Comms Group Limited (CCG) Earnings Call Transcript & Summary

Hello, and welcome to the Comms Group Divestment and Trading Update Presentation. Today, we have Peter McGrath, CEO; and Matthew Beale, CFO, who will take you through the latest presentation. At the end of the presentation, there is a Q&A function at the bottom of your screen. So please put your questions in there, and they'll be asked at the conclusion of the presentation. I will now hand it over to Peter to take you through today.

Good morning, everyone. We'll just put the presentation up, and thank you for joining us. And if you could just put that on screen share down the bottom, Daniel.

You can see that, Peter?

I can see that. [Technical Difficulty] Okay. Thank you very much. Thanks, everyone, for joining us. Apologies for that delay. We just moved to the second screen. Okay. So we announced just recently the sale of onPlatinum. And so following that sale, the group will have the following key operating divisions. Domestic Australian business, content collaboration which is really a business that focuses on providing the latest communications and collaboration tools in small, medium business, corporate and government. So it does include connectivity options, such as NBN, private services, voice services where we're particularly strong, including the latest unified communication solutions and collaboration services, including contact center solutions. We're seeing some good demand in that area, particularly from government, local government with the likes of AI-based contact center solutions, which are starting to come into the market quite rapidly. Then we have our global business, which is our Global & Wholesale Unified Comms business. We are a provider for large enterprises and typically via wholesale carriers that we deal with. We do have some direct customers as well. That is an area that we've seen very strong growth, and I'll elaborate a little bit more on that when we talk about how we've gone for the full year. Just on our coverage. So we're headquartered in Sydney. We have operations in Melbourne, Queensland, Hobart, Singapore, London and the Philippines, and we have a very extensive network coverage across the Asia Pacific region, including network and licenses, and we are the most licensed carrier across the Asia Pacific region today for local voice services. And moving forward, we'll be focusing on the enterprise and the government as well as our wholesale services to domestic and international telcos and also small to medium business. We'll move forward to the announcement that we made on the divestment of onPlatinum. So we announced the sale of the onPlatinum business for $30 million to a business that trades under the name efex, the company known as Thinkex Holdings Propriety Limited. The consideration includes an upfront consideration of $28.5 million and $1.5 million held in escrow for 12 months, payable subject to completion of agreed conditions. There is no earnout on that. It's really to provide some coverage for any warranties, et cetera, that we're providing as part of the share purchase agreement. We purchased that business for $12 million. So from our perspective, it's a fantastic return over a 4-year period, and it gives us the opportunity to focus more so on our core communications portfolio and in particular, are what we're seeing in the growth area for our global business. After paying capital gains associated with the sale, our intention is to deploy capital on the following basis. We want to reduce our net debt. Our net debt today or our debt today is probably around about $10 million, $11 million. We want to reduce that to strengthen the company's balance sheet but importantly, we want to provide a capital return and distribution to shareholders. So the capital return would likely be made up of a frank dividend as well as returned capital. The reason we would have a franked dividend is that we would be paying tax on the sale of onPlatinum. Hence, we can provide a franked dividend as well as the capital return. In terms of the specifics of the number at this stage determined that and we need to -- once we get the proceeds, determine what our full tax amount is, the amount of debt that we're going to pay down. And then obviously, the Board will consider all those factors and then look to come up with an announcement of what the actual amount that we will be paying shareholders will be. So I cannot go into details on the specifics today other than to give you those details. We expect the transaction to settle in Q1 FY '27. There are a number of conditions precedent, but we expect that the transaction will settle relatively quickly. We'll move to the next slide. So a bit on guidance and outlook now. So we expect our revenue guidance to be in the range of $74 million to $75 million, and our underlying EBITDA guidance between $8 million and $8.5 million. And this is the first time we've talked about FY '26 guidance, we have talked about a run rate guidance. In terms of that run rate guidance, we're tracking close to that. We still have a little bit of work to do to finalize the TasmaNet integration, et cetera, and pulling out some costs. Now the underlying EBITDA guidance for this year of $8 million to $8.5 million is after taking on board around about $500,000 in duplicated mainland costs for our network. So if you refer to our previous presentations, we've talked about one of the key drivers for the TasmaNet acquisition was the duplicated cost that we'll be able to synergize within the business. So these include the mainly network costs, points of presence across Melbourne, Sydney, Brisbane. So we've been carrying those costs off the back of the old TasmaNet network with a view that we would then move our existing domestic customers onto that network, and then we can retire that particular network. So that's coming to a conclusion. We expect that, that will be finalized in July this year. All other aspects of the TasmaNet integration remaining on track with the previous guidance and the telco network consolidation savings are in line with this guidance. We then expect to be able to give an update once we've finalized the divestment of onPlatinum and settle that, and then we know what type of capital that will be distributed to shareholders when we give an update on how we expect FY '27 to track. Turn to the next slide. A little bit on our revenue. And if you look at our revenue over time now, we've broken down first half over a number of years versus second half. And you can see there with $74 million to $75 million. So we're really happy with that outcome and largely in line with what we've told the market previously or implied to the market previously. If you have a look at our EBITDA. So underlying EBITDA guidance of $8 million to $8.5 million, it compares with $5.7 million the previous year. We haven't got the breakdown here of each of the divisions but I think across the board, we're really happy with the performance of the various business units with being the group. And obviously, the onPlatinum or ICT section will disappear. So that's the Secure Modern Workplace Solutions. So that will obviously be coming out of our numbers. So that was $2.8 million in FY '25. We'd expect that to be higher this year as part of our consolidated results, but then that will disappear moving forward. We'll then have those 2 areas that remain, the Domestic Content Collaboration and the Global & Wholesale business. Just on the Global & Wholesale business, that business continues to perform really well. We're continuing to win a strong level of new sales within that business even in this last quarter of the year. bringing on further very large global multinationals and also bringing on a number of additional key wholesale partners. So really happy with that. our content collaboration business, they've been winning a good level of new sales as well. So happy with that performance, and we're looking at ways to see how we can grow that business as we move into FY '27. That's all on the EBITDA guidance. So look, just a very short update. We wanted to come out to the market and talk to investors, shareholders about the specific transaction. And now we're happy to turn over to questions. So I might leave that for you, Daniel, to run us through that.

Sure. Thanks, Peter. So we have a first question from Ron Shamgar. What multiple was onPlatinum sold for?

Thank you, Ron, for that. Look, I think what we're probably best to do is wait until we disclose our full year results, and then we'll see where onPlatinum has come in at because we haven't disclosed that at this stage and we haven't actually determined what our full year numbers are. This month of June is only just closing. And so I think at that point, we'll know where we stand but suffice to say, we're really with the multiple and the overall sale price that we've received, the $30 million.

A couple of questions from [ Stella Wang ]. Regarding the underlying $8 million to $8.5 million of EBITDA, including the $0.5 million cost to be removed in FY '27, how does that compare to the previous guidance of the annualized run rate revenue target of plus $75 million and annualized run rate underlying EBITDA target of $9 million to $10 million?

So look, I think if we look at the full year, obviously, we had to look at those synergies and those cost reductions over the full year. So if you think of July last year when we started, the actual synergies integration costs are zero. So we had to build them up over time if the not mean. So we're really happy with the fact that we've come in at that $8 million, $8.5 million, and you could normally add another $0.5 million to that, so $8.5 million to $9 million. And then we've given guidance of run rate of $9 million to $10 million. So we think we're largely in line with that. I mean run rate is obviously at a point in time so I think it compares with favorably to that guidance that we've given out to come at the $8 million to $8.5 million EBITDA. And I think part of the fact that the kind of underscores that if you look at, say, the fact that we've been able to sell that onPlatinum business for what is a very strong price from our perspective and our businesses are generally trading well, our global business is going through strength to strength. I think overall, the business is in a really strong shape. So we're really happy with the performance in this financial year.

In terms of the proceeds to further scale the core business, what does the company plan to invest into driving the growth phase of the global segment?

Okay. Look, I did see some comments from a number of analysts and are talking about how much capital the company need, we are a low CapEx business. And there was some commentary put out there to say that and yes, we would agree with that. There's not a lot of CapEx that we incur in our business. Most of the capital that we spend for our global business as we expand that we expense along the way. So as we do go into additional countries over time, we add points of presence, we're tending to expense those costs. There is a small amount of CapEx associated with but to a large extent, we're running a kind of a SaaS-based business there, a Software as a Service in a way, and that it's not a lot of costs upfront. And then we're getting monthly repayments -- sorry, monthly payments and growth over time in the form of usage. So not a huge amount of capital. I think if we took that question a bit wider in terms of what kind of investment you're making, whether that's CapEx or OpEx, we are looking to bring on additional partners globally. We are running some specific programs in certain markets as well. So that would require some OpEx to do that in the form of additional sales and marketing costs. But that's really the extent of that. In terms of our domestic network, we've largely betted that down now with the cost that we needed to incur the CapEx that we needed to incur. There would be some additional small amounts of CapEx moving forward. And we think on that domestic front, we're not going to see a large CapEx type business moving forward either. So hopefully, that answers that question. Daniel, I might just take one or two. I've just seen a list of questions. So there was a question there on the franking credit balance. I might just get our CFO, Matthew, to comment on what our current franking credit balance is.

Sorry, Peter. The balance post the payment of the previous dividend, I think it was in the positive, but there would be subsequent to that with further payments that we've made for tax installments, there would be a sufficient amount to cover the next 6 monthly dividend. So the franked dividend that Peter has alluded to from the return of capital will be franked from the tax that gets paid on the gain that we've made from the sale of this business.

We'll be -- so Ron's got another question. Will the company look to reduce the corporate overheads post-division sale? And is the company exploring the sale any other divisions?

Okay. So on the first question, yes, we're keen to see how we can reduce corporate overheads Unfortunately, some of them are difficult, Ron, to reduce because they come down to listing fees, voyage, et cetera, et cetera, but that is an area that we're exploring to see if we can reduce that corporate overheads for sure. Is the company exploring the sale of any other divisions? Ron, I think to the extent that parties made us interesting offers or attractive offers, yes, we would consider those. We're a business that's never -- we've never said that we're not willing to sell businesses for an attractive offer. So to the extent that someone made us an attractive offer for a business unit, yes, we would consider that.

We have a question from [ Rob Jew ]. The dividend return of capital, when do you think this will be paid?

Okay. So look, notionally, we're expecting settlement to occur at the end of July and we're seeing working through whether it made sense to accelerate that. But at this stage, we think end of July for settlement of the ONP transaction. And so the dividend turn of capital is probably going to be made within a month or 2 of that period, Rob. Difficult for us to be any more precise because there's certain statutory time frame through all these things that we need to work through. But I think it may be safer to say within 1 to 2 months of that peak of the day.

A have a question from [ Shuo Yang ]. Is it fair to estimate onPlatinum contributed $20 million revenue and $4 million EBITDA to the FY '26 results?

Yes. Look, I think you could stay on the revenue front. And as I mentioned earlier, we still haven't finalized our numbers. June has just come to a close, coming to a close in terms of us closing our books out. Our revenue is going to be higher than $20 million. So we're really happy with that particular result. In terms of EBITDA, it's a little bit early to say that. So we really couldn't comment on that particular number to put forward there. But suffice to say, we're really happy with the performance of onPlatinum. The business is continuing to grow. It's performed really well over the last 3 or 4 years. They've won some great customers, continuing to win some really good customers. So all in all, really happy, obviously, with that performance. But at the same time, we were able to attract a really compelling offer for that business, and that's really the reason why we decided to sell that.

We have another question from Shuo. Does the company expect to retain a portion of the proceeds for future acquisitions?

Shuo, not necessarily. I think what our key objective would be is to see what is the maximum amount that we can distribute to shareholders. But there's a number of other factors that we're taking into account. We want to pay some debt down. Yes, we need to leave some capital, some cash in the bank in terms of working capital, but we're not suggesting are we going to leave this number, a large number, if you like, for acquisitions. I think if we're looking at acquisition, we could then separately in terms of whether we wanted to raise capital or whether we would look at further debt facility based on that particular acquisition at the time. So I think at this stage, it's all about we received $28.5 million and $1.5 million in 12 months, how much debt should we pay down and then how much capital can we return to shareholders.

Two questions from [ Chris Seto ]. Are you open to other divestments? I think you've addressed that one, Peter? And then second is, are there any acquisitions that you might make?

There's nothing on the horizon at this stage. It says that's an acquisition we want to make. But there are some interesting businesses out there that we're aware of but we really haven't moved those forward internally. If we were to look at acquisitions, they'd be more around supporting those. Those 2 core areas, we see the collaboration, area is an interesting area, particularly with the move to AI. We do expect to see in the telco comms area a big impact with AI in terms of front of house for businesses. So if you have some customer-facing staff that are interfacing with customers, let's say, it could be a local government local government business has quite a few people employed who were answering questions from rate payers. The questions vary but they could be what day do I put my bins out? When are the rates notices due, et cetera? How do I pay a parking bind, that type of stuff. All of that's getting automated very quickly. We have a number of offers in the market that we provide into that local government with compelling offers. We're winning some really exciting business there. But we see that going more widely. We see that for a lot of businesses that have front of house or want to engage better with their customers, we see AI having a big impact there. So that's an area that we're watching carefully. It's something we want to buy at this stage, not at this point, but we do believe that, that could be really interesting in the in the telco comms collaboration space.

We have a question from [ Foye ]. I think we've discussed this. Do you expect corporate overhead costs to be reduced once onPlatinum sold? We went through that.

Yes. We are working on that. Some of them are hard to move. But yes, we're keen to see if we can reduce corporate overhead costs.

Question from [ Grant Allison ]. To what extent do you think you will maintain the cross-sold Comms revenues with the acquirer of onPlatinum?

So Grant, we'd be keen to see if we can still have communication services that we can provide as some of our collaboration services, and we have entered into an agreement with the acquirer of onPlatinum, efex, and onPlatinum themselves, if you like, to see if we can continue with those if you like cross-sell opportunities into that larger group that mainly focuses on MSP type services.

Another question from Shuo Yang. The ASX really makes no comments about future growth for acquisitions. Does this mean that the company is largely focused on organic growth and divestment of the remaining business units is a possible scenario over time?

Look, one thing I could say is that we're really excited about the growth, particularly within our global business. And that could involve some acquisitions moving forward. It may just involve continued organic growth within that business. We think it's a very attractive business based on the types of customers that has such growth profile. The fact that we're continuing to grow that, we have next to no churn within that business unit. We're winning some incredible customers globally. And off the back of that, we think that, that will be an extractive business unit for someone to acquire at some point. But at this point, we're focusing on growing that business. We don't have any specific acquisitions in mind so that would partly answer your question. But a possible scenario could be a divestment over at some point in time, that is correct. But yes, it's not what we're focusing on right now. We have been also focusing on growing that business and taking on board the many opportunities we're seeing within that particular business unit.

Okay. That's all the questions that we have at the moment. So I'd like to thank everyone for attending the call and hand it over to Peter for last comments.

Okay. Well, thanks, everyone. Look, we will have further run-through of our specific business units come end of August. The intention today was to go into the detail as to how FY '26 really unfolded, but more so to give you a bit of an update on the fact that we're selling that onPlatinum business unit and how we intend to use the capital. So hopefully, that was useful for you. But just to reiterate, we will provide more detail and more in-depth detail on the businesses and what we see as the growth opportunities for those businesses when we come out in late August. But thank you very much for your attention today.

Thanks, everyone. That concludes the call.