Superloop Limited (SLC) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Superloop FY '22 Results Conference Call. [Operator Instructions] I would now like to hand the conference over to Paul Tyler, Managing Director and CEO. Please go ahead.

Good morning all, and thanks for joining us. Welcome to Superloop's financial year '22 results, which I'm very pleased to present. I [indiscernible] the word transformational, but I think we can quite happily call this year that's just gone truly transformationally for Superloop. I'm Paul Tyler, the MD and CEO of Superloop; and with me, I have Luke Oxenham, our CFO. So if we -- if we jump to the highlights. What we'll be talking about today is around sort of 5 key things, revenue, EBITDA, cash, strategy and the outlook. And we're really quite delighted with the way the year has turned out around these. From a revenue perspective, we saw a huge growth there in terms of our top line, obviously supported through M&A, but with really incredible organic growth that underpins it. Similarly, from the EBITDA perspective, a highlight there being that we've been guiding for some time now $23 million to $25 million EBITDA for the year. We're pleased to bring the full year in above guidance at that $25.4 million. Our cash conversion continues to be strong there in the mid-80s. I will come back to each of these points, but very happy that we continue to see strong cash generation of the business. We'll touch on the strategy in the organization. And I'll just remind the listeners that we're at the midway point now in our 3-year turnaround. We launched a turnaround plan at the beginning 2021, calendar year 2021. We're at that midway point, we've seen a huge amount of progress during the first 18 months, and we have a really strong outlook from here. And then we'll get some reflections on the outlook from here coming into Q1 '23, which has started in a -- with a really strong momentum, which I'm touching. So let's look to revenue, starting with the overall revenue coming in at over $262 million, so $262.5 million of revenue for the full year, a very incredible or attractive set of numbers there, 137% increase, $151 million increase on the previous year. Now of course, that was largely filled through M&A, through the acquisition of Exetel, but we did see strong organic growth in the business in the order of 17%. So very incredible underlying organic growth also being delivered. And what's also encouraging is we're seeing that growth coming from all 3 customer segments. So the Consumer segment, of course, supported by the addition of the Exetel consumer base, but 41% organic consumer subscriber growth during the period as well. The Business segment, certainly supported by the business contribution from Exetel. Of course, super historical Business statement was more about larger businesses, and Exetel has brought small and medium businesses into the fold, and some great numbers showing up there, which I will come back to. And then Wholesale, which was, of course, an organic story, not supported by M&A, showing a 21% growth there to $38 million in overall revenue. So strong revenue across all 3 segments. And most importantly, not just fueled by M&A, but we've a very incredible underlying organic growth story. Jumping to EBITDA. Again, as I said, very happy that we've been able to bring the full year above the top end of guidance. In a year of an incredible amount of moving parts, transformation, integration, bringing 2 organizations together still seeing that performance over the top end of guidance was very pleasing, and I'm very thankful to the team for the discipline they showed throughout the year. The $25.4 million EBITDA for the full year, up 37$, and at a gross margin level for each of the segments we highlighted the numbers here. I'll come back to margin quality later on in the presentation. That was an area at the half that we were planning to continue to increase, and we've done very well there, so I'll come back to that. But you can see an absolute gross margin level there, strong margin growth in all 3 segments, very incredible, and I'm quite happy with that. Cash. So cash, of course, is, and will always continue to be a strong focus of the business. Pleased to see that the normalized operating cash flow for the business has actually increased year-on-year. So coming in there at $21 million, 40% up on the previous year. The cash conversion, we have maintained in the 8% range, which is obviously a slight increase on the previous year, but a very incredible cash conversion rate, leading to or supporting that strong net cash position that we've been maintaining. Obviously, a lot of the net cash position, or most of that cash position has been supported through the monetization of Singapore and Hong Kong, which had a $125 million cash injection during the year, as we know. But we've been maintaining a strong cash balance there, which has given us a lot of opportunities and a lot of options that we'll touch on during the presentation. The cash position has allowed us to invest in our business organically and allowed us to invest inorganically, and we'll continue to do both those things into the future. But we're also in a point where given that we had a strong cash position, given that we think that there is great buying in our own stock, we've been able to undertake a buyback up to 10% of the stock. We've been buying some shares on market, and we'll continue that program throughout the year. Okay. So let me touch on the strategy. So in January '21, we set out this accelerated growth plan for the business. And that growth plan was around a number of themes, of course, increasing the operating leverage of the platform being the primary one. So we want to fuel the challenger segments. That's all the nontraditional telcos, the [indiscernible]. We want to be a big part of fueling that challenger segments towards a cumulative 30% market share. That was an aspiration. When we put this aspiration or vision into the market, the market share was 8% back in November last year in. It has doubled over the previous 18 months. And in the time since then, the most recent report suggests that the challenger market -- cumulative challenger market share is now around 12.6%. So that vision is being fulfilled. The nontraditional telcos are taking share, and significant share if you look at the way the [indiscernible] report has laid out those packages. We want to do that through leveraging our Infrastructure-on-Demand platform. And that is the platform that combines our physical assets, our fiber together with our investments in software in automation to really make our platform easy to use, easy to consume a great product at a very competitive operating costs. Of course, we want to build scale on that largely underutilized platform, improve margins and drive a greater customer share and customer satisfaction across the all our segments. So that are the objectives that we set out and how do we do in FY '22? I would claim we did exceptionally well. So you can see a number of those major milestones significant progress made towards. We embedded that accelerated growth strategy deeply across our business. Not an easy thing to do in a world in which we're putting companies together. We're trying to do a cultural integration of many discrete and hybrids. But we've done, and I can see the fruits of that every day. We've also repositioned our business very clearly around 3 distinct market segments, and the market segments of scale and of opportunity. Those segments being our Consumer segment, our Business segment and our Wholesale segment. Out of the reason we've done that is to increase the clarity of our -- simplify our business to give transparency to the market of how our business is performing, the traction we're making and the outlook from here. And as a result of that, we're able to demonstrate strong organic growth in each of those 3 segments with new products being launched in each of those 3 segments, and I'll come back to that. We have seen that organic momentum accelerate through accretive M&A as well as the divestment of Singapore and Hong Kong. We have invested significantly in improving and integrating our systems and workflows across the business. We have strengthened our balance sheet material, and we've continued to -- in fact pretty much completed the leadership renewal in the business. We believe our strategy is now clear and simple. We're leveraging that high-quality telecom infrastructure assets to support those challenges. And we've made a huge amount of progress through that plan during the year that's gone by. There's more work to do, of course. And as we look out towards financial year '23, we've had similar areas of focus. Of course, we want to continue to improve our margins, and I'll come back to those segment margins shortly. We're want to continue to drive cost out of our business, drive efficiency, improve processes, continue to invest in the simplification of our underlying systems. We're going to actually increase the investment in organic growth as we come into FY '23 on the back of a great outcome from the investment in FY '22. We will continue to evaluate M&A opportunities where we see accretive, on-strategy opportunities in the marketplace that are appropriate for us. We'll continue to prosecute the on-market buyback during the year. We're going to do some pretty cool stuff around brand, the brand relaunch that will be coming later in the year, and continue to keep focus on cash generation business. One part of the business that has not performed to the level that we would like is our fixed wireless asset. And during the coming year, we will undertake a strategic review of that asset. So a lot of progress around a very simple strategy, a lot of optimism for where FY '23 is going to take us. I just want to touch on 2 particular investments we made during the year. Of course, where we buy, where we do M&A., we want to make sure it's not just on strategy at start, we want to make sure that we're able to demonstrate the success of that acquisition. So if we start with the Exetel acquisition, and I think we can very credibly argue that this was a very successful acquisition. We purchased Exetel for $110 million at the end of July, '21, added some 110,000 customers between consumer and business, and it contributes a lot of revenue and profitability into the business. The price that we paid for Exetel was a fully priced 10x. We knew that at the time. And the justification that made that 10x multiple a more sensible multiple for us was we highlighted $5 million worth of synergies we wanted to take out of the run rate. That was embedded in business case that we put in place to -- when we looked at Exetel. Very pleased that we've been able to deliver, not just the $5 million of run rate savings, but we delivered more than $6 million of run rate savings. And if we put that into post-synergy multiples, our business case said that we should effectively be looking at 6.9x on a contributed EBITDA basis. Actually, we can see with the overachievement of synergies that where we'll pay no more than 6.5x, which is getting into a very incredible territory as we've have mentioned. The network integration and the migration of all services to the Superloop network went exceptionally well, which obviously, led to a lot of synergies. But we also acquired a lot of new capability, which has been really valuable and will continue to be valuable to the broader group, such as our offshore capability in Sri Lanka. No just for contact centers, but for many types of tasks and roles, it gives us a really strong cost base in the future. When we purchased the asset, the subscriber base was in decline. We were very aware of that, and we discussed it openly. So we're very happy that, during the year, we've been able to arrest that decline. In fact, reversed the decline to a net growth territory during the second half. So we're calling the investment business case for Exetel running comfortably ahead of plan. ACURUS, more recently acquired, does have a lot of track record in the business, obviously, only acquired in late June 2022. But I'm pleased to see that it is on track at this stage. I remember -- sorry, I'll remind you the reason we've acquired ACURUS is not so much around a synergy base, no so based around channel expansion. So this is an asset that allows us to expand our target market share for our wholesale offerings -- our target markets, sorry, for our wholesale offerings beyond just traditional telcos and into all brands, all mainstream brands in Australia who would like to look at the broadband offering as part of their core proposition under their own brand. It sounds that they Officeworks and EnergyAustralia, who are currently offering broadband proposition under their own brand supported now by Superloop. Very optimistic about where that acquisition will take us in FY '23. It's probably the last time we will refer to Exetel as a stand-alone business because now we're operating it as very much an integrated business within the broader group. Okay. So if I jump to the 3 segments, I'll start first with the Consumer segment. For the Consumer segment had a great year. Very strong organic growth there, over 17,000 subscribers net added to the platform, around 40% uplift on an organic basis, then significantly supported through the end of Exetel as, of course, you're well aware. But there are a couple of dynamics that we really took a focus to this year as a result of that. One was profitability. So when we brought the Exetel platform onto our business, of course, it diluted the gross margin. We were doing around about 27% gross margin in the traditional Superloop Consumer business. The Exetel gross margin was a lot more dilutive. And that brought our first half gross margin down to that just under 21%. We did communicate in the half year that our aspiration was to return that back to our long-term target gross margin levels of 25%. Very pleased that we were successful being able to do that in the second half. So obviously, that was through the work of achieving the synergies, which I've discussed many time, but also, we had a lot of focus on cost to serve, and we've been able to take around 10% out of our cost to serve year-on-year, leading to that really strong gross margin contour or recovery there at over 25%, very happy with that. In terms of customer acquisition, we were acquiring on a net basis company throughout the year, but we saw an acceleration towards the second half. And I'm pleased that, that acceleration has continued into FY '23. I'll come back to that in a minute. We've also been doing a lot work within the business around some innovation and customer experience. Innovations such as Flip to Fibre initiative. That's where Fiber-to-the-Home users can move to a fiber service for no upfront charge. Simply, i's operating well above its market -- it's traditional market share there in terms of the number of successful additions on that given that discontinuity. But also product innovation such as My Speed Boost, which is completely unique in the market, and it shows the strength of our automation where we're able to offer our customers the ability to increase their speed, up to doubling their speed through the push of a button in their portal on a daily basis for those times where they want to just increase the speed on a temporary basis. Seen really strong feedback from those 2 innovations. In terms of the customer experience, we did undertake a significant network resilience program dating back over the last year where we've added that second fiber to all the [indiscernible] to ensure that we have a dual owned diverse fiber to every point of intent to ensure a much more robust service. And you can see that in the stability of the network and the ongoing customer satisfaction. So the Consumer business has had a great year. Clearly, you can see the improving in the financials there on the top line, gross margin on an absolute basis and also the product quality. If I jump to the Business segment, so the Business segment similarly has seen a significant improvement as we've gone from first half to second half. First half of the year affected by the remaining COVID impacts, particularly on things such as the WiFi business, particularly on SMB segment as people have been working from home and not retesting their supply arrangements. In the second half, we saw a significant improvement in that outlook. We've been, and I'll come back to in a second, but we've been questioned a number of times around what is the Business segment? Help us demystify a little bit. So in the table on the bottom right on this chart, we sort of reflect on the way we look at the Business segment, which is pretty traditional. We look at it through the lens of 3 distinct subsegments, a small less than 20 employees subsegment, $1 million, 20 to 200 employees, and then large, greater than 200 employees. And the go-to-market is different for each subsegment. On the small side, it's much -- it's a digital sales, much more akin to our Consumer business. On the large side, it's person-to-person sale, much more akin to our Wholesale business and a lot of synergy that's available to us through those similarities. We've laid out the sort of products that we offer into each of those segments there to give you a better understanding and how the revenue is distributed between each of those segments, you can see on the bottom line of that --- bottom line chart. As we came into the second half of the year, we started to see some a recovery, for instance, in the student accommodation business. We now see the number of base supported under our managed WiFi returning to pre to levels. We're starting to see much more of an uptick in demand for our business products. And marry that with the product innovations, we've launched such as the partnership with Palo Alto on really market-leading security propositions in the SD-WAN and SASE space. You can see a recovery in the gross margin for that business, notwithstanding the continued decline in the underlying fixes wireless business, but a recovery in gross margin quality coming into the second half. And that recovery is something we'll continue to push into the coming year. We had, during the -- as part of the full year results, now look at the goodwill that's carried out particularly in the Business segment here. That is associated with the fixed wireless business. It's something that really dates back to the BigAir acquisition dating back to 2016. It's not current. It's not impacting cash, but we have taken an impairment on the carrying value of that fixed wireless business. Luke will touch some more about that later in the presentation. Okay. On the Wholesale segment, Wholesale segment is an organic story, as I said. We've seen the resigns of a number of key customers there. Obviously, the onboarding of ACURUS. If we start with perhaps the biggest innovation that we had during the year, which was the Superloop Connect platform. As I've mentioned a number of times, we launched that back in September 2021. And that's the platform that provides broadband aggregation services. So that's where we take all the complexity of our traditional fees and fees and telco solution, and we marry it with the automation that we congests heavily in and provide as a service consumption model or broadband for our wholesale customers on our broadband. That's been growing very quickly. It's grown from a standing starting September '21. We finished the period at around about 20,000 subscribers -- at over 20,000 subscribers on that platform. Then we have now gone and purchased Acurus. And the point of purchasing Acurus is to expand the addressable market for that broadband [indiscernible] platform beyond just traditional telcos, and now it's all a matter of brands, as I said, Energy in Australia [indiscernible] being the first example. Very happy we've been able to bring all of the traffic across from [indiscernible] on to our platform now within days of the acquisition completing. So going very well there. And very incredible growth in the wholesale team as you can see over 20% organic growth year-on-year. Okay. We've been asked many times about our network, our capacity and our headrooms. And we've tried to give a true, but illustrative picture and how the network is utilized. So with the addition of all subscribers on our platform, we now, as it's highlighted on this slide, look -- we're carrying around about 200,000, a little bit over 200,000 subscribers on the platform. We have said that we believe our platform within the capital envelope, the $20 million a year capital envelope that we assume on an ongoing basis as a maintenance investment. We assume that our platform -- model of our platform can support up to 1 million, perhaps beyond the 1 million subscribers. So on that basis, it is a crude basis. But on that basis, we see our platform is in the order of 20% utilized. We're now crossing kind of the 2% market share of the NBN market. Obviously, still very small, growing very quickly, of course, but still less than half of our target market share of 5% of our retail price. Okay. With that, I'll hand over to Luke for the financial points.

Thanks, Paul. I'd just like to add my thanks and welcome to everybody who's on the call today as well. We really appreciate your interest in Superloop. This is my first presentation of a full year set of results for the company. And certainly, 2022 has been a [indiscernible] fire. I've got to incorporate 2 acquisitions that were made during the year and obviously 1 divestment as well. So I just wanted to acknowledge from investor perspective that it does make it a little bit more complex to understand the results. And so the purpose of my presentation today is hopefully to talk you through, in a little bit more clarity, some of the things that we've seen in terms of financial performance in the business over the course of this year. As Paul mentioned already, and I'll just sort of highlight the point, we're doing -- in this presentation today, we want to speak a little bit about the performance between Superloop [indiscernible] and hopefully highlight to you just how successful the Exetel acquisition has been. But on an ongoing basis, moving forward, as we do internally, we're very integrated in terms of the Superloop and Exetel business. And so we will start to only present numbers on the basis of consumer business and wholesale without this aggregation. But if we begin with revenue, as Paul has already mentioned, it does include obviously the Exetel acquisition, we had a 137% increase in revenue compared to last year. Reserved revenue performance also includes revenue generated from the discontinued operations of Hong Kong and Singapore. What I want to do in this slide provides a little bit of a deeper insight into each of the operating segments on the business. From the consumer perspective, the last 4 halves and consequently the last 2 years have produced stellar growth. We're obviously coming off a low base. But as we will discuss in a couple of slides time, the increased investment in marketing and organic growth will certainly pay dividends from a revenue growth perspective. Looking at the Wholesale division, then, the business is clear of any acquisition impact and the 21% growth year-on-year is a great outcome in the more mature business. The key to success in the wholesale segment has no doubt been introduction of the new wholesale aggregation product, Superloop Connect. And as we've seen already, this has gone from 0 to over 20,000 subscribers in the space of 9 months. And since year-end, we've now successfully migrated almost an additional 5,000 subscribers, some of which are related to the Acurus white label platform. Lastly, though, let us talk about the Business segment. There's a little bit more going on here. And I want to talk through the trends to help you understand what we have been seeing internally. It's no doubt that the Business segment has experienced more headwinds than the other segments over the last couple of years. Firstly, the first half of FY '21 with the last half that the group saw revenue and gross margin from the CMS or managed services business that was quite down. In that half, that business had revenues of $2.2 million, which fell to 0 in the second half of FY '21, and has been 0 since. Secondly, and Paul has alluded to, the bulk of the group's fixed wireless customer base is also reported in this segment. And as we've highlighted in previous results, the fixed wireless product has been declining in usage and consequently revenue. Between FY '21 and FY '22, fixed wireless revenues fell from around $10 million in FY '21 to only around $6.5 million in FY '22. The Business segment also contains the group's managed WiFi student accommodation business and the impact of COVID has definitely been felt in the last 2 financial years. Finally, we can't ignore the fact that a decision taken back in 2019 around that managed services business not only impacted the services revenue, but there were a flow-on impact to the Business segment, not only in reduced revenue, but also in reduced resources and reduced sales presence. Since I've joined the business, Dean Tognella and the team have begun to rebuild the experience and capability of the sales team. And from where I see it, the pleasing signs are in the half-on-half improvement in this financial year, and in particular, the sales and revenue momentum that the division exited the year with. Obviously, the acquisition of Exetel has been a great boost in the small and medium end of the Business segment, but the reinvigoration of the sales effort in the business space gives me and the rest of us in the executive team a lot of confidence heading into FY '23 in terms of the prospects for the Business segment. So let's take a look at gross margin. What we've got here on Slide 15 is hopefully a helpful waterfall chart designed to show you the movement in gross margin, firstly, in the Superloop business on a stand-alone basis on the left-hand side, and then overlay the impact of the Exetel acquisition on the right. So if we begin to the very left bar, this is the attribution of gross margin across each of the old Superloop components in financial year '21. This is quite obviously skewed towards the wholesale and international businesses, which contributed $30.5 million or almost 60% of the gross margin of the group last year. After stripping out CMS business, you can see there have been solid gross margin growth contributions from both the consumer and Wholesale segments, reflecting strong top line growth in all the areas. Obviously, the Business segment did go backward in FY '22 compared to FY '21. This is almost entirely a consequence of the decline in fixed wireless revenues. Putting all of this together, so Superloop stand-alone, there was modest growth in gross margin in the year, up from $52.2 million to $54.5 million. Clearly, the Exetel acquisition has provided us the paradigm shift in the gross margin story. Admittedly, the Exetel consumer results benefited from roughly $4 million of [ India ] synergy benefits. The real power of this slide for me, though, is the FY '22 bar on the right-hand side. The relatively even split of margin contribution from across the group demonstrates the power of the strategic rationale for the Exetel transaction. Diversity of margin contribution provides a natural hedge against changing dynamics in any 1 of our 3 customer segments. For the time being, we have ambitions to grow all 3 segments as strongly as we can moving forward. But the beauty of the business model is that, when necessary, we can ramp up or ramp down the investment we made into each of the segments in response to potentially changing return profiles. Bringing all of that together on Slide 16, we show a relatively single pipe region the EBITDA growth between FY '21 and FY '22. The left-hand side rebate is FY '21 for the one-off impacts of both the CMS business and the job keeper benefits that we received in that year. This rebate number is underlying EBITDA of $14.4 million. On the right-hand side, we've isolated a couple of components of the EBITDA growth. In particular, the Exetel synergies of $4 million that we delivered in the year. And across both Superloop and Exetel, we spent an additional $6 million in marketing this year compared to last. On a headline basis, EBITDA grew 37%, which is a very pleasing outcome, and as Paul has mentioned already, ahead of the market guidance we have provided. But the growth is even more impressive when you consider the nonrecurring nature of those couple of items in FY '21. What's most pleasing to me in my first year with the group is that, during FY '22, whilst not on this chart, we've also been able to provision an additional $1.7 million in expected credit losses, which, from my perspective, provides a greater level of comfort around the company's buffer with which to absorb economic fluctuations moving forward. So if we jump on to Slide 17, it is a more detailed income statement. I've strike already that a number of the moving parts above the EBITDA line, so I wanted to use this slide to talk about some of the below-the-line noncash items. In particular, the accounting for the divestment of Hong Kong and Singapore as well as the impairment of goodwill that we booked in these results. So let's start with the impairment. From an accounting perspective, we are required each year to test the carrying value of our assets and in particular goodwill against the estimated value and use that we derive from our internal valuation analysis. Accounting standards require us to do this at the level of our cash generating units or CDUs. In FY '22, we've changed our CDUs to reflect the operating segments that we report in our accounts into the market, which are in turn in the operating segments that we manage the business and supply. Impairment we've taken this year, as Paul already mentioned, has been again the Business segment. And as we've already alluded to is the biggest influencing factor in terms of the changing valuation of the Business segment has been a revised the outlook for the cash flows extending from the fixed wireless product. Whilst it's also true that other valuation inputs such as an increased WACC have moved against us, the change in cash flow projections for the fixed wireless business is the biggest factor. It's never an easy situation to recommend to the Board that an impairment be taken. But as I went through this valuation process for the first time, it's definitely something that is appropriate. And in my view it goes without saying that it rebates is the goodwill of the business onto a very solid foundation. The other significant factor below the line is the accounting for the disposal of the Hong Kong and Singapore assets. At the time of the disposal, we provided a preliminary estimate to the market, but the gain on sale will be in the order of $32 million. Pleasingly, as we work through the divestment exercise, the gain on sale has landed on a gross basis at $46.6 million. When we announced the disposal, we did also highlight that the final gain on sales would be subject to whatever level of goodwill was to be derecognized in conjunction with the sale. In finalizing the accounting, we have also concluded that it's appropriate to derecognize $35.1 million of goodwill, which does offset the gross gain on sale and results in a net final gain on sale of $11.5 million. So jumping to the next slide, we're going to change pace a little bit now, and I want to spend some time talking about the return on our increased investment in organic growth in FY '22. We're certainly aware from the conversations that we've had that this is very much a topic of interest across the market. The chart on the left-hand side shows the gross new subscribers added in our Consumer segment over the course of financial year '22. As Paul mentioned, Exetel did have a slow start. But since the turn of the calendar year, we began to see improved performance and increased growth in the Exetel business. Overall, the performance throughout the year was very consistent. Although you might be able to decide what we precision the cost of acquisition from these charts, you will see that the $8.3 million of marketing spend this year did yield excellent gross subscriber numbers at a cost per subscriber, which is, in our view, substantially below that of our peers. Based on the expected ARPU and gross margin outcomes, we expect to be able to break even on our marketing spend within about 7 to 8 months. And in our internal analysis, we apply a combined group assumption around the churn level of just over 2% per month, which we believe is comparable to industry average. Using these inputs, as we evaluate the [indiscernible] business that we have acquired in FY '22, we estimate that the marketing spend will deliver in excess of a 16% return on our invested capital. It is these metrics which give us confidence that a further investment in organic growth is a sensible one for us to proceed. And as such, we have committed to an increase in marketing spend in financial year '23. So the next topic of conversation again, is another 1 that we know people are particularly focused on in relation to Superloop and that's cash flow. What we've presented here is a reconciliation of the apparent operating cash flow that you'll see in the financial statements normalized in order to present, which is what -- which is, in my view, a more straightforward picture of the cash generated in the business in financial year '22 that was derived from the sales, revenue and expenses that related to financial year 22. Firstly, starting at the top and obviously, the operating cash flow in the account in now $11.5 million. We believe it's appropriate. You can adjust for the transaction cost of $7.5 million associated with the various transactions throughout the course of the year. And these items are not expected to recur in FY '23, obviously, at this level. Next to a common items that we spoke about at the half year results. Two cash outflows are falling to the operating cash flow statement, but did not relate to the FY '22 performance of the group. These working capital costs, one tax, one related to carryover network costs from Exetel, were paid by Superloop on the 1st of August with both related to carryforward liabilities of Exetel. The [indiscernible] adjusted for the completion accounts. But unfortunately, those adjustments are not offset in the operating cash flow they have fallen into the investing cash flow line. In the year, we also undertook a recalibration of the supplier payment profile [indiscernible]. As at 30 June FY '21, the Superloop business was carrying, in my view, an abnormally high level of trade creditors. On average, those trade creditors were 89 days against the vast majority who had 30 days or less payment terms. In FY '22, we've cleared out this tradition and paid $12.4 million of invoices relating to FY '21 EBITDA outcome. I am far happier now that the average outstanding days of our trade creditors as at 30 June 2022 is 25 days. Additionally, we also find ourselves in a position that we're able to benefit from the economies of scale and cost savings by making a number of prepayments as at 30 June, 2022, and we've increased our level of prepayments by $4.4 million for expenses that will be accounted for in EBITDA in FY '23. The net of all of this is a normalized cash generation in FY '22 of $21.2 million, which represents 84.4% of the underlying EBITDA reported by the group for the year. Coming to the balance sheet very briefly. The slide presents a snapshot of the balance sheet at the end of the year. Most notable changes are obviously the reduction in assets as a consequence of the disposal of Singapore and Hong Kong in the second-line property, plant and equipment. The other thing to note is that we have repaid debt, sorry, during the year. And from a debt [indiscernible] perspective, are well within the parameters of our lending facility, having a negative leverage ratio, a very less gearing ratio of 8.9% and a very comfortable interest coverage ratio at 6.6x. Turning to Slide 21, whilst on the subject of capital and balance sheet, we finished the year in a very solid cash position. Net cash of $42.8 million and an undrawn debt facility of approximately $50 million. From a growth perspective, we are evaluating a couple of opportunities at present. Even accounted to them coming to fruition, we remain in an excess capital position. And consequently, we announced an on-market buyback of up to 10% of issued capital. We began to buy back in mid-July, and we bought back a small portion of our target at this stage, but our intention in FY '23 is to continue buying under that program. Lastly from me before I hand back to Paul, I just wanted to make some comments about the way in which we're thinking about profitability as we head into financial year '23 for the business. I know from conversations with our investors, many people like to be able to build that bridge to understand what FY '23 should look like. So we thought we'd give some pointers to help you undertake those calculations. On the plus side for FY '23, we can begin with a full year contribution from the acquisition of Acurus. I think for the first time, since we announced the transaction, we've put a number on our expectation of EBITDA performance in FY '23 at $2.5 million. Secondly, there's going to be a full year, obviously, of the Exetel synergies, which, from an annualized point of view, we are running at around about $500,000 a month or $6 million for the year. And that does compare to obviously only $4 million of synergies that actually were booked and fell into the financial year '22 outcome. As I mentioned, and as Paul has alluded to as well, we continue to focus on organic growth in the business, and we're expecting to deliver another year of very strong organic growth. And we are expecting to focus on improvements where possible in increasing the gross margin of that business as we move forward. It's worthwhile thinking about some things on the flip side of that equation, though, and some of the things on the downside that we think about is the fact that we will no longer have a contribution from the discontinued operations in FY '23. And just a reminder, the contribution from discontinued operations in FY '22 was $4.9 million of EBITDA. As we've talked about already on the back of a very successful year in consumer growth, we will be investing additional money in the order of $5 million to the marketing cost in FY '23. It's worth noting that some of this increased monthly spend will be directed to the Business segment to continue to drive growth in the SMB and medium corporate market. And, on a smaller scale, with the replacement of our Software-as-a-Service Cyberhound product with our new CyberEdge product, the accounting treatment for the new products will change to a more overtime contribution. And that's likely to impact the EBITDA line by an amount close to $2 million in FY '23. So with that, let me hand you back to Paul to comment on the outlook and some closing comments.

Thanks, Luke. So in terms of outlook, we want to continue the growth momentum, it's very simply. And we've had increased growth momentum in the year gone. And as we've come into the first quarter of this year, I'm very pleased to see that, that momentum has continued. We've said that we're going to invest additional marketing in the coming year. But if I give you some -- an indication of the success of that, in FY '22, we added, as I said, just over 17,000 net subscribers. In the first 2 months of this year, we've added over 9,000 net subscribers to the platform. So the momentum is building, and we're very, very pleased with the way that's going, and we expect that to continue into the future, and we have the financial capacity to continue to support that growth. We're going to continue to work on costs, going to continue to integrate the acquisitions we've made, continue to invest in the transformation of the business and the systems processes and workflow levels to take cost out of the business. We have the balance sheet that allows us to continue to explore inorganic opportunities. We are exploring a couple of inorganic opportunities at the moment they may or may not result in the transactions. And we have explored the number in FY '22 that [indiscernible]. We will buy it very prudently if we buy at all. We'll have to be on strategy, accretive and appropriately priced, as we've always said, to ensure that we really do undertake disciplined M&A. We'll continue to use that capital to execute the buyback as and when appropriate. So I'm really pleased with the way FY '22 has gone, and I'm really optimistic about FY '23. I'd very much like to thank the Board of Superloop, I'd like to thank the executives of Superloop, I'd like to thank the broader organization and our shareholders for your support during the year. It's been an incredible year for the company, a real watershed year, and we feel really optimistic about where we're going from here. With that, I'll hand over to questions.

[Operator Instructions] The first question today comes from Bob Chen from JPMorgan.

Just a few questions for me. Maybe just looking back to that slide, '22 with the FY '23 EBITDA considerations. I mean given you delivered a second half EBITDA of $14 million, can we sort of annualize that to get sort of a $28 million base for '23, and then add all these little components in. Is that the way to think about your FY '23 outlook?

Sorry, Bob. The way I would think about it, I guess, maybe I'm not answering your question specifically, but the way I would think about it is to start with the $25.5 million, and then to think about these sort of various components and the ups and downs that they were provided. So if you look at the Acurus acquisition, for your point would give you an additional $2.5 million, you then get an additional to a couple of millions from the Exetel to this. And obviously, we'd sort of leave it up to analysts to make some inferences in relation to potential growth and gross margin that we can deliver on that. And then you obviously -- so that sort of gets you to a number, I guess, from the starting point of around $30 million or thereabout. And then you sort of think about, well, what do I -- sorry, that's before right. And then you think about what do I need to sort of adjust down for, obviously, with discontinued operations, with the increased marketing spend as well, as I mentioned, the impact from a Cyberhound perspective as well. So I appreciate that there's sort of swings and around the boats and ups and downs on both sides of the equation there. But ultimately, we are -- of the view that there will be growth in that outcome in FY '23. And Hopefully, sort of as you go through that sort of thought process and waterfall, you'll be able to come up with a similar answer.

We're not giving formal guidance. And we -- as we come toward the AGM, we'll look at giving a more wholesome trading update of at this stage, we're leaders as described [indiscernible]

And then just in terms of sort of training sustain, that comment that you've added 9,000 net subscribers over the last couple of months. I mean is that a reflection of some of the increased marketing spend that you've put in? And also, like can we assume that sort of run rate for the balance of the year? Or is there a bit of seasonality in terms of subscriber additions?

Particularly seasonal. Obviously, it's come to Christmas period, things change a little bit. But no, I wouldn't say it's a seasonal business. Yes, marketing investment is part of it, marketing efficiency is another, competitive intensity is another, product innovation is another, there are a lot of elements. We're very happy with the way that the year has started, and we really think we have the wind behind us now. We have a great product, a great customer experience. We have a building worth about, but we're not giving a guidance on how many subscribers to the year will be acquired.

Okay. Great. And then just a final one. Just with churn in Consumer NBN, I think you made a comment earlier that the assumption that you guys have put in is around that sort of 2% a month level. Where is the market at? And why is the -- and then what's the difference between you or 2% versus where the market's at?

That assumption was around the business [ tax ] with the marketing investment, and that is where the market is at. Just over 2% is kind of the market average. Our churn has fallen. We've been improving churn progressively throughout the year, and we intend to continue to improve actual churn in the year to come about 2% that Luke was talking just ending separate one that I was referring to was around the ROI we expect, we've taken a reasonably considered position there to ensure that we are getting a return on the investment as we make further investments in our organic business.

The next question comes from Nick Harris from Morgans.

Hi, Paul and Luke, thanks for the call and also thanks just for that slide on that sales and marketing return. I think it's really helpful and obviously justifies that continued growth in spend. So I guess a couple of questions for me. Luke, just on that Slide 19, the cash flow. Can you just elaborate a little bit more? I mean are you basically normalizing your working capital because it had been I guess, elongated in prior periods. So you're getting it back to a level that you want? Can you just explain that in there? And then sort of answer that question.

That is exactly the answer.

Got it. So that level is reasonable because it got a big push...

If I just go back to at the end of FY '21, and I guess different people make different perspective on these sorts of things in terms of what's appropriate. But at the end of FY '21, the trade creditor balance, in my view, is it normally high. And that dividends by the fact that, on average, those trade creditors were -- the aging of them, if you like, was around 89 days when many of them were actually had payment terms of 30 or even, in some cases, less than 30 days. So now at the end of FY '22, we're back at trades better than sort of aging for 1 with better term days of 25 days. So certainly, we have over the course of this year arrested that. And it is -- given the better or the stronger financial performance of the company, stronger cash position of the company, I think it's appropriate that we are meeting our obligations on a timely fashion and ensuring that we have an appropriate sort of on reputation with our supplier.

Got you. That makes sense. So I guess the benefit is you're back on good terms. You should hopefully get some better purchasing power because you're paying in a timely manner, not late. And then just -- got it. And just could you just explain where -- just 2 parts of that, and then I'll ask some other questions. Just I think you made a comment about impairing some credit losses. Was that through the P&L or the cash flow? And then the prepayments that you also called out, could you just elaborate on what that is and why you're prepaying?

Yes, certainly. So, well, firstly, to the first point, I did make the comment that we increased our expected credit loss provision over the course of the year. Again, this is my first result. Certainly, what I observed being sort of picking up the pen was that for the business that we had, for the types of customers that we had and to the size of the revenue pie that we had, I think at the time of the circular expected credit loss provision was $400,000 at the end of FY '22. I didn't feel like that was an appropriate number. And so over the course of FY '23, we have added to that balance. So we're in a much stronger position as we enter -- as we end FY '22 and move into FY '23. That amounts that we've increased the provision by is effectively an offset against revenue. So way we will see it will be an impact on EBITDA. And it's not -- it doesn't impact the cash flow, but it is obviously an impact in terms of the reported EBITDA for the year. But just on the prepayment side, on the second part of your question, in the past, there's been a number of things. I'll give you an example. This is not the only example where we have used supplier financing, for example, on purchasing all the corporate insurances. And so that has been a way to -- obviously, for the business, which has been in not as strong a shape in previous years. It's been a way for the business to manage its cash flow, which is entirely appropriate and the right thing to do at that point in time. But again, to your earlier point, given that we're in a much stronger position now, it saves us in terms of cost of having that financed by our suppliers. But it also gives us some economies of scale and purchasing power if we actually go and pay those things upfront as opposed to financing them. That's 1 example. There are a couple of other examples across the business where we've taken that approach as well.

That's really helpful. I guess my interpretation of that is there's been a bit of, I guess, stretching the working capital out. And hopefully, that's all been resolved now, so we should get more normalized operating cash flow less funkiness going forward for 1 of a better term. Is that a fair comment?