fibre retail pricing NZ$ per month Slingshot 100GB 150GB Unlimited Comments ADSL 74.95 84.95 94.95 Including home phone. A$5 less for naked Ultra fast fibre 30 74.95 84.95 94.95 30Mbs download/10Mbs upload Ultra fast fibre 100 79.95 89.95 99.95 Spark 80GB Unlimited ADSL 74.99 104.99 $10 less for naked Ultra fast fibre 30 69.99 99.99 Ultra fast fibre 100 79.99 99.99 Unlimited normally $109.99

Source: Company websites

Whilst broadband ARPU will be higher under fibre, we expect voice ARPU to be lower. Call Plus had 146k phone line customers at 31 December (vs 187k broadband subscribers), implying nearly 80% of subscribers are on a bundled broadband/voice package.

Vocus Communications (VOC.AX / VOC AU) 25 8 April 2016

Call Plus bundled ARPU was NZ$88 for 1H16 (NZ$56 for broadband plus NZ$32 for phone line customer). We expect this to decline slightly under fibre as lower voice ARPU more than offsets higher ARPU from broadband. However, we do expect a solid ARPU uplift from current standalone ADSL broadband customers that will transition to higher priced fibre products. The table below shows that on a blended overall basis we calculate a small reduction in Call Plus gross profit as a result of transition to UFB. The transition will take place over a number of years; co the impact in any individual year will only be small. Figure 62: ADSL vs UFB fibre gross profit analysis (NZ$ per sub per month) Bundle Bundle Standalone ADSL UFB ADSL UFB ADSL UFB On-net Fibre* Diff Off-net Fibre* Diff Off-net Fibre* Diff Total Broadband ARPU 56 76 20 56 76 20 56 76 20 Voice ARPU 32 5 -27 32.1 5 -27 0 0 0 Bundle ARPU 88 81 -7 88 81 -7 56 76 20

Broadband access cost -30 -40 -10 -41 -40 1 -41 -40 1 Voice call costs -5 -1 4 -5 -1 4 0 0 0 Total access cost -35 -41 -6 -46 -41 5 -41 -41 0

Gross profit per sub 53 40 -13 42 40 -2 15 35 20

Number of subscribers FY15 000s 73 73 41 187 EBITDA per annum NZ$m -11 -1 10 -3 Source: Company data. Fibre bundle ARPU based on Fibre 30 pricing assuming 25% 100GB, 25% 150GB and 50% unlimited FX Networks to support Call Plus We expect that the combination of FX Network with Call Plus will open up a number of opportunities to generate efficiencies and grow market share. FX Networks has a dense national fibre network that reaches all the UFB POI's (points of interconnect). We expect there to be some sizeable savings from transferring Call Plus backhaul traffic onto the FX network. We also believe that FX Networks is well placed to benefit from the roll-out of UFB as the UFB will dive growth in overall data traffic and demand from FX reseller and wholesale customers. Vocus is also well positioned to capture trans-Tasman business from corporate and wholesale customers as it is the only trans-Tasman fibre operator.

Vocus Communications (VOC.AX / VOC AU) 26 8 April 2016

Acquisitions – still opportunities for growth We believe that there is still opportunity for Vocus to grow by acquisition in its core Australian market. The main options are:

■ Macquarie Telecom (MAQ.AX) – Macquarie Telecom is listed on the ASX with a A$195m market cap (A$170m EV after A$25 net cash). MAQ provides hosting and telecom services to corporate and government customers. MAQ is 59% owned by Claiward Pty Ltd (CEO David Tudehope and Aidan Tudehope). MAQ trades on a multiple of 5.0x FY16F EBITDA (company guidance for EBITDA of A$31-33m vs A$26m in FY15). Vocus already owns a 16.2% stake in MAQ worth A$27m (initial 14.5% stake acquired for A$15.6m in April 2015). ■ NextGen – NextGen owns a national fibre network spanning over 17,000 km and has ten data centres around the country. An acquisition of Nextgen would give Vocus access to inter-city fibre, which it does not currently own (Vocus currently relies on Nextgen for intercity network). NextGen Networks was originally a fully owned division of Leighton Holdings until it sold a 70% stake to Ontario Teachers' Pension Plan in June 2013 for A$620m (valuing 100% of Nextgen at A$885m). Leighton said at the time of the transaction that Nextgen delivered annualised revenue of A$260m and EBITDA of A$120m in CY12 (i.e., transaction at multiple of 7.4x EBITDA). Recent ratings agency reports forecast Nextgen's debt to EBITDA ratio to be above 5x in FY16. Based on debt of US$375m (A$500m) implies EBITDA of around A$100m (S&P says it expects EBITDA to decline mid-single digit in FY16). 9% of revenue is from Vodafone (source Moody's), which we would expect to be at risk due to TPG's contract to roll-out a dark fibre network for Vodafone. ■ Next DC (NXT.AX) – Next DC is a carrier neutral data hosting provider with five Tier III certified data centres in Sydney, Melbourne, Brisbane, Perth, and Canberra. It has plans for two more centres (Brisbane and Melbourne). NXT has a A$670m market cap and A$225m cash on balance sheet. The company expects revenue of A$85-90m in FY16F (+40-48% vs pcp) and EBITDA of A$25-28m. ■ Exetel – Exetel is the largest remaining independent ISP with around 120,000 subscribers (according to company website). Exetel is family owned. Recent comments from the ACCC effectively rules out any further consolidation amongst the top four ISPs. The ACCC also stated that it would look very closely at any mergers between operators in the wholesale market. We do not believe that this would be a major barrier for Vocus as its' wholesale revenues are mainly from international IP transit. Vocus does not own a domestic intercity network, which we believe was the focus of the ACCC's comments.

Vocus Communications (VOC.AX / VOC AU) 27 8 April 2016

Financial forecasts – FY17F EPS raised 3% We raise FY17F EPS by 4% to 42.0cps (from 40.2cps previously) to reflect lower D&A (following a review of our D&A forecasts as outlined in Appendix 2) and slightly lower interest expense. Our EBITDA forecasts are broadly unchanged. We forecast EPS to increase 79% in FY16 on a reported basis (including M2 from 22 Feb) and by 39% in FY17F. Figure 63: Vocus Group changes to forecasts (including M2 for 4.25 months in FY16) FY16F FY17F Growth YE June A$m FY15 FY15PF** Previous Revised Change Previous Revised Change FY16F FY17F Revenue 149.0 1651.0 888.5 898.2 1% 1881.2 1880.5 0% 503% 109% Cost -97.4 -1335.0 -659.5 -668.9 1% -1451.7 -1449.2 0% 587% 117% EBITDA 51.6 316.0 229.0 229.3 0% 429.5 431.3 0% 345% 88% D&A* -18.1 -76.2 -45.6 -48.0 5% -85.9 -77.3 -10% 165% 61% EBIT 33.5 239.8 183.4 181.3 -1% 343.6 354.0 3% 442% 95% Interest -5.3 -41.0 -20.7 -20.7 nm -37.4 -34.8 -7% 292% 68% Tax -10.1 -59.6 -48.8 -48.2 -1% -91.8 -95.8 4% 379% 99% NPAT* (norm) 18.1 139.2 113.9 112.5 -1% 214.3 223.5 4% 520% 99% Customer base amortisation (post tax) -17.7 -21.8 -21.8 0% -58.1 -58.1 0% nm nm NPAT reported 20 nm 92 91 -2% 156 165 6% 357% 82% NOS (m) 107.0 531.9 371.2 371.2 0% 532.5 532.5 0% 247% 43% EPS norm diluted (cps) 17.0 26.2 30.7 30.3 -1% 40.2 42.0 4% 79% 39% DPS (cps) 8.3 8.3 18.5 18.5 0% 20.1 21.0 4% 123% 14% Capex 35 59 104 110 5% 119 116 -3% 217% 5% Net debt 105 672 612 617 1% 509 511 0% 490% -17% Vocus standalone Revenue 149 331 371 367 -1% 416 408 -2% 11% 11% EBITDA 52 105 133 134 0% 170 169 -1% 27% 26% M2 standalone (proforma) Revenue 1095 1328 1398 1416 1% 1465 1473 1% 7% 4% EBITDA (ex synergies) 178 211 228 228 0% 245 243 -1% 8% 6% Synergies na na 4 4 na 15 20 nm nm nm EBITDA (inc synergies) 178 211 232 232 0% 260 263 1% 10% 13% Source: Company data, Credit Suisse estimates. *D&A and normalised NPAT exclude customer base amortisation. **Proforma Vocus/Ammcom/M2 as outlined in M2 Scheme booklet (ex A$16m customer amortisation uplift). Proforma financial forecasts On a proforma basis (including M2 as if it was owned for the full period in both FY16 and FY15), we forecast EBITDA to grow 16% in FY16 to A$366m and by 18% in FY17 to A$431m. Our FY17 forecasts include A$20m of M2 synergy benefits from M2 and A$13m from Amcom. We forecast proforma EPS growth of 27.5% in FY16 and 25.7% in FY17F. Figure 64: Vocus Group proforma forecasts VOC/Amm M2 Proforma VOC/Amm M2 Proforma Growth YE June A$m FY15PF FY15PF FY15 FY16F FY16F FY16F FY17F FY16PF FY17F Revenue 331 1328 1631 357 1416 1773 1880 8.7% 6.1% Cost -226 -1117 -1343 -223 -1184 -1407 -1449 4.8% 3.0% EBITDA 105 211 316 134 232 366 431 15.8% 17.9% D&A* -38 -38 -76 -38 -35 -73 -77 -3.9% 5.6% EBIT 67 173 240 96 197 293 354 21.9% 21.0% Interest -12 -29 -41 -39 -35 -5.0% -10.7% Tax -18 -43 -60 -76 -96 27.5% 25.8% NPAT norm 37 101 139 178 223 27.5% 25.8% NOS 232 531.9 531.9 532 0.0% 0.1% EPS norm (cps) 15.8 26.2 33.4 42.0 27.5% 25.7% Net debt 185 471 672 617 511 -8.2% -17.2%

Source: Company data, Credit Suisse estimates. Vocus FY15 PF for Amcom (acquired 8/7/15). M2 FY15 PF for Call Plus (acquired 1 Jun 15). Merged proforma Vocus and M2 (ex A$16m EBITDA uplift for customer contract amortisation). *ex customer contract amortization. FY15 adjusted for sale of Amcom IT service business

Vocus Communications (VOC.AX / VOC AU) 28 8 April 2016

Capex – low at c6% of sales Proforma combined capex for the merged business was A$91m in FY15, equivalent to 5.5% of revenue. We forecast capex to increase to A$110m in FY16 including a A$20m IRU payment for additional capacity on the Southern Cross cable (will add 10x to existing capacity – payments over 6 years from December 2015). M2's capex to sales revenue has historically been very low at around 2.5%. Vocus/Amcom had a capex to sales ratio of around 16% FY15PF. The majority of Vocus/Amcom capex is customer related, and we expect the ratio of capex to sales to come down (ex IRU) as Vocus adds more customers in existing buildings. Our capex forecasts do not include potential JV investment on the Australia-Singapore cable (ASC), which is expected to cost US$120-130m to build and will have an 18 month construction period (starting from early 2016).

Figure 65: Capex (A$m) and capex/sales Figure 66: Net debt and net debt/EBITDA

140 7.0% 800 2.0x 6.3% 6.1% 671 5.5% 5.7% 700 1.8x 120 6.0% 617 1.6x 16 13 600 100 20 5.0% 511 1.4x 500 1.2x 80 28 4.0% 383 400 1.0x 60 3.0% 0.8x 101 101 300 29 91 40 2.0% 0.6x 200 105 0.4x 20 1.0% 35 100 0.2x 0 0.0% 0 0.0x FY15PF FY16F FY17F FY18F FY15 1H16PF FY16F FY17F FY18F

Vocus Amcom M2 IRU Capex/sales % Net debt Net debt/EBITDA (proforma)

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Net debt 1.8x FY16 proforma EBITDA The company has said that net debt was A$671m on a proforma basis including M2 consideration. This equates to 1.8x FY16F proforma EBITDA

Vocus Communications (VOC.AX / VOC AU) 29 8 April 2016

Valuation and investment view Our DCF valuation increases to A$8.38 from A$8.00 previously due to higher longer term revenue growth forecasts. Our DCF valuation is based on a WACC of 8.5% and 3.0% terminal growth rate. We raise our target price to A$9.20 (from A$8.00 previously) as we now attach a c10% premium to valuation to reflect Vocus strong track record of creating shareholder value (this is the same as the 10% premium that we attach to our TPG valuation) and potential upside from further M&A. The premium also reflects high multiples across the sector (TPG trading on 24x FY17F PE). Our Outperform rating is unchanged.

Figure 67: Vocus sum of the parts valuation (using divisional DCF) EBITDA (A$m) Multiple Valuation Divisional SOP YE June FY16PF FY17F FY16PF FY17F A$m A$ps Comment Corporate/wholesale (Vocus/Amcom) 133.9 168.8 17.3x 13.8x 2,322 4.37 A$686m for Amcom Jul15 Consumer/SMB (M2) 231.9 242.5 10.3x 9.9x 2,394 4.50 A$2.2bn for M2 in Feb16 M2 synergies 5.0 20.0 nm nm 380 0.71 A$40m annual synergies FY18 Enterprise value 365.8 431.3 13.9x 11.8x 5,096 9.58 Macquarie Telecom stake (16%) 32 0.06 At MAQ share price Less Net Debt (1H16 proforma) -671 -1.26 A$671m 1H16 pro forma Equity Value 4,457 8.38 532m shares in issue

Source: Credit Suisse estimates. WACC 9.0% and terminal growth 3.0% for consumer and 3.5% for Corporate.

Vocus trades at a discount to TPG Vocus trades at a PE multiple discount to TPG Telecom, which we see as its closest peer (see table below). Figure 68: Vocus and TPG peer multiples Share Mkt Cap P/E EV/EBITDA Dividend Yield Price A$mn FY16PF* FY17F FY18F FY16PF FY17F FY18F FY16F FY17F Vocus 8.54 4543 25.6x 20.3x 17.7x 14.3x 12.1x 10.9x 2.2% 2.5% TPG 11.20 9503 27.0x 23.6x 21.3x 13.7x 12.2x 11.3x 1.3% 1.6% Amaysim 1.86 335 16.5x 12.3x 10.9x 10.4x 7.6x 6.8x 4.3% 5.9%

Source: Company data, Credit Suisse estimates. *Vocus FY16 multiples based on proforma merged group forecasts

We would argue that Vocus should trade at least at parity to TPG and even possibly deserves a premium. This reflects a number of factors:

■ Vocus is growing revenue faster than TPG. We forecast Vocus revenue to grow 8.7% in FY16 proforma vs 3.3% for TPG. Vocus is driving earnings growth from revenue growth, whereas TPG's growth is primarily from cost efficiencies. ■ Vocus forecast to generate superior EBITDA growth. We forecast Vocus and TPG to grow EBITDA at a similar rate on a proforma basis in FY16 (+15% for both companies). We forecast Vocus EBITDA growth to outperform TPG in FY17F (Vocus +18% in FY17F proforma vs +11% for TPG). We note that TPG EBITDA is being boosted by A$40m of temporary savings from regulated access costs in FY16 and FY17 (+5% to EBITDA). ■ Vocus has less exposure to NBN margin headwinds. Australian Consumer broadband/voice accounts for c25% of Vocus/M2 revenue vs 65% for TPG. Vocus/M2 is already paying high cost of access as the majority of customers are 'off-net' so its costs will go up by less than TPG as subscribers transition to NBN. We calculate an NBN EBITDA headwind of A$15m for Vocus vs A$170m for TPG.

Vocus Communications (VOC.AX / VOC AU) 30 8 April 2016

Figure 69: EBITDA growth – Vocus vs TPG Figure 70: EPS growth – Vocus vs TPG

20% 80% 18% 70% 16% 60% 14% 12% 50% 10% 40% 8% 30% 6% 20% 4% 2% 10% 0% 0% FY16PF FY17PF FY18F FY19F FY20F FY16F FY17F FY18F FY19F FY20F

VOC TPG VOC TPG

Source: Company data, Credit Suisse estimates. FY16F and FY17F based on proforma for Source: Company data, Credit Suisse estimates both Vocus and TPG

TPG has a larger overall Corporate/wholesale business than Vocus, but TPG is more heavily reliant on wholesale. We forecast TPG corporate/wholesale division to generate revenues of A$650m in FY16F vs A$360m for Vocus (ex. M2). We calculate that around 25-30% of Vocus/Amcom revenues are from wholesale. This compares to 49% of corporate division revenues from wholesale for TPG (high wholesale exposure reflects due to AAPT intercity network). Wholesale is high margin revenue and is benefiting from overall growth in data traffic. However, wholesale customers are less sticky than corporate customers and pricing pressure is generally more severe in the wholesale segment. Corporate customers cost more to service and are lower margin, but are stickier and offer potential to upsell additional products. In terms of pure corporate revenue we estimate TPG is around 30-35% larger than Vocus/Amcom. Figure 71: Vocus (ex M2) vs TPG corporate & Figure 72: Vocus (ex M2) vs TPG corporate & wholesale revenue mix FY16F wholesale revenue mix (ex. voice) FY16F

700 A$655m 600 TPG corporate/wholesale revenues c90% TPG corporate/wholesale internet/data A$498m larger than Vocus/Amcom revenue c55% larger than Vocus/Amcom 600 500

500 334 131 51% 400 A$350m A$323m 400 300 85 300 200 200 260 75% 367 321 49% 238 100 100 87 25% 0 0 Vocus TPG Vocus TPG

Wholesale Corporate Data Internet

Source: Company data, Credit Suisse estimates. Vocus/Amcom (ex M2) excluding Amnet. Source: Company data, Credit Suisse estimates. Vocus/Amcom (ex M2) excluding Amnet. Amcom IP voice classified as data

A potential negative factor when comparing Vocus to TPG is that M2 has a high exposure to voice in its small business segment. However, as outlined in this report we expect traditional voice can convert to IP voice in the SMB segment without too much impact on EBITDA. Bull and Bear valuation Our bull case Vocus valuation is A$9.90 per share. This is calculated by attaching a TPG 24x FY17F PE multiple to Vocus FY17F EPS.

Vocus Communications (VOC.AX / VOC AU) 31 8 April 2016

Our bear case valuation is A$7.70, based on a multiple of 19x FY17F PE (same multiple as implied by our A$9.00 TPG target price). We outline impact of changes on key assumptions on our valuation in table below Figure 73: Bull/bear scenario analysis – impact on valuation (A$)

Bear Base Bull Bear Base Bull Corporate market share 5% 7% 9% 7.90 8.38 8.86 Consumer market share 7.0% 8.5% 12.0% 7.93 8.38 9.43 M2 Synergies 35 40 60 8.28 8.38 8.75

Source: Company data, Credit Suisse estimates Historic PE multiples The charts below show historic PE multiples for the key stocks in the sector (VOC, MTU, TPM, and IIN).

Figure 74: VOC and MTU PE multiple (12m forward) Figure 75: TPM and IIN PE multiple (12m forward)

30x Amcom acquisition announced 30x TPG iiNet acquisition announced 25x 25x 20x 20x 15x 15x 10x 10x

5x Voc/M2 merger announced 5x

0x 0x

Jul-11 Jul-12 Jul-13 Jul-14 Jul-15

Jul-11 Jul-12 Jul-13 Jul-14 Jul-15

Jan-12 Jan-14 Jan-16 Jan-13 Jan-15

Oct-11 Oct-12 Oct-13 Oct-14 Oct-15

Jan-12 Jan-13 Jan-14 Jan-15 Jan-16

Apr-11 Apr-12 Apr-13 Apr-14 Apr-15 Apr-16

Oct-12 Oct-13 Oct-14 Oct-11 Oct-15

Apr-13 Apr-14 Apr-15 Apr-11 Apr-12 Apr-16

VOC MTU AMM TPM IIN

Source: Thomson Reuters Datastream, I/B/E/S. Based on IBES consensus forecasts 12m Source: Thomson Reuters Datastream, I/B/E/S. Based on IBES consensus forecasts 12m forward rolling forward rolling

Vocus Communications (VOC.AX / VOC AU) 32 8 April 2016

HOLT valuation summary Applying key Credit Suisse Research analyst estimates through our HOLT® framework results in an A$8.73 valuation. This valuation initially uses eight years of key analyst estimates to drive CFROI® forecasts, before proprietary algorithms determine the “rate of fade” towards the long-run average CFROI (6%). Link to HOLT Lens scenario: https://holtlens.credit-suisse.com/dal/TaNmUeIkr4nwIC1

Figure 76: CS Holt summary for Vocus

Source: Company data, Credit Suisse estimates

Vocus Communications (VOC.AX / VOC AU) 33 8 April 2016

Appendix Appendix 1 - Underlying business performance for Vocus, Amcom and M2 Vocus Group headline financials in FY15 and 1H16 were significantly impacted by acquisitions (FX, Amcom, EDC, and Call Plus). In the section below we look at the underlying revenue and EBITDA growth rates for Vocus, Amcom and M2 to see how the individual businesses are performing Vocus/Amcom revenue growth strong at +16% in 1H16 proforma We estimate that the underlying Vocus/Amcom business (i.e., ex. M2) grew revenue by 16% on a proforma basis in 1H16, and we forecast 18% in FY16 (our calculations adjust FY15 and 1H15 for Amcom, FX Networks EDC and strip out the Amcom IT services business sold in the period). We forecast underlying EBITDA growth of 27% in FY16. Figure 77: Vocus (inc Amcom) proforma revenue and EBITDA growth YE June A$m FY15PF FY16F FY17F FY18F 1H15PF 1H16 Revenue 303 357 408 450 143 166 growth na 18% 14% 10% na 16% Costs -198 -223 -239 -253 na -104 growth na 13% 7% 6% na na EBITDA 105 134 169 197 na 62 growth na 27% 26% 17% na na

Source: Company data, Credit Suisse estimates. 1H15 and FY15 proforma adjusted for Amcom (ex IT services), FX Networks, Bentley and EDC

Amcom – core revenue +9% in 1H16 Amcom revenue growth remained robust in the first six months of Vocus ownership (Amcom included for a full six months in 1H16), with revenue for Amcom's core Data Networks and Hosted & Cloud divisions +9% in 1H16 (similar to the 10% growth reported in FY15). Amcom's growth has remained robust given economic weakness in its core WA market. Figure 78: Amcom summary P&L YE June A$m FY12 FY13 FY14 FY15 1H15 1H16 Revenue 135.4 157.5 170.1 165.7 80.6 82.8 growth 56% 16% 8% -3% -3% 3% Costs -101.4 -117.5 -123.4 -117.1 -57.6 na growth 75% 16% 5% -5% -5% na EBITDA 34.0 40.0 46.7 48.6 23.0 na growth 18% 18% 17% 4% 3% na Revenue by division Data Networks 64.7 73.4 88.7 95.8 47.3 50.4 growth 18% 13% 21% 8% 6% 7% Hosted & Cloud 25.2 25.9 27.4 31.6 14.9 17.1 growth 23% 3% 6% 16% 15% 15% Data & hosted combined 89.9 99.3 116.1 127.4 62.1 67.5 growth 10% 17% 10% 12% 9% Amnet 10.5 9.9 10.2 10.1 5.1 5.1 growth -8% -6% 3% -1% -1% 0% IT services (disposed Dec15) 35.0 48.2 43.8 28.2 13.4 10.3 growth na 38% -9% -36% -25% -23% Source: Company data,

M2 growth relatively weak in 1H16, but forecast to improve in 2H M2 revenue growth was robust in 1H16, although EBITDA growth was impacted by higher costs including the roll-out of new kiosks in the period.

Vocus Communications (VOC.AX / VOC AU) 34 8 April 2016

We calculate that M2 revenue grew by c7% on a proforma basis in 1H16 and EBITDA by c3% (we have adjusted 1H15 and FY15 revenue and EBITDA to include a full period of Call Plus in NZ which was acquired on 1 June 2015). Figure 79: M2 proforma revenue and EBITDA (FY15 adjusted for Call Plus) YE June A$m FY15PF FY16F FY17F FY18F 1H15PF 1H16 Revenue 1,328 1,416 1,473 1,525 661 707 growth na 7% 4% 4% na 7% Costs -1,117 -1,184 -1,210 -1,253 -560 -603 growth na 6% 2% 3% na 8% EBITDA 211 232 263 272 101 105 growth na 10% 13% 4% na 3%

Source: Company data, Credit Suisse estimates. FY15PF includes Call Plus for 12m proforma vs 1m actual), Call Plus acquisition closed 1 June 2015. M2 said expected Call Plus revenue of above NZ$250m and A$45m EBITDA in FY16 (vs NZ$36m in FY15E)

Despite the relatively subdued M2 EBITDA growth in 1H16, the company re-iterated prior guidance for M2's NPAT to grow 30-35% on a reported basis in FY16 (from FY15 reported NPAT base of A$73.7m). We calculate that this guidance implied M2 FY16 EBITDA of A$231-236m, equivalent to growth of 9-12% on a proforma basis (see table below for calculations). Figure 80: M2 guidance for FY16 (provided at time of FY15 results) Low High YE June A$m FY15 FY16F FY16F Comment EBITDA (CS calculation) 181 231 236 Original FY15 guidance implied FY16 EBITDA of A$235-240m growth proforma nm 9% 12% From base of A$211m proforma in FY15 D&A -24 -35 -35 Guidance for A$35.2m D&A in FY16 Interest -13 -27 -27 M2 had A$487m net debt at end FY15 Tax -44 -48 -49 Assume 28% effective tax rate in FY16 NPAT underlying 100 121 125 Customer base amortisation -18 -25 -25 Guidance for A$36.3m in FY16 pre tax Transaction costs -8 0 0 For Call Plus acquisition NPAT reported 74 96 99 Gudance for 30-35% growth in reported NPAT growth nm 30% 35% Source: Company data, Credit Suisse estimates.

Our forecast for M2 FY16 EBITDA of A$232m is at the low end of the guidance range, but still requires an improvement in EBITDA growth in 2H, which we expect to be driven by:

■ Some margin improvement as revenue starts to come through from kiosk investment in 1H16. ■ Call Plus synergies will be higher in 2H (NZ$5m in full year) ■ Initial synergies from the Vocus merger ■ Full 6 months benefit of lower access prices for on-net broadband subscribers Our M2 forecasts include A$20m synergy savings from the Vocus merger in FY17F and A$33m in FY18F (cumulative). Company guidance is for A$40m synergies by end FY18. Appendix 2 – depreciation analysis We reduce our forecast for Vocus FY16 proforma D&A (ex. intangible customer base amortization) to A$73m (from A$80m previously). This is based on Vocus standalone D&A of A$18m in 1H16 (i.e., A$36m run rate for full year), plus M2 previous guidance for D&A of A$35.2m in FY16 ex customer base amortization (guidance provided at M2 FY15 result). We also reduce FY17F D&A to reflect the lower FY16 starting base. On an FY16 reported basis our forecast D&A goes up slightly (i.e., including M2 from 22 Feb).

Vocus Communications (VOC.AX / VOC AU) 35 8 April 2016

Companies Mentioned (Price as of 08-Apr-2016) Amaysim (AYS.AX, A$1.86) Macquarie (MAQ.AX, A$9.3) NextDC (NXT.AX, A$2.8) TPG Telecom (TPM.AX, A$11.2) Telstra Corporation (TLS.AX, A$5.16) Vocus Communications (VOC.AX, A$8.58, OUTPERFORM, TP A$9.2)

Disclosure Appendix Important Global Disclosures Fraser McLeish and Lucas Goode each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

3-Year Price and Rating History for Vocus Communications (VOC.AX)

VOC.AX Closing Price Target Price Date (A$) (A$) Rating 19-Jun-13 2.11 2.38 O 29-Aug-13 2.14 2.74 12-Feb-14 3.18 NR † 13-Feb-14 3.16 2.74 O *† 27-Feb-14 3.68 4.42 † 11-Mar-14 4.44 R † 14-Mar-14 4.45 5.25 O † 02-Jul-14 5.01 R † 15-Jul-15 5.39 7.26 O † OUTPERFORM 28-Aug-15 5.81 7.13 † N O T RA T ED 22-Sep-15 6.36 R REST RICT ED

26-Feb-16 7.33 7.98 O * * Asterisk signifies initiation or assumption of coverage. †Indicates CSEC coverage The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months. Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ra tings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 12-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which was in operation from 7 July 2011. Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward. Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation: Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months. Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months. Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months. *An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.

Vocus Communications (VOC.AX / VOC AU) 36 8 April 2016

Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution Rating Versus universe (%) Of which banking clients (%) Outperform/Buy* 57% (39% banking clients) Neutral/Hold* 31% (29% banking clients) Underperform/Sell* 11% (45% banking clients) Restricted 1% *For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors. Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein. Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research-and- analytics/disclaimer/managing_conflicts_disclaimer.html Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties.

Target Price and Rating Valuation Methodology and Risks: (12 months) for Vocus Communications (VOC.AX) Method: Our $9.20 Target Price is set at a 10% premium to our DCF valuation (8.5% discount rate and 3.0% terminal growth rate) to reflect Vocus strong trach record of generating shareholder value and high peer multiples in the sector. Our Outperform rating is informed by our belief that VOC can continue to take share in the corporate fibre and Internet markets, its attractive high ROIC business model and the positive merger benefits of the combination of VOC with MTU. Risk: The primary risks to our $9.20 target price are loss of market share in the corporate or consumer telecommunications markets and price deflation in the Data Centre and fibre segments. Execution and integration risk following recent acquisitions is the key risk to our Outperform rating.

Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the target price method and risk sections. See the Companies Mentioned section for full company names The subject company (VOC.AX, TLS.AX) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse. Credit Suisse provided investment banking services to the subject company (VOC.AX) within the past 12 months. Credit Suisse has received investment banking related compensation from the subject company (VOC.AX) within the past 12 months Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (VOC.AX, TPM.AX, NXT.AX, TLS.AX) within the next 3 months. Credit Suisse has a material conflict of interest with the subject company (VOC.AX) . Credit Suisse Emerging Companies is the sole financial advisor to Vocus Communications Ltd for its merger with M2 Group Ltd. For other important disclosures concerning companies featured in this report, including price charts, please visit the website at https://rave.credit- suisse.com/disclosures or call +1 (877) 291-2683. Important Regional Disclosures Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report. The analyst(s) involved in the preparation of this report may participate in events hosted by the subject company, including site visits. Credit Suisse does not accept or permit analysts to accept payment or reimbursement for travel expenses associated with these events. Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares. Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report. For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit https://www.credit- suisse.com/sites/disclaimers-ib/en/canada-research-policy.html. Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (VOC.AX, TPM.AX) within the past 3 years. As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report. Principal is not guaranteed in the case of equities because equity prices are variable. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that. To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the

Vocus Communications (VOC.AX / VOC AU) 37 8 April 2016

NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Credit Suisse Equities (Australia) Limited ...... Fraser McLeish ; Lucas Goode Important Credit Suisse HOLT Disclosures With respect to the analysis in this report based on the Credit Suisse HOLT methodology, Credit Suisse certifies that (1) the views expressed in this report accurately reflect the Credit Suisse HOLT methodology and (2) no part of the Firm’s compensation was, is, or will be directly related to the specific views disclosed in this report. The Credit Suisse HOLT methodology does not assign ratings to a security. It is an analytical tool that involves use of a set of proprietary quantitative algorithms and warranted value calculations, collectively called the Credit Suisse HOLT valuation model, that are consistently applied to all the companies included in its database. Third-party data (including consensus earnings estimates) are systematically translated into a number of default algorithms available in the Credit Suisse HOLT valuation model. The source financial statement, pricing, and earnings data provided by outside data vendors are subject to quality control and may also be adjusted to more closely measure the underlying economics of firm performance. The adjustments provide consistency when analyzing a single company across time, or analyzing multiple companies across industries or national borders. The default scenario that is produced by the Credit Suisse HOLT valuation model establishes the baseline valuation for a security, and a user then may adjust the default variables to produce alternative scenarios, any of which could occur. Additional information about the Credit Suisse HOLT methodology is available on request. The Credit Suisse HOLT methodology does not assign a price target to a security. The default scenario that is produced by the Credit Suisse HOLT valuation model establishes a warranted price for a security, and as the third-party data are updated, the warranted price may also change. The default variable may also be adjusted to produce alternative warranted prices, any of which could occur. CFROI®, HOLT, HOLTfolio, ValueSearch, AggreGator, Signal Flag and “Powered by HOLT” are trademarks or service marks or registered trademarks or registered service marks of Credit Suisse or its affiliates in the United States and other countries. HOLT is a corporate performance and valuation advisory service of Credit Suisse. For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at https://rave.credit- suisse.com/disclosures or call +1 (877) 291-2683.

Vocus Communications (VOC.AX / VOC AU) 38 8 April 2016

References in this report to Credit Suisse include all of the subsidiaries and affiliates of Credit Suisse operating under its investment banking division. For more information on our structure, please use the following link: https://www.credit-suisse.com/who-we-are This report may contain material that is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject Credit Suisse AG or its affiliates ("CS") to any registration or licensing requirement within such jurisdiction. All material presented in this report, unless specifically indicated otherwise, is under copyright to CS. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party, without the prior express written permission of CS. All trademarks, service marks and logos used in this report are trademarks or service marks or registered trademarks or service marks of CS or its affiliates. The information, tools and material presented in this report are provided to you for information purposes only and are not to be used or considered as an offer or the solicitation of an offer to sell or to buy or subscribe for securities or other financial instruments. CS may not have taken any steps to ensure that the securities referred to in this report are suitable for any particular investor. CS will not treat recipients of this report as its customers by virtue of their receiving this report. The investments and services contained or referred to in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about such investments or investment services. Nothing in this report constitutes investment, legal, accounting or tax advice, or a representation that any investment or strategy is suitable or appropriate to your individual circumstances, or otherwise constitutes a personal recommendation to you. CS does not advise on the tax consequences of investments and you are advised to contact an independent tax adviser. Please note in particular that the bases and levels of taxation may change. Information and opinions presented in this report have been obtained or derived from sources believed by CS to be reliable, but CS makes no representation as to their accuracy or completeness. CS accepts no liability for loss arising from the use of the material presented in this report, except that this exclusion of liability does not apply to the extent that such liability arises under specific statutes or regulations applicable to CS. This report is not to be relied upon in substitution for the exercise of independent judgment. CS may have issued, and may in the future issue, other communications that are inconsistent with, and reach different conclusions from, the information presented in this report. Those communications reflect the different assumptions, views and analytical methods of the analysts who prepared them and CS is under no obligation to ensure that such other communications are brought to the attention of any recipient of this report. Some investments referred to in this report will be offered solely by a single entity and in the case of some investments solely by CS, or an associate of CS or CS may be the only market maker in such investments. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information, opinions and estimates contained in this report reflect a judgment at its original date of publication by CS and are subject to change without notice. The price, value of and income from any of the securities or financial instruments mentioned in this report can fall as well as rise. The value of securities and financial instruments is subject to exchange rate fluctuation that may have a positive or adverse effect on the price or income of such securities or financial instruments. Investors in securities such as ADR's, the values of which are influenced by currency volatility, effectively assume this risk. Structured securities are complex instruments, typically involve a high degree of risk and are intended for sale only to sophisticated investors who are capable of understanding and assuming the risks involved. The market value of any structured security may be affected by changes in economic, financial and political factors (including, but not limited to, spot and forward interest and exchange rates), time to maturity, market conditions and volatility, and the credit quality of any issuer or reference issuer. Any investor interested in purchasing a structured product should conduct their own investigation and analysis of the product and consult with their own professional advisers as to the risks involved in making such a purchase. Some investments discussed in this report may have a high level of volatility. High volatility investments may experience sudden and large falls in their value causing losses when that investment is realised. Those losses may equal your original investment. Indeed, in the case of some investments the potential losses may exceed the amount of initial investment and, in such circumstances, you may be required to pay more money to support those losses. Income yields from investments may fluctuate and, in consequence, initial capital paid to make the investment may be used as part of that income yield. Some investments may not be readily realisable and it may be difficult to sell or realise those investments, similarly it may prove difficult for you to obtain reliable information about the value, or risks, to which such an investment is exposed. This report may provide the addresses of, or contain hyperlinks to, websites. Except to the extent to which the report refers to website material of CS, CS has not reviewed any such site and takes no responsibility for the content contained therein. Such address or hyperlink (including addresses or hyperlinks to CS's own website material) is provided solely for your convenience and information and the content of any such website does not in any way form part of this document. Accessing such website or following such link through this report or CS's website shall be at your own risk. This report is issued and distributed in Europe (except Switzerland) by Credit Suisse Securities (Europe) Limited, One Cabot Square, London E14 4QJ, England, which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. This report is issued and distributed in Europe (except Switzerland) by Credit Suisse International, One Cabot Square, London E14 4QJ, England, which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. This report is being distributed in Germany by Credit Suisse Securities (Europe) Limited Niederlassung Frankfurt am Main regulated by the Bundesanstalt fuer Finanzdienstleistungsaufsicht ("BaFin"). This report is being distributed in the United States and Canada by Credit Suisse Securities (USA) LLC; in Switzerland by Credit Suisse AG; in Brazil by Banco de Investimentos Credit Suisse (Brasil) S.A or its affiliates; in Mexico by Banco Credit Suisse (México), S.A. (transactions related to the securities mentioned in this report will only be effected in compliance with applicable regulation); in Japan by Credit Suisse Securities (Japan) Limited, Financial Instruments Firm, Director-General of Kanto Local Finance Bureau (Kinsho) No. 66, a member of Japan Securities Dealers Association, The Financial Futures Association of Japan, Japan Investment Advisers Association, Type II Financial Instruments Firms Association; elsewhere in Asia/ Pacific by whichever of the following is the appropriately authorised entity in the relevant jurisdiction: Credit Suisse (Hong Kong) Limited, Credit Suisse Equities (Australia) Limited, Credit Suisse Securities (Thailand) Limited, regulated by the Office of the Securities and Exchange Commission, Thailand, having registered address at 990 Abdulrahim Place, 27th Floor, Unit 2701, Rama IV Road, Silom, Bangrak, Bangkok 10500, Thailand, Tel. +66 2614 6000, Credit Suisse Securities (Malaysia) Sdn Bhd, Credit Suisse AG, Singapore Branch, Credit Suisse Securities (India) Private Limited (CIN no. U67120MH1996PTC104392) regulated by the Securities and Exchange Board of India as Research Analyst (registration no. INH 000001030) and as Stock Broker (registration no. INB230970637; INF230970637; INB010970631; INF010970631), having registered address at 9th Floor, Ceejay House, Dr.A.B. Road, Worli, Mumbai - 18, India, T- +91-22 6777 3777, Credit Suisse Securities (Europe) Limited, Seoul Branch, Credit Suisse AG, Taipei Securities Branch, PT Credit Suisse Securities Indonesia, Credit Suisse Securities (Philippines ) Inc., and elsewhere in the world by the relevant authorised affiliate of the above. Credit Suisse (Hong Kong) Limited ("CSHK") is licensed and regulated by the Securities and Futures Commission of Hong Kong under the laws of Hong Kong, which differ from Australian laws. CSHKL does not hold an Australian financial services licence (AFSL) and is exempt from the requirement to hold an AFSL under the Corporations Act 2001 (the Act) under Class Order 03/1103 published by the ASIC in respect of financial services provided to Australian wholesale clients (within the meaning of section 761G of the Act). Research on Taiwanese securities produced by Credit Suisse AG, Taipei Securities Branch has been prepared by a registered Senior Business Person. Research provided to residents of Malaysia is authorised by the Head of Research for Credit Suisse Securities (Malaysia) Sdn Bhd, to whom they should direct any queries on +603 2723 2020. This report has been prepared and issued for distribution in Singapore to institutional investors, accredited investors and expert investors (each as defined under the Financial Advisers Regulations) only, and is also distributed by Credit Suisse AG, Singapore branch to overseas investors (as defined under the Financial Advisers Regulations). By virtue of your status as an institutional investor, accredited investor, expert investor or overseas investor, Credit Suisse AG, Singapore branch is exempted from complying with certain compliance requirements under the Financial Advisers Act, Chapter 110 of Singapore (the "FAA"), the Financial Advisers Regulations and the relevant Notices and Guidelines issued thereunder, in respect of any financial advisory service which Credit Suisse AG, Singapore branch may provide to you. This information is being distributed by Credit Suisse AG (DIFC Branch), duly licensed and regulated by the Dubai Financial Services Authority (“DFSA”). Related financial services or products are only made available to Professional Clients or Market Counterparties, as defined by the DFSA, and are not intended for any other persons. Credit Suisse AG (DIFC Branch) is located on Level 9 East, The Gate Building, DIFC, Dubai, United Arab Emirates. This research may not conform to Canadian disclosure requirements. In jurisdictions where CS is not already registered or licensed to trade in securities, transactions will only be effected in accordance with applicable securities legislation, which will vary from jurisdiction to jurisdiction and may require that the trade be made in accordance with applicable exemptions from registration or licensing requirements. Non-U.S. customers wishing to effect a transaction should contact a CS entity in their local jurisdiction unless governing law permits otherwise. U.S. customers wishing to effect a transaction should do so only by contacting a representative at Credit Suisse Securities (USA) LLC in the U.S. Please note that this research was originally prepared and issued by CS for distribution to their market professional and institutional investor customers. Recipients who are not market professional or institutional investor customers of CS should seek the advice of their independent financial advisor prior to taking any investment decision based on this report or for any necessary explanation of its contents. This research may relate to investments or services of a person outside of the UK or to other matters which are not authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority or in respect of which the protections of the Prudential Regulation Authority and Financial Conduct Authority for private customers and/or the UK compensation scheme may not be available, and further details as to where this may be the case are available upon request in respect of this report. CS may provide various services to US municipal entities or obligated persons ("municipalities"), including suggesting individual transactions or trades and entering into such transactions. Any services CS provides to municipalities are not viewed as "advice" within the meaning of Section 975 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. CS is providing any such services and related information solely on an arm's length basis and not as an advisor or fiduciary to the municipality. In connection with the provision of the any such services, there is no agreement, direct or indirect, between any municipality (including the officials, management, employees or agents thereof) and CS for CS to provide advice to the municipality. Municipalities should consult with their financial, accounting and legal advisors regarding any such services provided by CS. In addition, CS is not acting for direct or indirect compensation to solicit the municipality on behalf of an unaffiliated broker, dealer, municipal securities dealer, municipal advisor, or investment adviser for the purpose of obtaining or retaining an engagement by the municipality for or in connection with Municipal Financial Products, the issuance of municipal securities, or of an investment adviser to provide investment advisory services to or on behalf of the municipality. If this report is being distributed by a financial institution other than Credit Suisse AG, or its affiliates, that financial institution is solely responsible for distribution. Clients of that institution should contact that institution to effect a transaction in the securities mentioned in this report or require further information. This report does not constitute investment advice by Credit Suisse to the clients of the distributing financial institution, and neither Credit Suisse AG, its affiliates, and their respective officers, directors and employees accept any liability whatsoever for any direct or consequential loss arising from their use of this report or its content. Principal is not guaranteed. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that. Copyright © 2016 CREDIT SUISSE AG and/or its affiliates. All rights reserved. Investment principal on bonds can be eroded depending on sale price or market price. In addition, there are bonds on which investment principal can be eroded due to changes in redemption amounts. Care is required when investing in such instruments. When you purchase non-listed Japanese fixed income securities (Japanese government bonds, Japanese municipal bonds, Japanese government guaranteed bonds, Japanese corporate bonds) from CS as a seller, you will be requested to pay the purchase price only.

Vocus Communications (VOC.AX / VOC AU) 39