ANNUAL REPORT 2015. Vocus Communications Limited ACN 084 115 499 TABLE OF CONTENTS. 04 Success in Numbers 06 Empowering Culture at Vocus 08 Letter from the Chairman 10 Financial Highlights 12 Q&A with James Spenceley, CEO 14 Directors’ Report 21 Remuneration Report 31 Auditor’s Independence Declaration 32 Financial Report 77 Shareholder Information 79 Corporate Directory SUCCESS IN NUMBERS. The 2015 financial year showed significant growth across the entire business. Here are a few highlights. All stats as of July 2015. OFFICES ACROSS AUSTRALIA AND NEW ZEALAND ON-NET BUILDINGS NEAR-NET BUILDINGS 4 | VOCUS.COM.AU DATA CENTRES SERVICING AUSTRALIA AND NEW ZEALAND KILOMETRES OF FIBRE OPTIC CABLE BUSINESSES ACQUIRED; BENTLEY DC, FX NETWORKS, EDC & AMCOM StaFF ACROSS AUSTRALIA AND NEW ZEALAND EMPOWERING culture at VOCUS. Our high performance network attracts new customers, but our people are the reason they stay. That’s why we work to maintain a culture that rewards success and is underpinned by a core set of values. We understand our people want to make a difference beyond their day-to-day work. We encourage staff to play an active role in Corporate and Social Responsibility initiatives we support, such as the Telco Together Foundation and Starlight Children’s Foundation. “Working at Vocus means working with the smartest “It’s exciting to work for a company that’s jammed people and helping some of Australia’s fastest growing full of passion and purpose. I like that we’re businesses solve complex challenges. encouraged to think big and given the freedom to help our customers. We’re innovative, progressive and empowered to do our thing. Enjoying your work and kicking major When I finish up at the end of a week, it’s a good goals while you’re doing it. It doesn’t get much feeling to know you’ve genuinely contributed to better than that.” something that’s had a positive business impact.” 6 | vocus.COM.AU This year we partnered with Starlight Children’s We’ve been a supporter of the Telco Together Foundation to support and raise funds to aid in Foundation since its early beginnings in 2012. The brightening the lives of sick kids across Australia. foundation has raised over $600,000 for programs that directly support some of the most disadvantaged We’re a Silver Partner of the foundation which helps communities in Australia. to develop and fund Indigenous Children’s Health Program in regional Northern Territory. This year three of our staff took on the foundation’s biggest challenge by climbing the tallest freestanding We’re proud to be the first corporate partner to mountain in the world, Mount Kilimanjaro. The support Starlight Children’s Foundation Community challenge saw our team make lifelong friends and push Outreach Program in the NT. themselves out of their comfort zone. Most importantly, we raised $30,000 for the foundation. LETTER FROM THE CHAIRMAN. DEAR SHAREHOLDERS, Trans-Tasman offering In last year’s annual report I suggested FY15 Our acquisition of FX Networks and joint venture could be our most exciting year yet. My suggestion with Spark New Zealand, Connect 8 strengthened our proved correct. New Zealand operations and created a true end-to-end trans-Tasman offering. Our intention has always been to build a substantial, carefully risk-managed, independent business as Investing in our future fast as we can. In FY15 we executed that intention at Against the odds, we won an historic battle to acquire unprecedented pace. Amcom Telecommunications – an acquisition that gives new and existing customers national scale, This letter explains how we did that and what smarter solutions and excellent service. Soon after we will do in FY16 to become the third force in the acquisition we moved fast to capitalise on cost corporate telecommunications. synergies whilst not disturbing the revenue and A RECORD-BREAKING YEAR sales momentum established by both brands. I am pleased to report our integration is well ahead of In the past 12 months, we’ve gone from being an internal expectations. ASX 300 business with market capitalisation of Investing in our future also saw us make a strategic $400 million to an ASX 200 business with a market investment by purchasing a 14.5 per cent stake in capitalisation close to $1.4 billion. That means we’re Macquarie Telecom Group. Macquarie has a strong three years ahead of achieving the target we set in government customer base. last year’s annual report, which was to be valued at $1 billion by FY18. It also means we’ve become one A year of continued growth of the fastest growing companies in the ASX 200. Despite completing so many acquisitions, our relentless focus on being the telco that businesses want to deal A YEAR OF SIGNIFICANT with has seen us achieve considerable growth across ACQUISITIONS all business areas. In FY15 we completed a series of significant ➜ In the past 12 months we’ve signed up over acquisitions which mean we are well positioned to 543 new customers. create and respond to the opportunities open to us. ➜ Our on-net activity is rapidly expanding and we Highlights include: see no sign of demand reducing. Data centre business growth ➜ We’ve sought out organic opportunities to Our acquisition of the Bentley Data Centre in Western grow revenue, by aligning our offering with Australia and Enterprise Data Corporation on the data demand, IT outsourcing and cloud east coast built upon our already extensive data computing trends. centre business. ➜ In FY15 Fibre/Ethernet products now make up 43%, IP Transit 29% and data centre products 18% of revenue. 8 | vocus.COM.AU David Spence, Chairman, Vocus Communications EXECUTING OUR VISION ALL SET FOR ANOTHER TO BECOME A THIRD EXCITING YEAR FORCE IN corporate For the incredible energy and commitment that went telecommunications into making FY15 such a success, I’d like to thank The Amcom acquisition was a game-changer for us James Spenceley, the executive leadership team and and has created a major opportunity for us to deliver our CFO Rick Correll. I’d also like to thank all Vocus the telco service businesses want. employees, old and new, for their tireless enthusiasm in working toward our vision. In the early part of FY16 we’ll start to integrate the two companies – finding the best systems from within both To my past Board, especially Nick McNaughton, and developing a structure that works efficiently. I would like to give thanks and also to my new Board for the way in which we have come together. Our An important part of our strategy is not to complicate ability to stress test ideas and opportunities very quickly the company with a multitude of solutions and different and mostly successfully has been a key driver to services but to focus on simple solutions at great prices that Vocus’s success. can be really well supported. Our strategy for integration will also see us develop smarter customer-facing Thank you for your investment and interest in Vocus systems so it remains easy for clients to deal with us. Communications. We have another exciting year ahead. To keep across our news please access Removing complexity is what makes us different www.vocus.com.au/investors and enables us to remain agile – it’s also what our customers tell us they love about working with us. In FY16 we’ll also focus on growing our network and building brand awareness to cement our position as the third force in Australian corporate telecommunications. David Spence Chairman FINANCIAL HIGHLIGHTS. NEW PHASE OF GROWTH WITH INCREASED SCALE, CONSISTENT WITH LONG- TERM strategY RECORD FINANCIAL ADMITTED TO THE AND VISION. results - REVENUE UP ASX200 IN DECEMBER 62% AND UNDERLYING 2014, AFTER ONLY ONE AUSTRALIAN EBITDA UP 56% YEAR IN THE ASX300 AND NEW ZEALAND FIBRE NETWORKS UNDERPINNED BY REGIONAL CONNECTIVITY TO HONG KONG, SINGAPORE Strategic ACQUISITIONS SCHEME OF ARRANGEMENT OF FX NETWORKS, FOR AMCOM APPROVED, AND THE BENTLEY Data CENTRE COMPLETED ON UNITED States. AND EDC Data CENTRES 8 JULY 2015 10 | VOCUS.COM.AU SIGNIFICANT EXPANSION IN CORE BUSINESS AUGMENTED BY ACQUISITIONS. Largest contributor to Substantial increase in 22 Australian and earnings - Fibre and Australian metro Fibre New Zealand Data Ethernet revenue up network and New Zealand Centers across 17 sites, by $36.3m intercity Fibre network totaling 8,027m2 62 56 39 REVENUE ($M) UNDERLYING EBITDA ($M) OPERATING CASH FLOW ($M) FY15 149.8 FY15 51.6 FY15 42.6 FY14 92.3 FY14 33.1 FY14 30.6 FY13 66.9 FY13 22.4 FY13 15.3 FY12 45.3 FY12 16.7 FY12 12.4 Q&A WITH JAMES SPENCELEY, CEO. This year has been about creating greater choice and competition and offering a better telco experience to all Australian businesses. We are committed to improving telecommunications for the thousands of businesses frustrated by the legacy of the corporate duopoly and we’re not afraid to make waves. We’re collaborative, we put ourselves in the customers’ shoes and we exceed expectations - that’s what our business is all about. WHat WERE THE HOW HAS FORMALISING THE HIGHLIGHTS OF FY15? values CHANGED THE companY FY15 was jam-packed with highlights but for me 12 MONTHS ON? the most significant was our acquisition of Amcom. In the past financial year we’ve taken the Vocus values It’s significant for many reasons but not least for the fact from broad principles to formal values that our entire it happened at all. business lives and breathes. In a year of change, our Our intention to acquire Amcom was driven by a desire values have remained constant and helped us stay to shake-up the telco industry, create more competition focused on what really matters.