Vocus geared to exploit synergies across three markets

Stuart Corner
Wednesday, 24 August 2011 12:18

IT Industry - Strategy

Vocus Communications (ASX: VOC) has reported a 77 percent increase in revenue to $30.98m and an increase after tax profit of 113 percent to $8.12m for the year to 30 June 2011, and says that, in the wake of recent acquisitions, it is now an integrated provider, or Internet connectivity, data centre and dark fibre/metro ethernet services.

During the year Vocus made three acquisitions, which it said had now been fully integrated. It acquired E3 Networks' data centres in Sydney and Melbourne; the PerthiX, data centre in the Perth CBD and Digital River's fibre optic network. In March the company completed a $15m capital raising.

CEO James Spenceley said: "By diversifying and leveraging the Vocus brand into newly acquired businesses and products, Vocus is well positioned for future growth'¦With our entry into the dark fibre and data centre markets, Vocus is ideally placed to become the communications infrastructure provider of choice and capitalise on the growing cloud computing market."

The company ended the year with 301 customers, and says that because only 26 percent of these take more than one product, there is considerable scope to cross-sell additional services.

Meanwhile Vocus is extremely bullish about the prospects for its core product, IP transit. It claims to be one of the largest providers of wholesale Internet in Australia & New Zealand. "TeleGeography predicts 40.2 percent annual compound growth without the NBN; 46.9 percent with the NBN [and] Vocus had 128 percent IP transit volume growth in FY11, gaining significant market share." It adds that, despite IP transit margins declining, it is "experiencing substantial net earning increases."

It is also confident that its newly-acquired data centres will generate a good return. "The Melbourne facility is full; Sydney is 69 percent full; Perth iX is 80 percent full [and] Vocus aims to acquire or build further data centres, with medium scale and preferably with a large established customer base."

It claims to operate in a different market segment (CBD, medium sized, tier 2/3, colocation model) from large pure data centre players and to be "uniquely positioned for the cloud segment, with integrated data centre, dark fibre and Internet connectivity."

The Digital River fibre network it acquired in May 2011 was less than two percent utilised at the time of acquisition. It connects 14 major data centres and will connect to all NextDC data centres. It passes 651 buildings and, Vocus says, is within easy reach of every CBD building in Melbourne and Sydney.

The business was losing money at the time of acquisition but Vocus expects it to make a positive contribution to earnings in H2 of FY12. It plans to spend $5m in the current financial year expanding the network. "We'¦[are] one of only two active dark fibre providers on the East Coast [and dark fibre is] our highest EBITDA margin product," it said.