Sydney, Nsw Sep 17, 2019 (Thomson StreetEvents) — Edited Transcript of Amaysim Australia Ltd earnings conference call or presentation Monday, August 26, 2019 at 10:59:00am GMT

* Gareth M. Turner

* Peter J. O’Connell

Ladies and gentlemen, thank you standing by, and welcome to the amaysim 2019 Full Year Results Conference Call. (Operator Instructions) Please be advised that today’s conference is being recorded. I’ll now hand the conference over to your first speaker for today, Mr. Peter O’Connell. Thank you. Please go ahead.

Peter J. O’Connell, amaysim Australia Limited – Founder, CEO, MD & Director [2]

Good morning, and welcome to amaysim’s 2019 Full Year Results Briefing. I’m joined by Gareth Tenner, our Chief Financial Officer; and Alex Feldman, our Head of Strategy. Our results announcement, full year report and presentation have been lodged with the ASX and are now available on our website.

I will begin with an overview of our financial performance for the year and our operational achievements. I’ll then hand over to Gareth for a more detailed review of the financials before I cover the outlook for FY ’20. We’ll then open up the line for questions.

Could you please turn to Slide 5 for our highlights? This year, the amaysim Group delivered underlying EBITDA of $47.3 million. This result is the top end of the $44 million to $48 million guidance range, which we shared at the half year results in February. As anticipated, EBITDA was lower than the full year 2018 results, reflecting the intense competition in the mobile market, some headwinds in energy and the start of our growth investment.

In summary, the results were: Net revenue of $508.3 million. This is a decrease of 7.8%; gross profit of $152.2 million, a decrease of 2%; underlying EBITDA of $47.3 million, down 14.5% and at the top end of the guidance range; statutory EBITDA of $43.9 million, down 8.9%. The company made a statutory net loss after tax of $6.5 million. The net loss was driven by a $15.7 million impairment charge related to energy customer contracts and distributor relationships. Gareth will take you through this in more detail later.

It refers to the same impairment, which we discussed during our half year results in February. You’ll also notice that we have changed the way that we report mobile subscribers. We want you to see our business through the same lens as we do. We are a subscription business, and we focus on customers that generate recurring revenue. These customers that we’re calling our recurring subscribers generate 95% of our net revenue. It’s these same subscribers that buy the plans you see on our website and that our marketing and sales activity are focused on. Our thinking is that this segment of our base gets lost in the noise caused by our ‘As You Go’, or AYG subscribers, who are, by their very nature, sporadic and unpredictable mobile users. As we described at the half year results, AYG subscribers can sit in the base for over 12 months without adding credit or using their phone. That’s the nature of the credit expiry rules, which the market is used to.

As a result, we are transitioning away from a focus on total mobile base, which includes AYG, to a focus on recurring subscribers. We strongly believe that this method of reporting subscribers gives better clarity around the recurring nature of the mobile business. On this basis, recurring mobile subscribers were down 4.8% to 624,000. This reflects the continued intense competition in the mobile market and our decision to pull back on our planned marketing campaigns until we’ve signed the revitalized Network Supply Agreement, or NSA, with Optus.

If you refer to Slide 33 in the Appendix, we have provided further transparency and broken down the base to share AYG and recurring subscribers. Here, you will see the revenue contribution from AYG’s users and a decrease in proportion of the revenue base, which further highlights why we have decided to focus on the recurring mobile subscribers.

Energy subscribers increased by 8.3% to 207,000. It was pleasing to see our unique channels to market and sales strategies cut through the noise to drive subscriber growth. Overall, the company performed well and in line with our expectations, and we are well positioned to execute on our strategic initiatives to drive growth.

Turning to Slide 6, which I’ll talk to you on a comparable basis that excludes the impact of new accounting standard changes to allow like-for-like comparison with the prior period. In line with our guidance in February, the highly competitive market conditions continued and that is reflected in pressure on our net revenue. Energy accounted for 60% of net revenue and mobile contributed 40%. The shift towards energy becoming a larger contributor of net revenue shows the benefits of having a diversified business as our solid performance in energy has partially offset the softer performance in mobile. Despite the falling net revenue, we maintained gross profit, which only declined 1% on a comparable basis to $153.7 million. We were able to maintain gross profit due to the strength of our NSA with Optus and our disciplined margin management in energy. Underlying EBITDA, on a comparable basis, was down 33.9% to $36.1 million. It should be noted here that the FY ’18 numbers have been restated to exclude discontinued operations and, therefore, do not reflect the reported results in FY ’18. This has been done to show a like-for-like comparison on a new GAAP basis. Underlying EBITDA was down 12.6%.

Turning now to Slide 7. I’ll step through this year’s milestones and achievements. This financial year marks my first year in the role of CEO. One of my first tasks this time last year was the review of the business and each business unit’s performance. We’ve made the difficult but necessary decision to close the online device store and divested the fixed line broadband customer base. This allowed us to allocate our capital and focus on businesses, which have the best opportunity for profitable growth and potential to deliver long-term shareholder value.

In November, the Board and senior management team were bolstered with the appointment of Gareth Turner as CFO, and the addition of 2 non-executive directors, Goetz Maeuser and Craig Jackson. Each executive brings deep business expertise and experience that has already been a great benefit to the company as we navigate the market opportunities in front of us.

In March, we successfully completed the $50.6 million capital raise that allowed us to reduce and restructure our debt and to enable significant investment in our strategic growth initiatives, being: To defend and grow mobile; to disrupt retail energy; and to enhance our technology stack. The capital raise is supported by existing shareholders, with 97% of institutional shareholders taking up their entitlements. Our largest shareholder, Langfrist, supported the offer by not only committing to take out all its entitlements, but also provided sub underwriting support. The support we received was humbling and we’re now working tirelessly to deliver on our strategic objectives.

I’m also very pleased that key management personnel who owned shares at the time of the offer participated in order to support our market. This was a meaningful sign of conviction and a strong demonstration of alignment with shareholders.

In May, we revitalized our NSA with Optus. Under the renewed agreement, we acquire inclusions in a way that gives us more flexibility to offer our customers compelling mobile plans. This provides us with a new level of agility to compete swiftly and effectively in the market and has set the foundation for growth in mobile. Immediately after the reviewed NSA was completed, we commenced this simplification of our mobile plans on offer and consolidated a number of our plans in order to deliver operational efficiencies and to streamline our plan portfolio.

In energy, we are very pleased to have supplements our first subscription plans in Victoria. The plans are being well received as they bring much needed simplicity, fairness and transparency to customers. While it’s still very early days, we believe our new energy plans will be truly disruptive. Our research tells us that consumers want the way they buy and use energy to be as simple, fair and as flexible as their mobile phone services.

Finally, in these past few months, we have initiated the planned step change in sales and marketing, and we have launched a number of new campaigns into the market. These campaigns have been designed to drive brand awareness and subscriber growth.

If we turn to Slide 8, this is an overview of the new plans that we have launched following revitalizing our NSA with Optus and the excellent customer feedback we have been receiving so far. As I mentioned at the outset, it’s been intensely competitive in the mobile market. However, I’m cautiously optimistic that we’ve seen the worst of it. It appears the MNOs are now focusing more on higher ARPU products as they seek better margins in the sub-$40 category of mobile. To me, this meets a logical need MNOs must have to find funding for the rollout of 5G and subsidy of 5G handsets.

Our decision to delay investment in marketing activity until we revitalized our NSA with Optus also impacted performance of our mobile business. We held our nerve, preserved our capital, and we are ready to sprint as soon as the agreement was signed. We launched new plans to customers within days of signing the deal and commenced our new marketing investment within a week. We’ve been overwhelmed by the exceptional feedback from customers, and we call out some of the social media highlights on this slide, and we’ve already seen an uplift in subscriber growth.

We have added a total of over 8,000 net recurring subscribers in less than 7 weeks since 30 June, and as of 16 August, the recurring subscriber base totaled 632,000.

Turning to Slide 9. Despite the challenges in mobile, we’ve maintained our market share of the MVNO market at 34%. And we are still by far the largest MVNO in Australia. We are seeing early signs of price stabilization in the mobile market and expect MNOs to turn their attention back to profitable growth to support investment in their networks as the race to 5G rollout continues.

As I do say, we expect more growth opportunities for amaysim to open up in the 4G area and more space for us to take advantage of these opportunities. The value of our mobile subscriber base not only lies in the revenue it generates but also in its immense inherent strategic value. As our subscriber base grows, we will have more leverage to optimize our sale costs with a wholesale recontracting event to occur on or by 30 June, 2022. It is worth reflecting on the significant improvement in margins which we experienced after we tendered our mobile agreement in 2014. We see no reason not to expect a similar terrific result in a few year’s time.

READ  Trailblazing black jurist dies at 96 - Examiner Enterprise

Importantly, our customers are our reputation. And this year, we recorded our lowest ever level of customer complaints raised with the Telecommunications Industry Ombudsman. amaysim has delivered one of the best performance in the Australian telecommunications’ industry since our inception, and we are confident that the combination of our strong values and customer-focused business model will keep us there.

Our strong NSA with Optus enabled us to maintain gross margins of 34.2% on a new GAAP basis despite a decline in mobile revenue.

Looking now at energy on Slide 10. This year saw the biggest regulatory change since the energy market was deregulated over a decade ago. This change caused a great distraction for energy retailers across the market, and we dedicated considerable time and resources responding to the unprecedented number of regulatory changes. Despite this distraction, we grew our subscriber base by 8.3% to 207,000. This growth was driven by the strength of our energy brands and a highly successful mix of channels to market.

Despite growing our subscribers, we saw a slight fall in net revenue of less than 1%, which can be attributed to lower ARPU. Impacting ARPU was lower energy consumption, which was a trend across the whole market. During the year, our disciplined approach to margin management resulted in gross margin increasing by 340 basis points to 27.1% on a new GAAP basis. With the implementation of the new regulatory changes, particularly the Victorian default offer and associated best offer rules, the market is set to experience intense pressure on margins. As a result, we expect to see energy margins trend down over time to more sustainable levels.

The most exciting development in our energy business this year was the development and soft launch of our new subscription energy plans in Victoria. The plans are aimed at disrupting the retail energy market within an unprecedented level of transparency, predictability and flexibility. It’s clear that the retail energy market is in need of disruption. It looks like the mobile market from a decade ago, with opaque pricing constructs, no easy access to usage data, bill shock, excessive switching times and low-customer satisfaction. The regulators are getting involved to help bring better protection for consumers and clarity to energy bills. And in many ways, our subscription and energy plans are very timely and aligned to this change. But it will take time to disrupt the market, and we have to be patient to become an overnight success. Our focus now is on expanding the features on these plans and educating the market on the benefits of subscription plans.

To note a few of these benefits, they offer bill consistency, they don’t lock you in, customers are empowered with timely usage data, you can switch plans quickly and simply, you can roll over unused energy, there’s no bill shop and you also get a smart meter in the package. We have successfully disrupted the mobile market, we now intend to do the same in energy. We are excited about the opportunity to align our mobile and energy subscription plans to provide customers with an exciting and fair way in which to buy energy.

I’ll now hand over to Gareth Turner, our CFO, to talk you through our financial results in more detail.

——————————————————————————–

Gareth M. Turner, amaysim Australia Limited – CFO [3]

——————————————————————————–

Thank you, Peter, and good morning, everyone. If you could turn now to Slide 12. Before talking through the results, I’d like to highlight some things impacting our numbers. These are similar to what was highlighted at the first year but they are relevant in understanding the full year results as well.

Firstly, broadband and devices have been discontinued and the results of these businesses have been removed from the current and prior periods. A reconciliation of the effects of removing discontinued operations can be found in the appendix on Slides 29 and 30 and in the financial report.

Secondly, we made some changes to our existing accounting policies as well as adopting the new accounting standards that are relevant for FY ’19. These changes were flagged at our half year results, so I won’t spend much time on it now other than to remind you that certain customer acquisition costs like upfront fees and commissions or SIM card costs are now capitalized to the balance sheet and amortized over the — over time, whereas in the past, these costs were expensed as and when incurred. The net effect is that these changes have a disproportionately positive impact on the FY ’19 results versus full year 2018. We have, therefore, provided the full year 2019 results according to the old accounting standards, also known as the old GAAP numbers as well as showing the results under the new accounting standards in this presentation. Going forward, this will no longer be an issue as all reporting will be under the new standards.

Turning now to the group revenue drivers on Slide 13. As Peter mentioned, the results reflect a period of intense competition in mobile and a challenging environment in energy. This had an impact on our revenue, which decreased 7.4% to $510.9 million on a comparable basis. You can see in the chart that this was mainly impacted by mobile, where net revenues were down $38.2 million or 15.8% to finish the year at $203.4 million. Mobile revenue was impacted by lower ARPU that was a result of competition and the trend towards lower value plans. I’ll cover the mobile and energy segments and ARPU in more detail later on.

Energy net revenue was down slightly to $307.6 million. This was the result of energy subscriber growth of 8.3%, but offset by a lower ARPU and energy. Energy now represents about 60% of the group’s net revenue, up from 50% — 56% last year, and this growth in energy has supported the group to withstand some difficult mobile market conditions.

Turning now to Slide 14 and the group gross profit drivers. On a comparable basis, the group gross profit was relatively stable at $153.7 million. Group gross profit margins improved by 194 basis points to 30.1%, driven by substantial improvements in energy margin and maintaining a strong mobile gross margin. Energy gross profit lifted by 16.2% to $85.4 million due to continued disciplined margin management.

Mobile gross profit fell by 16.4% to $68.3 million. This was driven by decline in revenue due to lower mobile ARPU. However, mobile gross margins remained strong at 33.6%. We do expect energy margins to trend downwards in FY ’20 as a result of increasing regulatory pressure on energy retailers as well as our desire not to be reliant on price rises.

Moving on to Slide 15 and operating expenses. On a comparable basis, the group’s underlying operating expenses were up 16.3% to $117.6 million. The largest contributor was an increase in employee cost of $9.3 million. This was due to a number of factors, which I’ll detail in order of magnitude.

Firstly, employee expenses this period include a provision for the annual incentive program for staff, whereas in prior — in the prior period, this had been reversed. And so a restoration of the incentive provisioning benefits to the step change for this financial year. Employee costs were higher due to increased resources allocated to support the developments of our new subscription energy plans, and we have increased resources to support our mobile growth initiatives. The discontinuation of broadband and devices also resulted in an increase in employee costs due to departments such as IT and operations and our engineering teams switching from building software and solutions for broadband and devices back to our core operations of mobile and energy. This means that more of these costs were expensed through the P&L in FY ’19 in continuing operations.

While the majority of the staff in those discontinued segments left the business, a small number of staff who had key skills and knowledge were retained. Marketing costs grew by $5.5 million or 20.8%, driven by an increase in cost associated with customer acquisition in energy and growing our channels to market and an increase in mobile marketing late in the financial year.

Marketing expenses will grow materially in FY ’20 as we increase our investment in marketing activities to support mobile growth. IT and facilities costs increased by $3.9 million or 33.7%, predominantly driven by the relocation of amaysim’s Philippines office within Manila to accommodate growth and to consolidate multiple sites into one.

Other expenses decreased by $2.2 million, which partially offset the increases previously mentioned. The majority of the decrease in other expenses was due to the integration of the remaining Click call center activities that were previously outsourced to a third party.

Turning to Slide 16. Underlying EBITDA for FY ’19 of $47.3 million on a new GAAP basis was at the top end of our guidance range that we’ve provided at the half year of $44 million to $48 million. On a comparable basis, underlying EBITDA decreased by 33.3% to $36.1 million, primarily driven by a softer performance in mobile. While the reduction in net revenue was a key driver of the lower EBITDA, the strength of our network supply agreement and margin management in energy enabled us to maintain strong group gross margins resulting and reported underlying EBITDA of $47.3 million.

Turning now to Slide 17 and focusing on mobile. As mentioned before, mobile was impacted by intense competition through the period, with net revenue for mobile down 15.8% to $203.4 million compared to last year. Mobile gross margins remained strong at 33.6%, while we can attribute that to the strength of our network supply agreement with Optus. Operating expenses increased 8.4% on a comparable basis. This is mainly due to provision for the annual incentive program and from employees switching from building software and solutions for broadband and devices back to core mobile operations, as I mentioned earlier. A portion of the increase is also due to the relocation of the Philippines office within Manila.

On a comparable basis, mobile underlying EBITDA fell 56.5% to $13.6 million. ARPU on a recurring subscriber base declined 13.7% to $25.30 compared to FY ’18 calculated on the same basis. The lower ARPU was driven by continued consumer preference for lower-priced plans that has been a result of the intense competition in the market. We are, however, seeing early signs across the market of price stabilization.

READ  Red Sox are poised for a repeat - Enterprise News

Turning now to energy on Slide 18. Energy delivered a stable performance, which we are pleased with, given the challenging market conditions throughout the year and unprecedented level of regulatory change in front of us. Revenue was 0.8%, so revenue was down 0.8% to $307.6 million, while subscriber growth was 8.3%, bringing the total to 207,000. ARPU was 10.1% lower at $128.50. The lower energy ARPU can be attributed to a mix of factors, including lower consumption across the market caused by milder weather, better efficiency of devices, growth in solar and — we’ve broken out, for the first time, the revenue attributable to electricity and gas accounts and the total subscribers that we have in each.

OpEx was higher due to costs associated with the customer acquisition activities and developing new subscription plans. On a new GAAP basis, OpEx was flat as certain costs were capitalized under the new accounting standards. The result is that on a comparable basis, underlying EBITDA decreased 1.7% to $22.5 million, and on a new GAAP basis, it increased by 33.2% to $32.1 million. Margins were maintained due to a disciplined margin management strategy. However, we do not expect — we do expect margins to trend down over time to more sustainable levels as the impact of the regulatory changes realized and due to our desire to run an energy business that doesn’t rely on systematic price rises.

If you could now turn with me to Slide 19, we’ll step through the balance sheet. Following the $50.6 million capital rise — raise in March, contributed equity was increased substantially by $48.9 million. This relates to the proceeds of the capital raise less transaction costs. We ended the financial year with cash of $30.7 million, up by $20.9 million from the prior year. Trade receivables decreased $11.9 million, mainly due to reduced revenue and the new accounting standards of derecognized revenue from energy occupier accounts. Intangible assets fell $23.3 million, mostly due to the $15.7 million impairment of acquired energy intangibles that we flagged at the half year.

Trade and other payables fell $22.6 million, reflecting lower energy wholesale costs. Current borrowings were reduced to nil, following the repayment of $30 million of the syndicated loan facility that was made following the capital raise. The facility was also restructured and no principal repayments are required until maturity in March 2023. Hence, the current liability being reduced to nil for FY ’19. Current provisions increased by $5.1 million, reflecting the provisions for employee costs that had been reversed in FY ’18 but booked in FY ’19. Provisions in relation to wind-down cost associated with the devices operation and the broadband operation and provisions for further energy restructuring and integration costs.

I’ll now ask you to turn to Slide 20 to look at the cash flow. Cash flows from operating activities were down $8.2 million to $17.6 million for the full year, reflecting lower revenue and cash receipts from customers, plus the cash cost of nonoperating items, such as closing the discontinued operations and the ACCC settlement recorded during the year. Cash outflow from investing activities reduced by $5.6 million to $9.9 million for the year. This is mainly due to the sale of the broadband customer base together with a reduction in payments to the — for intangible assets. This was then partially offset by increased spend on property, plants and equipment, which is mainly driven by the new Manila site.

Financing cash flows improved by $31.8 million following the successful $50.6 million capital raise and offset by our repayments of existing loans of $35 million. We finished FY ’19 with a cash balance of $30.7 million. This funding position in capital structure enables us to continue to execute on our strategic growth initiatives.

That completes the CFO section, and I’ll now hand back to Peter.

——————————————————————————–

Peter J. O’Connell, amaysim Australia Limited – Founder, CEO, MD & Director [4]

——————————————————————————–

Thanks, Gareth. Before we turn our attention to the outlook for the coming year, I’d like to take you through our progress on executing our strategic growth initiatives that we spoke about at the capital raise. We’ve made excellent progress since we last addressed the market. While a delay in completing the negotiations of the revitalized Optus NSA meant that we pushed back our mobile marketing activity, we couldn’t be more pleased with their new agreement. The revitalized NSA provides the flexibility for us to compete in market. And as soon as this was signed, we launched refreshed and competitive plans. We’re also ready to go live with our marketing campaigns, and I’m pleased to say that we launched radio and TV campaigns that commenced an out-of-home advertising campaign targeted at raising brand awareness. The adverts are now plastered on buses and billboards, and will until we have increased brand recall.

As we’ve already mentioned, we launched the subscription and energy plans in Victoria. And this month, we also made the plans live in New South Wales and Queensland. These are the new plans, and we are still testing and developing new front features and functionality to improve them. There will be a formal launch later this coming year in New South Wales and Queensland, and we’ll also be going live in South Australia in financial year ’20.

There’s no doubt that there is a job to do in educating the market to the benefits of subscription and energy plans and how these plans are a fair and simpler way of acquiring energy.

Finally, we’ve made excellent progress enhancing our technology stack. We’ve scoped out the technical architecture and value-added vendors where we’ll use external software providers. The tech stack is a combination of best-of-breed and internally developed technology. This approach ensures that we have the best technology possible to meet our needs and those of our customers. We have implemented a new billing platform that is purpose-built for subscription plans and the new energy subscription products have already been launched on this platform. Importantly, the new architecture will enable a single view of the customer. We’ll ultimately improve the way that we serve our customers, the speed at which we can launch new plans to market.

Turning to Slide 23 for the outlook. To wrap up today’s presentation, I’d like to bring your attention to the year ahead and our outlook and to reiterate some of the key points from today’s presentation. I’m pleased with the business performance this financial year in the face of intense competition in the mobile market and in an energy market undergoing substantial regulatory change. We met our EBITDA guidance for the financial year that we gave at the half year results and this capital raise and are in a strong position to capitalize on the growth opportunities in the mobile and energy markets. This year, we are focused on executing our strategic initiatives, including: Growing and defending mobile; disrupting the retail energy market; and enhancing our technology stack to support our growth.

The capital raising completed earlier this calendar year provides the additional funding to invest in the growth of the business. We will focus on building momentum behind the sales and marketing activities we initiated in recent months now that we have competitive mobile plans in market. We have a strong pipeline of planned marketing and sales campaigns to build brand awareness and subscriber growth across the coming year and intend to spend an incremental $15 million this year on our marketing activities. The revitalized NSA with Optus underpins our mobile plans and the increased flexibility it provides will support our growth in mobile. And we are already developing plans to support existing customers and to target new segments.

In energy, the regulatory changes are anticipated to put pressure on margins. We’re still waiting to see the extent of the impact of these changes. We’re optimistic that our subscription energy plans will disrupt the market in time. We are focused on educating the market to the benefits of these plans. We have a desire to run an energy business that isn’t reliant on price rises. As we look to improve the customer experience, provide fair and transparent pricing, we expect both these external and internal factors will impact financial year ’20 earnings in energy.

As we said during the capital raise, we will be investing between $5 million to $7 million over the next [3] financial years in future-proofing our technology stack. We will move to a unified technology architecture, which reduces complexity, enables cross-sell features and rapidly delivers new features and plans. This enhancement will improve operational efficiencies and support our future subscriber growth.

Turning to Slide 24. I’ll talk to how this reinvestment into our growth initiative impacts guidance for financial year ’20. Significant reinvestments — reinvestment is required to achieve further growth, and over the long term, we believe that our strategy will deliver shareholder value. With this in mind, we do expect earnings to be materially lower in FY ’20 and have provided guidance in the range of $33 million to $39 million on a new GAAP basis compared to $47.3 million in financial year ’19. This successful capital raise means that we are well-funded to continue to execute on our growth strategy, and we maintain more-than-adequate headroom in our senior debt covenants.

We are very optimistic about the medium- to long-term outlook for our business and believe that with amaysim’s growing customer base, subscription business model and strong balance sheet, we are well-positioned to compete and take advantage of the growth opportunities arising.

Thank you. I’ll now hand back to the operator for questions.

================================================================================

Questions and Answers

——————————————————————————–

Operator [1]

——————————————————————————–

(Operator Instructions) And our first questionnaire is from Kane Hannan from Goldman Sachs.

——————————————————————————–

Kane Hannan, Goldman Sachs Group Inc., Research Division – Research Analyst [2]

——————————————————————————–

Just a few for me, please. Just starting on that FY ’20 guidance. So you’re talking about incremental $15 million marketing and an increase in technology investments. It sort of brings your earnings back to about $31 million as a sort of base case. Just comment on where you see the incremental — it must be $5 million in earnings coming from, be it the midpoint of your FY ’20 guidance range. I might just ask you if that’s right?

——————————————————————————–

Peter J. O’Connell, amaysim Australia Limited – Founder, CEO, MD & Director [3]

——————————————————————————–

Okay. I’ll get Gareth to answer that. Thanks, Kane.

——————————————————————————–

Gareth M. Turner, amaysim Australia Limited – CFO [4]

——————————————————————————–

Hi, Kane. Yes. Look, the guidance range, you must take into account the reduction from year-to-year of $15 million of incremental marketing, that’s clear. I think that additional tech spend that you talked about, that doesn’t necessarily go and get reduced against earnings because elements of that are actually capitalized to the balance sheet, where we’re actually building something for the future. So in all likelihood, that would end up on the balance sheet as a capitalized assets. And remember also that there was a, as I spoke about earlier in the presentation, there was sort of some changing of context of the engineering teams. They are actually switching from devices and broadband to building for mobile. So in a way, we had a bit of a blowback of some of that cost in the P&L in FY ’19. So I think you should almost assume that, that increased investment in IT spend shouldn’t be a drain on earnings. If anything, it’s going to be neutral and because of that being on the balance sheet or the rush from FY ’19 into FY ’20. But I think your high-level math there are right. So if you take $15 million off of the $47 million that we reported for FY ’19, you get the lower end of the guidance range, and that’s kind of sets us up for how we sort of think about rolling into FY ’20.

READ  The Enterprise and Enterprise Resource Planning

I wouldn’t take an additional $3 million to $5 million off of that number. Does that make sense?

——————————————————————————–

Kane Hannan, Goldman Sachs Group Inc., Research Division – Research Analyst [5]

——————————————————————————–

Yes. That’s great. And then maybe just on mobile pricing outlook. Just give us a bit more color on the competition you’re seeing from the MNOs, particularly over the last few months in that price rise Optus pull-through. And then how you’re thinking about the recurring ARPU outlook into FY ’20?

——————————————————————————–

Peter J. O’Connell, amaysim Australia Limited – Founder, CEO, MD & Director [6]

——————————————————————————–

Yes. Thanks, Kane. Yes, look, we’re seeing price — definite price movements by all of the carriers. Of course, Telstra users belong as a low-price promotional vehicle as well. But it is clear that in the range, the product range, $40 down to $10, that the carriers are seeing that they actually have to make margin in that range and that they are also focusing heavily on lifting data inclusions in the above $40, in the $50, $60 and above range. So we actually see that this is quite a logical step, as we said, in our paper just now that the MNOs really have to start making margin and lifting ARPU to help fund 5G rollout, and it’s becoming very apparent that they will do this. We actually see, in relation to ARPU, the decline in ARPU is softening. We expect that to continue through this financial year.

——————————————————————————–

Kane Hannan, Goldman Sachs Group Inc., Research Division – Research Analyst [7]

——————————————————————————–

But are you expecting a decline in ARPU than in FY ’20?

——————————————————————————–

Peter J. O’Connell, amaysim Australia Limited – Founder, CEO, MD & Director [8]

——————————————————————————–

Well, all I can say is that it’s softening now and it may flatten. If there is a decline there, it will be a lot less than the decline that we’ve seen up to this date. That’s what we feel at the moment.

——————————————————————————–

Kane Hannan, Goldman Sachs Group Inc., Research Division – Research Analyst [9]

——————————————————————————–

Yes. And then just the mobile gross margin. Can you confirm what that margin was for your mobile business in June following that Optus renegotiation?

——————————————————————————–

Peter J. O’Connell, amaysim Australia Limited – Founder, CEO, MD & Director [10]

——————————————————————————–

Well, no. I — no, not specifically, not — we — we’ll talk about margin probably later in the year about — clearly, the margin leading up to 30 June of 34.1%.

——————————————————————————–

Gareth M. Turner, amaysim Australia Limited – CFO [11]

——————————————————————————–

Yes. We couldn’t just give you the number for the month of June but that’ll obviously be apparent in the first half, as Pete says, because we — half year into the new NSA.

——————————————————————————–

Kane Hannan, Goldman Sachs Group Inc., Research Division – Research Analyst [12]

——————————————————————————–

Should we be expecting a change in that margin given the re-signed agreement with Optus though?

——————————————————————————–

Peter J. O’Connell, amaysim Australia Limited – Founder, CEO, MD & Director [13]

——————————————————————————–

I mean, you’re asking to forecast margin. I mean, I am, as always, to hold margin as high as we possibly can.

——————————————————————————–

Kane Hannan, Goldman Sachs Group Inc., Research Division – Research Analyst [14]

——————————————————————————–

Okay. And then last one, just on energy gross margins, which you said you’re expecting to trend down. Is this going to be a gradual decline over the next few years? Or are you expecting a reasonable step down in next year given those regulatory headwinds?

——————————————————————————–

Peter J. O’Connell, amaysim Australia Limited – Founder, CEO, MD & Director [15]

——————————————————————————–

Well, we think it will be a reasonable step down. But yes, over the next few years, I think the aim of regulators in the industry is actually to see that we’ll see margins falling. We think we’re in a really good position in an arena where margins are falling with our new subscription product because I think what the energy retail industry has to come the groups with is selling more energy digitally to have a lower cost of acquisition, a lower cost to serve. And I think what the regulators are doing with their regulations is challenging the industry to find more cost-effective model, and we’re positioning for that.

——————————————————————————–

Operator [16]

——————————————————————————–

(Operator Instructions) There’s no more further questions from the telephone — oh, we have another question from Kane Hannan. Please ask.

——————————————————————————–

Kane Hannan, Goldman Sachs Group Inc., Research Division – Research Analyst [17]

——————————————————————————–

Can you just — can you touch on the cash flow performance in the second half? And I suppose just a bit more detail around what drove that outcome?

——————————————————————————–

Peter J. O’Connell, amaysim Australia Limited – Founder, CEO, MD & Director [18]

——————————————————————————–

I’ll ask Gareth to handle it.

——————————————————————————–

Gareth M. Turner, amaysim Australia Limited – CFO [19]

——————————————————————————–

Yes. So Kane, when you look at the cash flow, and in particular, second half obviously when you look at the cash flow statements and the annual report, that’s a full consolidated cash flow. It doesn’t strip out the discontinued operations. So where things like the P&L does strip that out, and we’ve always used to spoke in on the continuing operations numbers all the way through this presentation. There’s certainly some cash cost of closing, the devices and broadband business that really landed in the second half more than any other time. And there was also the ACCC settlement of over $1 million, which also came out of the cash position in the second half. So that overarching operating cash flow position is impacted by a number of things around the discontinued operations and some of those one-off cash movements in the second half, which is why that cash position and that operating cash position in particular is down from period-to-period.

——————————————————————————–

Kane Hannan, Goldman Sachs Group Inc., Research Division – Research Analyst [20]

——————————————————————————–

Perfect. And then just the mobile sub growth since you’ve relaunched your plans. Does that have the full run rate, that full $15 million worth of marketing behind it? Or should we be expecting that or hoping for that to accelerate from the $60,000 annual run rate that it’s currently tracking at?

——————————————————————————–

Gareth M. Turner, amaysim Australia Limited – CFO [21]

——————————————————————————–

Yes. So the — as Pete was saying in the presentation, we are pretty careful to hold back on that marketing until such time as the new NSA was signed and we have the new products in markets. So if anything, that — we pulled the trigger on that later than we had hoped. There is a step-up in marketing in the last quarter of FY ’19. So that’s started to come through the numbers. But I wouldn’t say that that’s the run rate just yet. There’s obviously an increase in marketing that’s started to happen in the beginning of FY ’20 and is rolling through. But I wouldn’t call that 8,000 increase in the recurring subscriber base as the full run rate just yet, it’s hard to predict only because we are a little bit low — a little bit later on the marketing and the change in products that we had hoped, but I think those are really good early signs.

——————————————————————————–

Operator [22]

——————————————————————————–

(Operator Instructions) We have another question in queue from Weimin from MX Capital.

——————————————————————————–

Weimin Xie, [23]

——————————————————————————–

Just one quick question. Not yet — I think on this presentation, you don’t — you haven’t mentioned the return on your marketing investment for mobile. Can you just comment? Is it consistent to what you disclosed at the capital raising’s presentation or has it become better or worse?

——————————————————————————–

Peter J. O’Connell, amaysim Australia Limited – Founder, CEO, MD & Director [24]

——————————————————————————–

Well, we try and hold it. We have our cost of acquiring customers. It’s a number that we’re very aware of. We very much hold to getting a return on investment is — we’ve been able to do that so far for those 8,000 net adds. We obviously have gross adds well in excess of that. But we’re certainly marketing and operating within our general cost of acquire, which gives us

our return on investment.

——————————————————————————–

Weimin Xie, [25]

——————————————————————————–

So [it’s fair to say,] we’re seeing expectations of a similar range, is it?

——————————————————————————–

Peter J. O’Connell, amaysim Australia Limited – Founder, CEO, MD & Director [26]

——————————————————————————–

Yes.

——————————————————————————–

Operator [27]

——————————————————————————–

(Operator Instructions) There’s no more further questions from the telephone line, so I’d like to hand the call back to the speakers for any closing remarks. Please go ahead.

——————————————————————————–

Peter J. O’Connell, amaysim Australia Limited – Founder, CEO, MD & Director [28]

——————————————————————————–

I’ll now thank everybody for coming along. I have to say, looking forward, we’re looking forward to being in growth mode in mobile over the next financial year. We’re also looking forward to more — a launch of our subscription energy product, a more formal launch, and they are probably the 2 highlights for the next 12 months. And we thank you all for attending and listening.

——————————————————————————–

Operator [29]

——————————————————————————–

Ladies and gentlemen, that does conclude the call for today. Thank you for all participating. You may all disconnect. Goodbye.



READ SOURCE

WHAT YOUR THOUGHTS

Please enter your comment!
Please enter your name here