Vocus Communications shares have plunged more than 20 per cent after Australia's fourth biggest telecommunications group delivered a grim trading update following its rapid expansion.
Vocus Communications shares have plunged more than 20 per cent after Australia's fourth biggest telecommunications group delivered a grim trading update following its rapid expansion.
Vocus has warned that its most recent acquisition, Nextgen Networks, will not contribute as much to 2017 earnings as it initially expected.
Nextgen, which operates a national fibre telecom network, is now expected to deliver underlying earnings of around $41 million for eight months in 2016-17, excluding synergies.
Chief executive Geoff Horth said that was below Vocus's expectations at the time of the acquisition, and blamed a high level of customer cancellations, the impact of re-signing of contracts on lower profit margins, and slower sales performance since the $861 million deal was announced.
Vocus also reported that overall broadband customer growth was below expectation due to outages on its primary consumer network. As a result, the company expects net growth in broadband subscribers to be lower in 2017 than in the previous year.
The trading update unnerved investors, with Vocus shares down $1.41 - a 24 per cent plunge - to $4.35 today.
IG market strategist Evan Lucas said the group's update was disappointing, noting that the company has been aggressively buying companies to grow.
"The fact that they haven't seen organic growth is a slight concern, and that fact that outlook has been shifted down pretty substantially is quite a change," he said.
Vocus has forecast annual underlying earnings before interest, tax, depreciation and amortisation of between $430 million and $450 million, down from expectations in the high $400 million mark, according to Mr Lucas.
Vocus expects its full-year result will be skewed towards the second half, partly because of a delay in finalising the Nextgen deal and its underperformance.
Additional investment in consumer sales, marketing and disappointing revenue growth will also weigh on the result.
The group forecast annual underlying profit after tax of between $205 million and $215 million and revenue of around $1.9 billion. The result will be up sharply from a year earlier because of its numerous acquisitions, including Perth-based Amcom Telecommunications, M2 Group and Nextgen.
Mr Horth told the group's annual meeting in Sydney the value of the Nextgen business was strong and it could rebuild momentum.
He said the company would continue to review its business portfolio, which may lead to the sale of non-core assets or businesses.
