Comms Group Limited (CCG.AX) Earnings Call Transcript & Summary

I'll open the meeting. Sorry for the delay. Ladies and gentlemen, on behalf of the Board, I welcome you to the 2025 AGM of Comms Group Limited. My name is Ryan O'Hare, Chair of the company. As we have a quorum, I now declare the meeting open, and I welcome all directors, Company Secretary, auditor, share registry and shareholders to this AGM. The Notice of Meeting dated the 15th of October 2025 has been made available to the shareholders on the company's website and on the ASX announcements platform. In accordance with the company's constitution and the Corporations Act, I propose the Notice of Meeting and explanatory memorandum be taken as read. This is a hybrid meeting of shareholders. Voting on all resolutions is by way of a poll through the Lumi voting platform and in person. Voting is now open for all resolutions and will close after the last resolution is put to the shareholders. As Chair for this meeting, I intend to vote undirected proxies in favor of all resolutions. During the meeting, I'll ask our Company Secretary to read through each resolution and the number of proxy votes received for each resolution. The results of voting by way of a poll will be released to the ASX as soon as they're available and will be displayed on the company's website. First, I'd like to present my Chairman's address, which has been published on the ASX market announcement platform a few minutes ago. The 2025 financial year was one of significant expansion for Comms Group, characterized by enhanced capability and scale across the business, strong international momentum, and continued domestic growth. We added new customers across Australia and completed the acquisition of TasmaNet, strengthening our presence in the Tasmanian communications market. Our operations continue to be delivered through our domestic business units, known as Cloud Communications and Collaboration and Secure Managed IT Solutions. And through our international division, Global and Wholesale Unified Communications. Each division is led by dedicated management teams and resources, supported by shared functions across the Group. Each division operates with key management and resources, supported by a sharing of back-office functions. The domestic business, we delivered a strong performance in a competitive environment, maintaining revenue while improving margins and generating strong cash profitability. This demonstrates disciplined cost management, ongoing customer retention, and steady demand for our cloud and managed IT services. A major milestone this year was the completion of the TasmaNet acquisition, funded through an expanded debt facility and equity capital raise. TasmaNet is a leading Tasmanian provider of premium communication and managed IT services, servicing the Tasmanian Government and a broad base of local businesses. The acquisition brings valuable network assets, a portfolio of corporate data services, and a robust customer base including: 29 cornerstone Tasmanian Government customers, representing approximately 40% of revenues and more than 500 corporate customers. This acquisition strengthens our national footprint and enhances our long-term recurring revenue. In Global, which is our Global and Wholesale business continued to execute on its growth strategy, by broadening and consolidating its international footprint. During the year, we expanded our range of products and services, secured new multi-national enterprise customers, and deepened relationships with key service provider partners who rely on our solutions for their corporate clients. Importantly, Global Wholesale & Unified Communications achieved a significant uplift in new sales contracts during the year, while relationships with several major wholesale partners expanded in both scale and strategic importance. This reflects the strength of our global platform, our differentiated offerings, and our ability to support customers across multiple markets. For the year ending 30 June 2025, Group operating revenue grew to $56.6 million, driven by contributions across the portfolio. Group underlying EBITDA reached $5.7 million, a solid result considering our targeted investment in additional Global business resources to support our growth. Across the Group, we delivered revenue growth, strong underlying EBITDA, improved gross margins, and increased capabilities to support our long-term expansion. Recurring and services income increased to 93% of revenue, underscoring the strength and resilience of our annuity-based model. On the new business front, Comms Group secured sales contracts worth $10.4 million in new annual recurring revenue, representing a 35% increase on FY'24. Each business unit continues to maintain a healthy pipeline of quality opportunities. Additionally, the group is pleased to announce that it has recently secured an offer from a major Australian trading bank to refinance the Group's existing term loan on improved commercial terms. The refinancing delivers significantly improved pricing and capacity headroom, providing additional flexibility to support future operational and strategic initiatives. In closing, I extend my sincere appreciation to my fellow Board members for their guidance and commitment throughout the year and to John Mackay who was Chair since we listed on the ASX in December 2017 and resigned from the Board in February 2025. I would also like to acknowledge the outstanding efforts of our CEO Peter McGrath and his leadership team, who have continued to steer the company through a rapidly evolving and highly dynamic operating environment. Finally, I'd like to thank our shareholders for your ongoing support and confidence in Comms Group. Together, we are building a resilient, innovative, and future-focused organization positioned for sustained growth and success. Thank you. I will now hand over to our CEO for a deeper overview of the operational highlights, financial reporting, and outlook for the remainder of the 2026 financial year.

Good morning, everyone, and welcome to the Comms Group AGM, and thank you, Ryan, for that presentation. Directors present today are listed here. And I'm just going to run through now an overview of performance in FY '25 as well as a bit of an update on the business for the last quarter. So for those who are not familiar with us as much, we are a specialized communications and managed IT service provider to businesses. headquartered out of Sydney with operations across Melbourne, Gold Coast, Hobart, Singapore, London and the Philippines. And we're servicing business enterprise and government as well as wholesale services to domestic and international telcos. You'll see there that we're classifying our businesses as domestic, which is our Communications & Collaboration business and our Secure Managed IT Solutions business as well as our Global business, which is a self-grown business that we've grown over a period of approximately 8 to 10 years, but throughout our time as a listed company and a business that we're particularly proud of. As shown there are the operating businesses per se, Comms & Collaboration, more of a full-service domestic telco business, our Secure Managed IT Solutions business, a very specialized IT managed service provider with a high level of technical competence and structured products and particularly strong expertise with the managed security offering, typically targeting the mid-market and then our global wholesale Unified Comms business where we provide specific voice and Unified Comms services to enterprise and wholesale customers globally. We did acquire another business called TasmaNet within the year as well, and we'll cover that briefly also. Executive management team, many of them are here today. So welcome to them, and thank you for all their efforts over the last 12 months. We do get asked this question a bit, what does our shareholder composition look like? So we've included that here within the presentation. Institutional shareholders are making up around about 25%. Retail shareholders around about 35%. And insiders, as we call them, or those close to the business, directors management or previous senior management around about 40%. And we have one institutional shareholder that's disclosed to the ASX, but we have quite a few institutional shareholders making up circa 25%. A number of the directors and senior management also are key investors or major investors in the business. Moving now to financial highlights. Really happy with the performance over the last year in FY '25. Although total revenue was only up marginally, we saw some good growth in a number of the businesses. And also our one-off revenue wasn't as great. So our quality of earnings was better because it was made up for by our recurring and services revenue. Gross profit was up, gross margin up, underlying EBITDA was down slightly on the previous year, but it was at the top of guidance. And as the Chairman has pointed out, we did make some investment in some global resources to look at growth within that business. Operating cash flow was strong in the year, although slightly down at the headline level, when we exclude the $0.7 million from TasmaNet one-off transaction costs, it was actually an increase of 13%. So really happy with that result. Some key highlights. So as I mentioned, we delivered EBITDA at the top level of guidance. Our gross margin increased. We do think that we can still continue to see gross margin improvement over time as we focus on reducing costs in the business. Really happy with our new business performance. So these are contracts that we signed with our customers. And then obviously, they become revenue after a number of months, but a total of $10.4 million in new annual recurring revenue, a 35% increase. I mentioned the TasmaNet acquisition earlier, and we also reported a final dividend of $0.00125 per share, taking the total dividends declared to $0.0025. Our revenue trajectory there, and that includes first half and second half. And as you can see, we've had strong revenue growth over time over a number of years. And then obviously, the full year effect of TasmaNet, we expect to come in at total revenue over $75 million. I'd now like to just give shareholders and investors an update on our Q1 FY '26 trading. So our FY '26 trading has been strong. We're very happy with our performance so far this year. The TasmaNet integration is going well, and we remain on target to achieve run rate revenue of $75 million plus and run rate EBITDA of $9 million to $10 million as a result of that TasmaNet acquisition. Our revenue was strong in the quarter at $19.4 million, which was an increase of 42% compared to the previous corresponding period. And our underlying group EBITDA was up 100% to $2.2 million in that quarter. So very happy with that as well. Strong level of new sales as well within the quarter. So new annual recurring revenue, as we call it, of $4.6 million signed year-to-date. And sorry, that was year-to-date, I should say. So that included the quarter plus a couple of weeks. Key sales wins in Q2 with a range of corporate and government clients. Our Global business signed 80 Australian and International customers within the period that's expired this year. So in other words, within only about a circa 4-year period -- 4-month period. So really happy with that. A lot of very significant brand names, global customers are using our services. And we did indicate to the market a week or so ago that we had won a key deal into Asia, which we've just closed for a major foreign government, and that's valued at circa $70,000 a month. So really happy with that performance as part of our Global business. And we have just released an update to the market in the last couple of days to say that we've received an offer from a leading commercial bank to refinance existing term loan. So really happy with that offer, and that will save us quite a bit in terms of interest payments moving forward as well. Strategic and capital allocation priorities are listed there in terms of our capital management priorities. Obviously, the key priority for us at the top is a strong balance sheet supported by disciplined liquidity and risk controls. We want to make sure that the business has sufficient liquidity to operate in all operating environments. We do want to reduce debt post the TasmaNet acquisition, invest also to maintain our competitive advantage. So within internal systems, technology, et cetera, identify and pursue strategically relevant M&A and continue dividends. We're of the view that dividends also create a financial discipline for ourselves as well. And we also want to consider other capital management options over longer term, but we have had feedback from shareholders as well that they are liking the dividends. Finally, strategy and outlook. A key strategy or focus for us is the successful transition and integration of TasmaNet. We do want to continue to focus on the corporate mid-market and government sectors. So through that TasmaNet acquisition, we have brought on board a number of key corporates as well as the Tasmanian government as a key client. Also cross-selling or selling additional products and services and particularly our IT services to other customers within the group and also leveraging this Asia Pacific strategic footprint that we have. We are the leading license carrier now in the Asia Pacific. We're receiving a lot of business from large global carriers who need to get services in countries such as Japan, Vietnam, Philippines. We service 13 countries in total across the Asia Pacific. So we want to continue to leverage that and grow that particular business. I mentioned that we're on track to achieve our annualized run rate revenue and underlying EBITDA of $9 million to $10 million, and we want to continue our focus on operating and free cash flow generation. We will provide guidance as the year goes as to where we think we'll end up with FY '26 and continue to focus on a number of growth opportunities, both organically and inorganically and work to get some level of digital transformation across the group as well. A key part of our TasmaNet transition and integration is this combination and rationalization of duplicated networks to a common platform and one business over time. So in other words, one network, one cloud is what we're calling it internally. And that's all I wanted to cover. So I'll hand back to the Chairman.

Thank you, Peter. I now move on to the business of the meeting. First item of business is to receive and consider the Financial Statements, Directors' Report and Auditor's report for the year ending 30 June 2025. There's no requirement for a formal resolution on this item of business. But are there any questions on the financial report? Any questions, Andrew?

No questions have been received, Ryan.

I have a question. Why should you not provide guidance for this financial year, the legal loan has a covenant that you must achieve annualized EBITDA -- statutory EBITDA as opposed to your underlying EBITDA of $7 million as of 30 September. Was that a covenant mix?

Peter?

Yes.

And similarly, covenant at 31 December, which may not be relevant, but we will retire that you achieve annualized statutory EBITDA of [ $7.5 million ], the Board is comfortable with that...

Yes, we're comfortable at this stage.

This is [ John ]. In terms of synergies going forward because, obviously, you guys called out is obviously network duplication cost. How much do you think you come out of the business going forward?

Do you want to talk to that?

Yes. So we -- I'm not sure whether we've given that guidance specifically to the market. But it is a significant amount. I think it's of the order of $1.5 million to $2 million. I think we might have given that guidance, yes.

But that sort of run rate...

Yes.

Sorry, that's the -- that's an annualized figure, yes, correct.

And what's the timeline to extract those?

We think that, that's going to be done by fourth quarter. Obviously, the pressure would be there to see if we can do it earlier.

And how much of that run rate of $9 million to $10 million EBITDA incorporates the synergies?

Basically, the $1.5 million to $2 million.

Yes.

Online questions?

Yes, we've got a question. Can we annualize the Q1 EBITDA for the full year? Or is there seasonality within the Q1? Is this the strongest quarter?

Not necessarily the strongest quarter because quarter ending July would be stronger based on seasonality. But there is some seasonality in the Christmas period. Did you want to expand, Peter?

Yes. Look, we're really happy, obviously, with that Q1 position, both revenue and EBITDA. There is not much, if any of the synergy amounts that have come through the question we just received from shareholders. So this is kind of more the core business. There was a small amount of one-off within that. So I think we need to be a bit careful just totally annualizing that. But I think at this stage, it's quite a good barometer for how we think that the year should unfold.

We have another online question. What's the dollar cost saving from the new debt facility going forward?

Yes. So the dollar cost saving is circa...

It's significant. We can't say the stage because we've got an obligation with the provider that pricing it is significant relative to...

Yes. I mean I think we can say hundreds of thousands of dollars. But in terms of the specific, we're under a confidentiality with the provider until we make a formal announcement on that.

Okay. No worries. Thank you. I'll now move on to Resolution 1.

[indiscernible] In relation to the first quarter around the EBITDA, you keep on reporting underlying EBITDA, we're pleased with [indiscernible] this quarter.

We haven't released that number, and we're not trying to necessarily hide that, but we haven't -- we're under no obligation to provide Q1 numbers to the detail there. And I think for us to just come out at this point and communicate that verbally, it would be difficult for us. We need to go and check that. And also, it's unaudited.

But I think equally as shareholders, there's quite a bit of confusion around underlying EBITDA and statutory EBITDA. If I may in the last quarter...

Yes, sure, I think what we could do is -- yes, we could take that notice on board and look at providing an update to the market. I think we need to provide that to the market at the same time.

Certainly, I think you're not in a position to disclose the margin of the [ BBS ] [indiscernible].

It's correct.

I believe that we'll be able to disclose that when we come out formally on that particular debt facility.

[indiscernible] facility in a position to. So when you say material advantages with this new debt provider, which provide that.

Yes.

Regal would have been obviously charged penalties, it sound like...

It's not for early prepayment, there's no penalty.

Having to give it away...

When you say give it away, yes.