2020 Report Annual Brilliant Made Simple. Vocus | Annual Report 2020 Our refreshed brand is About more representative of the Vocus business today and its strategic direction this report for the future. The Annual Report 2020 is a summary of Vocus operations, activities and financial position for the 12 month period to 30 June 2020. Vocus Group Limited is the parent company of the Vocus group of companies. In this report, unless otherwise stated, references to “Vocus”, “the Group”, “the Company”, “we”, “our” and “us” refer to Vocus Group Limited and its controlled entities. In this report, references to the financial year refer to the period 1 July to 30 June unless otherwise stated. All dollar figures are expressed in Australian dollars, unless otherwise stated. Our Corporate Governance Statement, detailing our compliance with the ASX Corporate Governance Council’s “Corporate Governance Principles & Recommendations – 4th edition” can be found online at our website via www.vocus.com.au/legal/corporate-governance. Report objectives Our new brand colours are taken directly from the colour This report meets our governance and coding of fibre optic cables. compliance requirements and has been written to provide shareholders and interested parties with clear, easy to understand information on the Company and its performance in FY20. Additional information This report can also be found online via http://vocusgroup.com.au/investors/ company-performance/annual-reports/ A full copy of our Sustainability Report, reviewing our environmental, social and economic impact, can be found online via www.vocus.com.au/about-vocus/sustainability. Key Dates Financial Year End – 30 June 2020. Annual General Meeting – 28 October 2020. Given the uncertainty and potential health risks created by the COVID-19 pandemic, the 2020 Annual General Meeting of Vocus Group Our branding reflects our Limited will be a virtual meeting, which will be aim to deliver experiences conducted online. Please refer to our website (www.vocusgroup.com.au) for further details. for customers that are Brilliant Made Simple. Vocus | Annual Report 2020 Our Vocus ‘O’ represents a cross section of fibre optic cable. A simple, clear and modern identity. Contents About this report IFC Letter from the Chairman and CEO 2 Vocus Network Services 4 New Zealand 8 Retail 10 Sustainability 12 Directors’ Report 14 Remuneration Report 19 Operating and Financial Review 34 Auditor’s Independence Declaration 48 Statement of Profit or Loss and Other Comprehensive Income 49 Statement of Financial Position 50 Statement of Changes in Equity 51 Statement of Cash Flows 52 Notes to the Financial Statements 53 Directors’ Declaration 103 Independent Auditor’s Report 104 ASX Additional Information 110 Corporate Directory 112 1 Dear Shareholders, Letter from Delivering on our strategy FY20 marked year two of Vocus’ three-year turnaround strategy and it was a year of strong operational execution the Chairman and financial progress. Year one was the foundational year to get the right structure, the right people, and the right strategy in place. Year two has been a critical year for rebuilding Vocus as and CEO an organisation – where we stopped talking and started delivering, demonstrating progress and building momentum in building a strong, sustainable and growing business. Vocus’ FY20 results provide an endorsement that our strategy is the right one and the turnaround is firmly on-track. This year has been characterised by building momentum in our core markets, a stronger balance sheet and increasing stability as we manage through the financial headwinds caused by the transition away from legacy copper-based products in the Australian Retail business. We have made it clear that Vocus Network Services (VNS) is our core business positioned to capitalise on our market opportunity as Australia’s specialist fibre and network solutions provider. Our FY20 results show this ambition is being achieved: VNS has seen EBITDA growth of 10%, with positive momentum in underlying recurring revenue and an improving customer profile. Our average Enterprise deal was 24% larger than just 12 months ago and our pipeline is strong. 2 Vocus | Annual Report 2020 FY20 saw a refresh of our brand to reflect our vision for The Terabit Territory project also provides a key strategic the company: Vocus Group and Vocus Communications infrastructure opportunity for Vocus to establish a new fibre are now simply Vocus, and our prompted brand awareness connection between Darwin and Singapore, linking the 2,100km is up from 25% in FY19 to 48% in FY20. Our new branding North-West Cable System (NWCS) from Darwin to Port Hedland was accompanied by a declaration of who we are and what to ASC which stretches from Perth to Singapore via Indonesia. we do: Brilliant Made Simple. The NWCS connects a number of major offshore oil and gas facilities in the Timor Sea, and was recently extended to Our vision for Vocus is to be the challenger our customers connect Darwin to the Tiwi Islands. deserve and our people are proud of every day, and we’ve seen the best of Vocus in pursuing this vision during COVID-19. Business Performance Delivery timeframes for customers were reduced from weeks to days and sometimes minutes, staff seamlessly shifted to Our FY20 financial results show clear progress in Vocus’ working from home, and our offshore contact centres rapidly turnaround. The strategy to grow the VNS and New Zealand re-established manageable service levels despite lockdowns. businesses is being consistently executed, and the Australian Retail Consumer segment has stabilised with the majority of COVID-19 is clearly accelerating market change. We believe legacy revenues now behind it. that the challenger benefits in times of change and disruption, and we see opportunities evolving that Vocus can capitalise Vocus Network Services has delivered a standout performance on in the immediate term. The first trend is the acceleration of in the market. Recurring revenue grew 6%, and data network digitisation and the resulting demand for bandwidth where our revenue grew 3% for the year. Gross margin grew 5% for the full strength lies with high-capacity, low-latency connectivity across year, and recurring margin was stronger in the second half of the Australia and New Zealand and into Asia. The second trend is an year, which demonstrates good momentum. Overall, VNS EBITDA increased focus on cybersecurity – ideally suited to our recent grew a strong 10% for the year. investments in secure network capabilities. The third trend is Our New Zealand business delivered growth for the fifth changing customer expectations on speed, flexibility and value consecutive year. Its bundling strategy across broadband and – and our culture is a competitive strength, allowing us to rapidly energy in the Consumer market continues to drive growth. respond to our customers’ needs. In summary, we feel well Significantly, the business is now also pursuing acquisitions positioned to win in a post COVID-19 world. and the purchase of Stuff Fibre grew the broadband subscriber Throughout COVID-19 we have acted purposefully and made base by 10%. The Wholesale business also had a strong year tough decisions, including some reprioritisation of capex for our with increased bandwidth demands and the overall EBITDA Future State network program, reshaping our strategy for the grew 4% year-on-year with stable margins. small business market, and an employee restructure impacting 6% Retail showed significant progress in stabilising the business, with of our people. We’ve learned a lot about our culture, our customers, year-on-year revenue declines improving from – 12% in H1 to – our suppliers, our partners and our business model in this period, 6% in H2. The Consumer business was stable in the second half and we are evolving to be stronger business as a result. and has a clear line of sight to profitable growth through bundling We would like to thank our people. The year saw extraordinary broadband, energy and mobile services. The small and medium operational challenges posed by bushfires and the COVID-19 business segment, however, faces increasingly challenging market pandemic, and our priority is to always provide a safe working conditions. The Retail SMB business will continue to navigate the environment for our people who deliver the critical telecommunications decline in legacy revenues over the coming year and will prepare infrastructure that connects the modern economy. The team for a difficult environment through COVID-19 as Government have been simply outstanding in successfully working through support is withdrawn. these challenges with minimal impact on day to day operations. Again, thank you. Outlook There are broader indicators of Vocus’ success in FY20. In summary, the second year of our turnaround was a critical The refinancing of our debt facilities and the extension of their execution year and with the turnaround firmly on track, we duration is a clear vote of confidence from our lenders, both are now starting to see the longer-term financial shape of existing and new. The fact that the debt syndication was our different business units. VNS and New Zealand are oversubscribed in a period of global economic uncertainty shows the well-positioned to benefit from the accelerating market trends underlying strength of Vocus’ business, and the new loan facility due to COVID-19 and our Retail business is stabilising. gives Vocus financial stability and flexibility as we enter the next As we move into FY21 our focus is shifting to winning in market phase of the company’s growth and business transformation. and capitalising on the progress we have made in the past 12 months. Milestones as Australia’s specialist fibre and network solutions provider FY20 saw Vocus achieve several milestones, reinforcing our position as Australia’s specialist fibre and network solutions provider. We successfully completed the 4,700km Coral Sea Cable System for the Australian Government in December 2019 – Kevin Russell, a month ahead of schedule – connecting Sydney to our Pacific Group CEO Island neighbours in the Solomon Islands and Papua New Guinea.