Vocus writes down $1.3 billion in value of Australian business

Vocus has written down the value of its Australian business by $1.3 billion in light of stiff competition in the broadband market.

The impairment, which also saw its New Zealand business written down by  $199 million, followed a review of the carrying value of its assets, particularly goodwill.

The impairment was highlighted today in an unaudited 2017 financial year result announcement, in which the company said the review had been conducted over the past few months with consideration of the competitive market, particularly in the consumer broadband sector. 

Vocus chief executive Geoff Horth told CRN most of the goodwill on that balance sheet came about on the back of the February 2016 merger with M2.

"Vocus acquired M2 and issued Vocus shares in exchange for M2 shares, that happened at a time when telco stock was trading at record valuation,” he said. 

Horth said as that business had performed lower than expectations in light of market pressures, it was appropriate the company revisited the goodwill value. 

“We took a conservative position with the write-down. It is a non-cash item and doesn’t have any material impact on our banking covenants,” he said.

“Operationally the business is turning a corner and we have some pretty good momentum coming out of the end of FY2017.” 

For the 2017 financial year, Vocus reported $152.3 million in unaudited net profit after tax and an unaudited EBITDA of $366.4 million.

The networking and telecommunications company’s 2018 financial year is already off to an interesting start, with the possibility of a takeover on the cards.

In July, the telco granted US investment firm Kohlberg Kravis Rovers and Co the opportunity to conduct due diligence for a potential acquisition. KKR sent a non-binding proposal to acquire 100 percent of Vocus' shares for $3.50 each in cash, valuing the company at $2.2 billion.

A second acquisition offer followed the same month, with private equity firm Affinity Equity Partners putting forward a bid to acquire Vocus' shares for the same amount.

Horth said he could not speak too closely on the details of a potential acquisition but that consultation processes were continuing.

"We're a few weeks into the process of giving those firms access to our data room and we’ve had a number of different management meetings with them. That process is being overseen by an independent board committee," he said.

Vocus will reveal its full 2017 annual report next week, in which it is expected to report revenues of about $1.8 billion.