Over the last 18 months or so Optus has been engaged in a major reorganisation. It has cut staff and other costs, focussed more on direct sales, and rejigged its marketing.
The animals in the Optus Zoo have been set free, replaced by the funny little yellow teardrop guy. It has not all been plan sailing, and CEO Kevin Russell left the company not long after the previous quarter’s disappointing results.. It was his decision, Optus insists, but it always looks better when management remains stable during these sorts of restructures.
Now Optus – and parent SingTel – have announced the latest financial results. They are cause for some celebration, at least in Australia, because it would seem that all that was predicted has come true. The new strategy is starting to pay off.
It is always gratifying when that happens, and it must be extremely pleasing to head office in Singapore. For the last few years Optus, which comprises almost half – in revenue terms – of the whole SingTel Group, has been dragging the company down. Now it is no longer doing so.
But Optus lost 160,000 mobile customers in the year. There was an increase of 1,000 in the last quarter, so it would seem the losses have been stemmed, and Optus added 342,000 4G mobile customers in the quarter. That brings the 4G customer base to 2.15 million, up from 1.81 million a quarter ago.
Optus now has 9.4 million mobile subscribers, halfway between Telstra’s 15.5 million and Vodafone’s 5.0 million. Telstra has been murdering its competitors for the last two years.
Optus reported a 5.2% decline in revenues for the financial year ended 31 March 2014, from $8,934 million to $8,466 million. But net profit showed a 15% increase, which country chief officer Paul O’Sullivan says “reflects Optus’s strategy of strong cost management and yield improvement.
“Our strong full year earnings performance demonstrates we are taking the necessary steps to transform and restructure the business strategically for sustainable profit growth.”
EBITDA (earnings before income tax, depreciation and amortisation) improved 2.8 percentage points to 29.5%. Optus’s free cash flow for the full year declined 15% to $903 million as increased cash flow from operations were offset by higher tax payments and mobile investments – Optus is building out a substantial 4G network.
On a quarterly basis revenue declined 4.9%, which O’Sullivan said reflects lower equipment sales, lower fixed revenues and “lower incoming service revenues from a further industry-mandated decline in mobile termination rates” that came into effect on 1 January 2014.
Quarterly EBITDA fell 6%, while net profit declined $26 million as depreciation and amortisation charges increased from a higher level of investments in the mobile network.
O’Sullivan said the profit result was also affected by a cautious business environment and the recognition of $25 million in non-recurring contracted revenue in the corresponding quarter for the prior year.
He was upbeat about the improvements in the Optus mobile network. “The availability this year of 700 MHz and 2600 MHz nationally means we are preparing our network to provide 4G services nationally, including in key regional areas,” O’Sullivan said. “Optus continues to invest in its mobile network, with the 4G network now reaching 75% of the metropolitan population, while our 3G coverage reaches 98% of the national population.”
Optus lost a court battle in March over ads in which it was accused by Telstra in misrepresenting its coverage by confusing coverage by percentage of population of coverage by percentage of land mass.
It did not do so, but the judge sided with Telstra and Optus was forced to withdraw the ads and apologise. But it was a pyrrhic victory for Telstra, because it highlighted the extent of Optus’s coverage.
O’Sullivan also said Optus had improved its customer ratings, based on the simplistic but widely used Net Promoter Score, with average monthly postpaid churn falling from 1.6% to 1.3% in the quarter, the lowest level in more than seven years.