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Switch Utilities buyout saves the year for Vocus NZ

Switch Utilities buyout saves the year for Vocus NZ

Low profile buyout of a small energy retailer appears to have paid off for Vocus NZ

Vocus NZ's move into energy bundling appears to be paying off

Vocus NZ's move into energy bundling appears to be paying off

When Vocus bought energy utility Switch in late 2016, its announcement was light on detail. The company's annual report has filled in the blanks.

Vocus became the first telco to buy a power retailer, allowing it to offer bundled energy services through its stable of brands, starting with internet service provider Slingshot.

However, the buy price was not revealed and, being a private company, the amount of revenue Switch delivered to the group was not readily apparent.

Vocus' annual report until 30 June 2018, posted late last month, has helped fill in some of those gaps.

Vocus paid $10.1 million for Switch with $5.7 million paid up front and $4.4 million deferred over three years, to be paid if defined gross margin and subscriber numbers are hit.

Switch's net assets were valued at just $810,971 with goodwill of $9.3 million added to the acquisition price.

Without knowing the growth targets set, the purchase appears to be paying off. Energy revenue for 2017 was $11.8 million for just over a half year, while for the full year of 2018 it nearly quadrupled to $42 million.

That indicates Switch may have come close to doubling its revenue in its first full year of Vocus ownership.

While several energy companies have entered the broadband market, most prominently Trustpower and more recently Contact Energy, it is so far much more unusual for a telco to go the other way.

When the Switch acquisition was announced, Vocus NZ chief executive Mark Callander, who joined Vocus Group's board in May, said he saw huge potential for service bundles in the New Zealand market and he was confident of delivering competitive packages for Slingshot customers.

“We are flexible, competitive and with the great team at Switch, we’re in a strong position to offer Kiwis a one-stop-shop for their household connections," he said.

“In the new year, Slingshot will be offering customers broadband, landline, mobile, gas and electricity – all on the same bill, with great customer service."

However, there may be another story in the numbers. Vocus NZ's total revenue increased during 2018 from $342.6 million to $366.7 million, or by $24.1 million.

Without its increased energy revenue of $30.2 million, though, the company's total telco revenue would have gone backwards.

A breakdown of revenue by category shows internet revenue fell from $208.2 million to 201.9 million, fibre and ethernet revenue from $44.5 million to $39.3 million and mobile revenue from $11.7 million to $11 million.

Increased data centre and voice revenues would not have been enough to offset those declines without Switch's contribution.

Profit is not broken down by segment, but the company lifted gross profit from $20.6 million to $23.3 million and net profit after tax from $12.9 million to $15 million.


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