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Edited Transcript of AYS.AX earnings conference call or presentation 23-Feb-20 11:00pm GMT

Half Year 2020 Amaysim Australia Ltd Earnings Call

Sydney, Nsw Mar 15, 2020 (Thomson StreetEvents) -- Edited Transcript of Amaysim Australia Ltd earnings conference call or presentation Sunday, February 23, 2020 at 11:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Gareth M. Turner

amaysim Australia Limited - CFO

* Peter J. O'Connell

amaysim Australia Limited - Founder, CEO, MD & Director

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Conference Call Participants

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* Andrew Levy

Macquarie Research - Analyst

* Kane Hannan

Goldman Sachs Group Inc., Research Division - Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by and welcome to the amaysim Half Year 2020 Results Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. I will now hand the conference over to your first speaker today, CEO, Peter O'Connell. Thank you. Please go ahead.

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

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Good morning and welcome to amaysim's 2020 Half Year Results Briefing. I'm joined today by Gareth Turner, our Chief Financial Officer.

Our results announcement, half year report and presentation have been lodged with the ASX and are also now available on our website. I will cover our financial highlights and operational performance and will hand over to Gareth for a more detailed review of the financials. I'll then wrap up with the outlook before opening up the line for questions.

I'll begin on Slide 5. First half 2020 is about precise execution to move us into the growth stage. We have made significant progress on our strategy this half with mobile turning a corner and a solid result from energy. We carefully managed OpEx and delivered underlying EBITDA to $24 million for the half year, which we anticipated to be lower than first half '19.

We said at the financial year '19 results, we would increase our mobile marketing investment. As a result, marketing spend for the group was up $4.3 million. If this were to be added back, our underlying EBITDA would have been $28.3 million, which would have been more in line with first half '19 result.

Net revenue was $244.4 million, a decrease of 7.1%, and gross profit totaled $76.7 million, a decrease of 2.9%. Pleasingly, our net profit after tax increased by 178% to $3.7 million. This is a good result that is in line with our expectations, and we are on track to achieve our financial '20 guidance range of underlying EBITDA between $33 million to $39 million.

You may recall that at the full year results, we changed the way we report mobile subscribers, and we now provide more print transparency by breaking out our recurring mobile subscriber base from the As You Go subscribers. I'm pleased to report that recurring mobile subscribers were up 11.8% to 706,000 as at 31 December. This growth can be attributed to our new and competitive plans, our increased and sustained marketing activity and the acquisition of Jeenee Mobile towards the end of the half, which added a further 41,000 subscribers.

Including the As You Go subscribers, our total mobile base was 1.05 million as at 31 December 2019.

During the period, we made a conscious decision to hold back some marketing investment in energy, as we are still ascertaining the full impact of new energy regulations.

Compared to first half '19, our energy subscribers increased by 3.4% to 201,000. Overall, the company performed well and in line with our expectations, and we are now well and truly executing our strategy and driving growth in the mobile business.

Turning now to Slide 6. The full year 2019 results were complex due to the new accounting standards and policies that were applied from 1 January 2018. This set of results, while not as complex, still has another set of new accounting standards applied and care must be taken when comparing first half '19 and first half '20 results. While both sets of results take into account AASB 9 and 15, AASB 16 is applied to first half '20 results. We've identified the impact and made adjustments to show a comparable result.

On a comparable basis, net revenue was 6.9% lower. This result was driven by lower ARPU in both mobile and energy. Pleasingly, gross profit was $77.1 million, excluding the impact of AASB 16 which was a decline of just 2.4%. This was driven by a higher gross profit margin in mobile due to the strength of our network supply agreement.

Energy produced the majority of our EBITDA. One of the reasons for higher contribution from energy was our significant increase in mobile marketing investment, resulting in a lower mobile EBITDA.

Turning now to Slide 7. This slide calls out some of our key achievements during the half. I won't detail each of these, but I would like to call out a few and explain their significance. Since launching new and improved mobile plans, we kicked off a number of marketing initiatives, including customer retention campaigns, upsell campaigns and, most recently, our Endless Summer campaign. These initiatives have been highly successful, producing a good churn result and excellent subscriber numbers.

Our marketing initiatives have not only been driving growth but also driving customer satisfaction. Our Net Promoter Score, or NPS as it's known, is now 46 for the amaysim brand, the highest it has been since May 2017 and an achievement any telco would be proud of.

It is important to us that we treat all our customers equally. And it's for this reason we reward customer loyalty by ensuring our existing customers are always on the best available mobile plan. We therefore made our Endless Summer offer of endless data available to all subscribers on eligible plans, not just new ones. We've been overwhelmed by the response from our customers who are grateful for the extra data over the summer.

We've also upheld our position as the least complained-about telco with the least complaints submitted to the telecommunications industry Ombudsman. In the September quarter, we reported less than 0.2 complaints per 10,000 customers.

Turning now to Slide 8 and the mobile business. The intense competition in the mobile market driven by unsustainable and irrational pricing by network operators appears to be lessening as they focus on more profitable and higher-placed products to support the required investment in their networks. A new network supply agreement was signed later than anticipated. And while we would have liked to have launched earlier, we showed discipline in waiting to launch new competitive plans until the new SA was in place.

We launched new plans within a week of signing the agreement and have continued to refresh and optimize our mobile offers throughout the half.

We achieved organic growth of the recurring subscriber base of more than 6% and total growth of 11.8% following the acquisition of Jeenee Mobile in the November 2019. This represents a good balance between organic and acquisitive growth. As at 31 December 2019, we had a total of 706,000 recurring mobile subscribers that accounted for 96% of our mobile revenue.

Gross margin in mobile outperformed in the half. We reported 39.8% for the half year, up from 33.1% in first half '19. This was a strong performance that we expect to continue into the second half.

On this slide, we have introduced our annual recurring revenue, or ARR, which helps us to show a better picture of how the mobile business is tracking and gives insight into expected future performance, all things being equal. A determination to deliver better value plans for our customers means we have increased inclusions, thus reducing our reliance on excess revenue charges. And as a result, this has resulted in lower ARPU.

Unlike ARR, ARPU is a backward-looking metric. What we are seeing is that as excess charges overdrop away, any additional subscriber growth thereafter is contributing directly to revenue growth. This is already starting to occur, as you can see in the chart on the right-hand side of this slide, where ARR is beginning to diverge from ARPU.

If you now turn with me to Slide 9, I'll talk in more detail to our mobile revenue composition. The chart on the left is the revenue composition of our total mobile subscriber base, with the green depicting unlimited revenue; pink representing excess revenue; and purple, As You Go revenue. The chart on the right-hand side is zoomed in to show more pronounced revenue drop and highlight the recent positive growth.

As you can see, we previously had a significant reliance on excess and As You Go revenue. This reliance has been steadily decreasing as inclusions continue to outpace consumer needs. Since we launched new plans in June, we have seen this reliance reduced further. The benefit is that as our subscriber base grows, each new recurring mobile subscriber contributes directly to our growing revenue profile. As you can see from the chart, mobile has turned a corner and revenue is on an upward trend.

Turning to Slide 10, I'll now touch on mobile marketing. We are consistently asked what our costs per acquisition and return on investment looks like on our marketing spend. And this is something that we keep a close eye on. Since we've increased our marketing spend, this has inevitably increased. As you can see from the slide, the initial payback period of cost to acquire a customer, or CPA, is circa 8 months. This is a payback period we are comfortable with, and every month thereafter that the customer remains with us is pure profit. As long as our marketing efforts continue to drive growth, we will continue to invest. And as we head towards 30 June '22, when our wholesale contract expires, we are cognizant of the strategic importance of the subscriber base and how it will support future negotiations.

It is to this reason we are focused on the growth of this space and ensuring that we are in a strong position ahead of the recontracting event.

Marketing during this half has also resulted in a 300 basis point increase in unprompted brand awareness in the November quarter to 19%. We've set ourselves a target of reaching 20% in financial year '20 and are delighted to have achieved such a boost in the first half alone.

Moving on to Slide 11. At the end of the first half, we completed the acquisition of Jeenee Mobile. This acquisition further cemented our position as the leading MVNO in Australia and is part of our strategic initiative to grow mobile subscribers. We have a track record of successful integration, and the vast majority of the Jeenee integration is now complete.

Jeenee customers have been migrated over to our platforms, and pleasingly, the migration churn was below our expectations. All systems and processes have now been absorbed into our operating structure, and we live up to our core value of empathy in providing support for Jeenee employees that were not staying on with the business.

There is still a few remaining tasks to complete, including decommissioning the technology stack and the eventual closure of the website, which is still acting as a sales funnel for our amaysim plans. But we're on schedule and delighted with how the integration has progressed.

Looking now at energy on Slide 12. We're pleased with the stability of the energy business given we have seen the introduction of the biggest regulatory changes since the energy market was deregulated over a decade ago. Our energy subscribers grew by 3.4% half-on-half to 201,000. We held back some marketing in the half as we determined the full extent of the impact of the energy regulations, which only came into effect in the first half.

We are focused on maintaining a steady base and profitability and, therefore, made the prudent decision not to spend as much on marketing as we would have if the market have been more stable. However, we have been successful in increasing the sales contribution from our own channels, Click and On The Move.

During the half, our margin began to trend down slightly, albeit not as substantially as we had anticipated. Encouragingly, gross margin for the half was 26.4%. The decline in margin has had a positive impact on customer retention. And while less than anticipated, we continue to monitor and manage margin as best we can in the new regulatory environment.

During the half, we made our subscription energy plans live in New South Wales and Queensland. Since the plans went live, we have been encouraged by the modest organic growth that we have seen. We are continuing to test and optimize the plans before we put any significant investment into our marketing campaign.

This half year, we added support for solar, which has expanded the customer acquisition funnel as these customers are now supported by the plans. It is clear that the retail energy market is in need of disruption. The existing plan constructs are opaque and confusing. There is no easy access to usage data, and as a result, there is frequent bill shock and low customer satisfaction.

Subscription plans bring an unprecedented level of transparency, predictability and flexibility. This is fair for the consumer and a far better customer experience. We are starting to see some of the larger retailers recognize this and launch their own similar-looking plans. This is not something we're threatened by. On the contrary, we're encouraged by this.

The next step in driving customer growth on these plans is to educate the market about the benefits of subscription energy to create awareness and momentum. Having larger incumbents get behind these plans will help our credibility to this new way of buying energy.

This is also what happened in mobile. Eventually, the larger network operators woke up to the changing nature of the market and consumer demands for fairer, simpler and transparent pricing. Mobile customers now pay a fixed price per month for their plan and are alerted if they are likely to go over their data allowance. There are no surprises, the pricing is clear, and the customer experience is a positive one. Our subscription energy plans will bring the same benefits to energy.

Turning to Slide 13. At the capital raise, we said we'd spend an additional $5 million to $7 million to enhance our tech stack growth. There are numerous benefits of great strategic importance that we will gain from the enhancement. Firstly, by improving the features and in-app service for our customers, we will deliver a unique and improved customer experience. This will in turn improve customer satisfaction, and loyalty play a key role, all while reducing churn.

We also expect to be able to reduce churns through the ability to better understand and predict the behavior of our customers. A new customer data platform will enable us to send more personalized offers and run targeted retention initiatives that aren't possible through our existing siloed platforms. Better automation will allow us to rapidly launch new plans to market, ensuring we are always offering customers competitive plans and excellent value.

These enhancements are now well underway. We have filled key roles and selected partners to support us in bringing this vision to reality. We implemented Zuora, a purpose-built subscription billing platform that is now being used across energy subscription billing, and migration is now in progress across the mobile base. By implementing purpose-built platforms that form part of a unified architecture, we will have increased agility and the ability to scale across multiple products.

There are numerous technical strength and progress across the tech team. The past 6 months have been spent ramping up the development, and the second half is focused on reliable execution and agile delivery of the work streams in progress. I am delighted with how we're progressing, and I believe these enhancements make us a truly customer-centric subscription business.

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

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

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Thank you, Peter, and good morning, everyone. Slide 15 provides a summary of the accounting standard changes we've been dealing with over the past few years. These changes can mess with comparability between periods so we provided additional disclosures throughout the presentation to address this and to ensure that we're making fair comparisons.

Many of you would be familiar with how last year, we showed FY '19 on an old GAAP and new GAAP basis. This year's FY '20 results are comparable to FY '19 on a new GAAP basis except for the effect of the new AASB 16 leasing standard, which applies for the first time this financial year.

Throughout the presentation, you'll see how we've separated out the positive effects of AASB 16 on FY '20 to ensure that comparisons between FY '19 and FY '20 are fair. I'm pleased to say that the effect is mostly quarantined to the operating cost section of the P&L, which makes it easier to show the discrete effects of this change in FY '20. I'm sure I speak for everyone when I say we're really looking forward to there being no more accounting standard changes to deal with and hopefully a decent period of stability in financial reporting soon.

Turning to Slide 16. Group net revenue for the half was $244.8 million, down 6.9% from last year. As you can see on the graph, most of this came from the $16.2 million reduction in mobile revenue, which we'll discuss in more detail in the mobile section of the presentation. Energy net revenue was down slightly by $2 million or 1.3% for the half. Again, we'll unpack that a little bit more in the energy section.

The new AASB 16 leasing standard has $0.4 million effect on net revenue due to some sublease revenue now being offset against sublease costs under this new standard. The effect on revenue and gross margin is very small, so we won't spend much further time on that.

Turning to Slide 17. Group gross profit for the half was $77.1 million, down 2.4% from last year. Group gross profit margins improved by 148 basis points to 31.5% driven by substantial improvements in mobile gross margin, which was up 695 basis points to 40% from 33.1% in the first half of FY '19. The improved mobile gross margin is attributable to our revenue -- to our revamped wholesale agreements, and we expect another gross margin -- strong gross margin in the second half of the financial year.

Energy gross margin decreased 150 basis points to 26.4%. This decline was expected and we had guided towards a softening at the time of our FY '19 full year results. Pleasingly, the softening in energy gross margin is currently tracking below our initial expectations. Having said that, most of the regulatory changes only took effect during this half and could therefore have a greater impact in the second half.

Moving to Slide 18. On a comparable basis, the group's underlying operating expenses were up $5.1 million or 10.2% to $54.8 million this half. The largest contributor was a $4.3 million increase in marketing investments in mobile as we had flagged at our full year results released in August last year. Employee costs increased by $2.4 million, reflecting increased resources focusing on delivering the additional investments in our technology stack that we flagged at the 2019 capital raise and increased resources to support the development of our subscription energy plans. There was also a noncash employee cost expense of $0.9 million associated with an increase in the long-term incentive plan, which replaced cash bonuses for certain key management personnel.

IT and facility expenses increased by $0.8 million due to the increased investments in the technology stack, which came online this half. And this period also included a full 6 months of our new consolidated Manila site. Other expenses decreased $2.5 million mainly due to reduced bad debt expense. Excluding the deliberate increase in marketing spend to support mobile growth and the noncash charge associated with the long-term incentive plan, OpEx on a comparable basis was stable in the period.

Turning to Slide 19. The group's underlying EBITDA before the effect of AASB 16 was $22.3 million for the half, down $6.9 million or 23.7% from last year. $4.3 million of the decrease was driven by the additional marketing investments in mobile, as discussed earlier.

Turning now to Slide 20 and focusing on mobile. Mobile net revenue was down 15% to $91.8 million, impacted by intense competition in the mobile sector. This required us to be much more competitive with our mobile plans, which led to lower ARPU as we increased data inclusions that, in turn, reduced excess revenue from data top-ups.

Excess data revenue is now a much smaller component of total mobile revenue, meaning that amaysim is poised to see future revenue growth as it continues to grow its subscriber base and transitions beyond the data top-up revenue headwind. Mobile gross margin increased significantly by 695 basis points to 40.1%, and that's a result of our revitalized network supply agreements.

Operating expenses increased 28.7% on a comparable basis mainly due to the increased investment in marketing required to support our Always On marketing campaigns. The increased marketing investment was a key driver of lower mobile underlying EBITDA, which fell 58.6% to $4.4 million on a comparable basis for the half.

Turning now to energy on Slide 21. Energy delivered a solid performance, which we were pleased with given the amount of regulatory change we saw during the half. Net revenue was down 1.3% to $153 million. The relatively flat revenue results was despite subscriber growth due to energy ARPU dropping 6.2% to finish at $125.31. This can be attributed to lower energy consumption across the market, growth of gas accounts, which are typically lower ARPU, and growth of solar penetration.

Group -- sorry, gross profit margins came down to 26.4% from 27.9% last year. A decline in energy gross margin was expected but the decline has so far been less than initially anticipated.

Given the new energy regulation only came into effect halfway through the first half of FY '20, we are continuing to monitor and manage margin as we anticipate further impacts into the second half.

Operating costs decreased by 8.7% or $2.1 million in the half attributable to cost efficiencies and improved bad debt performance. On a comparable basis, underlying EBITDA decreased 3.9% to $17.9 million for the half.

Turning to Slide 22, we'll step through the group balance sheet. We ended the half year with cash of $39.7 million, up $9 million since June. This was due to the timing of working capital cash flows in energy as we moved out of the winter peak period during this half. This also accounts for most of the $10.1 million decrease in trade receivables, $5.5 million decrease in trade payables and $2.9 million decrease in current provisions during the half.

Prepayments increased by $5.7 million due to the timing of net wholesale payments. Property, plants and equipment increased $7.2 million due to the recognition of the right to use assets of $8.2 million under the new AASB 16 leasing standard. Intangible assets included $7.8 million of intangible assets from the Jeenee Mobile acquisition and a $3.2 million investments in technology during the half, which includes a portion of the $5 million to $7 million that we stated we would spend to enhance the tech stack over FY '20 and FY '21.

Together, these increases more than offset the amortization charge, resulting in the group's intangible assets increasing by net $1.7 million during the half.

Noncurrent borrowings were up $7.8 million, which had been increased to fund the Jeenee Mobile acquisition. The other equity debit balance of $2 million reflects the amaysim equity plus -- Equity Plans trust purchasing and holding 5.6 million of amaysim stock held as treasury shares. These shares will be used to meet some or all of amaysim's future obligations under the long-term incentive plan.

Retained earnings increased by $4.1 million from June 2019 driven by the total net profit after tax this half of $4 million. Last year, the group recorded a first half total net loss after tax of $4.8 million driven by a $15.7 million impairments of energy intangible assets last year.

Turning to Slide 23. The net cash inflow from operating activities was $15.7 million for the half. This was down $7.8 million from the prior period and largely reflects the $6.9 million reduction in group underlying EBITDA, which we've discussed up to this point. Net cash outflows from investing activities was up $8.2 million driven primarily by the $7.8 million acquisition of Jeenee Mobile.

Net cash inflows from financing activities totaled $4 million, reflecting the additional borrowings received to fund the Jeenee acquisition of $7.8 million, offset by $2 million used to purchase the 5.6 million treasury shares discussed earlier and $1.8 million used to pay lease liability principal payments, which are now shown as a financing cash outflow under AASB 16.

Cash and cash equivalents on hand at 31 December 2019, was $39.7 million, up $13.8 million compared to 12 months ago.

That completes the CFO section of the presentation, and I'll now hand back to Peter.

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

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Thank you, Gareth. I'll now wrap up with a strategy update and outlook. Please turn to Slide 25 for the strategy update.

We made excellent progress on executing our strategic initiatives this past half. Since revitalizing the network supply agreement with Optus, we've launched new highly competitive mobile plans and increased our marketing investment to support these plans. As a result, in the 6-month period since 1 July 2019, we have added 41,000 recurring mobile subscribers. We also added a further 41,000 recurring subscribers with the acquisition of Jeenee.

Our customer retention initiatives during the half ensured we maintain a stable average monthly churn of 2.4%, and we continue to work towards lowering this figure. Our increased marketing in mobile has not only successfully led to an increase in mobile subscribers, it has increased our unprompted brand awareness and our focus on improving customer retention and customer experience across mobile and energy and achieved an impressive NPS of 46, which is the highest NPS since May 2017. Finally, we've maintained our position as the least complained-about telco.

In energy, we've made subscription energy plans live in New South Wales and Queensland in the December half. This is in addition to Victoria, where they are also live. We continue to test and develop new features and functionality to improve them.

There's no doubt that there is a job to do in educating the market to the benefits of subscription energy plans and how these plans are a fairer and simpler way of purchasing energy. We've been successful in increasing sales contribution from our own channels this half and are also exploring alternative cheaper channels to market as we continue to grow our energy business.

Turning to Slide 26, where I will wrap up with the outlook. I'd like to bring your attention to our outlook and reiterate our strategic initiatives. We are laser-focused on growing our mobile subscriber base to drive revenue growth and create strategic value. I'm encouraged by the performance this past 6 months, and we will continue to invest in mobile marketing initiatives as long as they drive growth at an appropriate cost and deliver a healthy return.

I am pleased to say that the growth achieved over the past 6 months has continued into January and February. As at 20 February, we had a total of 727,000 recurring mobile subscribers, a 3% increase since 31 December. Following the successful integration of Jeenee, we will also consider further complementary bolt-on acquisitions that allow us to leverage our operating structure.

In energy, I am pleased with the performance this half year in the face of substantial regulatory change and our marketing efforts have grown subs to 203,000 as at 20 February. This is a 1% increase since 31 December. We are monitoring the impact of the regulation and holding steady.

Lower margin and our focus on providing our energy customers a superior customer experience has had a positive impact on retention. We will continue to improve this further as we intend to keep growing the traditional energy base to support the overall growth of the energy business.

We are still excited about subscription energy, continue to lobby to achieve a more level playing field, which includes full support for smart meters in all states before any significant investment in launching one.

Finally, we have built a business on our core values: simplicity, reliability, agility and empathy. We continue to live by these across our business, in our interaction with customers, our partners and our people. It is important to us that we reward customer loyalty and treat our loyal customers no differently than we would a new customer. It is for this reason we not only offer our new mobile plans and market to new customers, but we also offer these to our existing subscriber base. This customer-centric initiative is one of the reasons our NPS continues to climb, and we are focusing on improving the score further over the next 6 months.

If we turn to Slide 27 now to conclude. In the short term, our reinvestment into mobile growth will be a drag on earnings. However, we are optimistic for the medium to long-term outlook for the business. We reaffirm our financial year '20 underlying EBITDA guidance of $33 million to $39 million that takes into account our continued reinvestment into mobile marketing to support further growth and the seasonally lower consumption in energy in the second half, along with further depression of energy margin.

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

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Questions and Answers

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Operator [1]

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(Operator Instructions) And your first question today comes from Kane Hannan from Goldman Sachs.

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

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Just 3 for me, please. Just firstly, just on the EBITDA guidance. Given that 1 half result and I suppose the better energy margins you experienced, can you give us a bit more detail around the headwinds in the second half that bring you back into the guidance range? And could you also confirm how you are treating the impact of the Jeenee acquisition and AASB 16 in that guidance?

Secondly, just the mobile revenue outlook. If we were to adjust out the Jeenee acquisition, do you think you will be delivering revenue growth in the second half of the year or is that more an FY '21 story? And then finally, just on the mobile gross margin. It sounds like you're expecting around 40% for the full year. Just comment on how we should be thinking about the longer-term outlook for that margin. And given how strong that margin is, do you think it's plausible to improve on that as part of the recontracting event?

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

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Kane, it's Gareth here. Thanks for those questions, as all are really good to spend a bit more time on. In terms of the guidance range, something that we've tried to sort of call out in the commentary around that is the seasonality in energy. So energy has traditionally been about 60-40 towards the first half/second half split, and we're actually expecting that to be a little bit higher this financial year because of those energy regulations and the margin's expected to drop in the second half. So that's probably going to kind of push that waiting further to the first half and the second half.

The other thing that we're mindful of is the mobile results under the new NSA is actually a lot more balanced between the halves. In the past, we'd end up with a much bigger second half than first half in mobile. And this time around, it's going to be much more balanced. So seasonality in energy is just a function of people using less energy in a period that includes more of a shoulder and less of winter. That happens every year. So energy is going to be a lot lower in the second half, just naturally by the seasonality.

Some of those reductions in energy margin that we're expecting, because the regulation will roll through into the second half and then also mobile being more balanced between the 2 periods, are important factors that we've sort of taken into account in that guidance. Plus the range is quite wide and that's purposeful to give us the flexibility to deal with things that happen as they arise, for example, being able to potentially spend more on mobile marketing would also give us the flexibility to work within those -- that range. So I think that's probably the key points that I've covered. Pete, would you -- is that okay, or...

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

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That's all right. I got no more to add.

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Gareth M. Turner, amaysim Australia Limited - CFO [5]

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Your second question on Jeenee, so yes, that only added 1 month of trading to the first half results. We're obviously expecting that to be positive for the second half when Jeenee is around for the full 6 months. It's not an enormous acquisition, it's relatively small. But as you see in the materials there, it's quite nice to have 41,000 subscribers added into the mix, which is equivalent of our organic 41,000. So that's been very, very helpful.

In terms of treating it, as far as AASB 16 goes, there's no impact on Jeenee because AASB 16 is all about taking what used to be rent expense and putting it on the balance sheet and then depreciating it over time. So Jeenee is a small impact in the full year, it's a small impact on the guidance, nothing to do with AASB 16. And you're asking about revenue growth into '21. Jeenee certainly helps and it obviously will have a full 12 months in FY '21. But I just don't want you to forget that the business is actually growing organically and are growing organically very strongly, and that organic growth is continuing.

So there's nothing better than sitting with the business every Wednesday, we take everyone through the results. And we sit in the weekly Wednesday numbers meeting, and you're seeing the recurring subscriber base growing steadily week to week to week. And that puts the business in a different place. I think everyone's buzzing because the recurring business in the mobile business is growing every week and energy is doing extremely well in some tough regulatory environments as well. The energy team has done amazingly well.

The other thing I'd point to is there's a really cool slide in the deck that's on the ASX on Page 9 -- Slide 9, where Pete talked about mobile having turned the corner. I mean we really feel that. That slide shows how we swallowed the loss of the top-up and excess revenue. That's kind of now much less of a feature in our revenue profile. But you can see how the sort of mint and greenish line has turned the corner and everything is moving in the right direction.

So one of the challenges with financial reporting is you're always looking back 6 months, some cases, 12 months. But the actual results have turned the corner, and we're really happy with how mobile's trending.

And I think your last question was on mobile gross margin. So 40% is obviously an amazing results. We're expecting a similar sort of results in around the 40% mark in the second half. That's off the back of the new NSA we struck with Optus. That's been a really important contract and is changing the way we're able to go to market, and it's changing the way we're able to grow our mobile business.

Beyond the second half, that could well come down a little bit. So 40% is certainly an increase and a very good increase. But a little bit further down the track, we'd expect that to soften a little bit. But for now, I think FY '20 is - second half is going to be around about that same mark.

And I think your last question was whether the AASB 16 change is in the guidance range, and it is. So trying to manage through all these accounting standards has been extremely tricky. So we've certainly tried to provide as much information as we can. And we're not giving ourselves a free kick for any of the things that are happening in terms of AASB 16. But the way that we report the new revenue and EBITDA and all those different lines is on the new GAAP basis, which includes AASB 16. And that was always in our mind when we set that guidance range. So internally, our budgeting and our forecasting is all applying the latest GAAP, which includes AASB 16. And when we set that range, you can assume our budget somewhere in the middle of that range, and we're chasing that number and chasing it hard, but that includes AASB 16, just to be clear. Have I covered all of your points? Because you asked a few there. I hope I covered...

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Kane Hannan, Goldman Sachs Group Inc., Research Division - Research Analyst [6]

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Just the one around the recontracting. Given how strong that mobile gross margin was, when we go out to the tender, doing better than 40% sounds like a big number for mobile gross margin.

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Peter J. O'Connell, amaysim Australia Limited - Founder, CEO, MD & Director [7]

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Yes. I mean I -- that's the purpose of the tender, Kane. I mean I'm -- in relation to the tenders, improve all our conditions of our relationship because, yes, we're building our gravitas. We're in a unique position. Carriers really like wholesale revenue. It's basically incremental revenue with very little incremental cost. The more of that we have, the more gravitas we have in that negotiation.

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Kane Hannan, Goldman Sachs Group Inc., Research Division - Research Analyst [8]

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And does the TPG-Vodafone merger change the strategy or have any impact on the outlook from here in terms of how you approach the market?

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Peter J. O'Connell, amaysim Australia Limited - Founder, CEO, MD & Director [9]

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Yes, I'm glad you asked that question. I mean not only do we support the decision, that's entirely rational decision by the judge. But yes, we always said to the ACCC when they interviewed us that we provide a lot of honesty to the market. You actually see that the carriers always have a weather eye in an MVNO like us. And that when you have 3 strong carriers, particularly coming up to a period like we are in 30 June '22, 3 strong carriers is really good for us because it gives us choices and competition at the carrier level. And it also means that the market is sustainable. Of course, all these carriers want to build 5G networks. And the pricing, the crushing of the market, although I've provided a short-term sugar hit to consumers, it wasn't sustainable the way it was 18 months ago. And now we've got -- we will get cutting-edge technology, but we'll also get prices that are very competitive. But equally, they're sustainable.

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Operator [10]

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(Operator Instructions) Your next question comes from Andrew Levy from Macquarie.

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Andrew Levy, Macquarie Research - Analyst [11]

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Well done on turning around the mobile subscriber momentum. Just a few questions from me. I think Kane touched on the margin side. But I was just wondering if you could talk to Jeenee and other potential M&A and how it impacts your margins and your P&L going through when you take these businesses. What do you get to keep, I suppose, under the terms of your current wholesale deal, which I think has a flatter cost structure than your previous ones? So how we should just think about the contribution from Jeenee and any other M&A at the time you acquire and then over the years that follow?

And then I just wanted to ask on if you see any implications to your position in the market from 5G rolling out with a bit more fanfare over the next 12 months. And just one on the financials, is there anything we need to think about on a cash flow basis going forward that will, I guess, distort your cash conversion over the next 12 months? Or should we just assume that maybe with the slight negative working capital, if you're still growing but outside of the sort of the normal metrics, your cash flow should reflect your earnings outcomes, AASB-adjusted, obviously?

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Gareth M. Turner, amaysim Australia Limited - CFO [12]

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Thanks, Andrew. I'll cover the first one and Pete will do the 5G question. So -- and then I'll come back to the cash conversion. So the Jeenee acquisition, any time you can add mobile revenue -- and it's recurring revenue as well, this isn't -- these aren't AYG subscribers. They have a set amount that they pay every month. So they are the recurring type, which was really, really good. amaysim's cost base has some leverage ability in it. So by adding more in the top line revenue, it really doesn't do much to the operating cost base. So it's extremely attractive to be able to roll these MVNO acquisitions. And Alex Feldman, our Head of Strategy, is chasing all various different opportunities. I won't name any of the names, but we certainly got the firepower to be able to do it. And we've got an acquisition facility ready to go. We've got cash in the bank. I mean we're really excited by the ability to bring other MVNO businesses under our wing.

In the wholesale NSA, it is attractive, and I can't go into too much of a detail. It's a very tricky thing because we don't want to give full details on the confidentiality agreement. But I'd probably broadly say that additional mobile revenues is of the same sort of yield curve gross margin as we're reporting for this half. And in some cases, it could be better, in some cases, it could be a little bit less. But by and large, an MVNO acquisition is not going to be very different and distort much of the metrics that you see in the mobile business in the half.

So if we continue to add more MVNO acquisitions, and like we did with Jeenee, it's going to only be a positive effect for the mobile business as that revenue comes in under the new wholesale NSA and we don't have to leverage the cost base much at all. Pete, do you want to do the 5G question? I'll do the cash conversion.

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

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[No, go ahead].

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Andrew Levy, Macquarie Research - Analyst [14]

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Can I just jump in, Pete, before you do on that Jeenee one?

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Gareth M. Turner, amaysim Australia Limited - CFO [15]

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Yes.

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Andrew Levy, Macquarie Research - Analyst [16]

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Just how does that work from an Optus point of view because you can basically run a roll-up margin arbitrage if you can bring them in at 40%. I don't think there will be any MVNOs that be at sort of 40% margin. So is that a sustainable model of rolling up Optus' existing customers? It just doesn't seem sustainable from their end. Or what's in it from their end to allow you guys to do that?

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Gareth M. Turner, amaysim Australia Limited - CFO [17]

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Yes. Look, it's one of those things. We can't really comment about what this looks like in Optus' hand or what this means for Optus. And there's certainly opportunity for us, which we're looking at taking advantage of. It is sustainable, it is -- the mechanics of our new deal, it is sustainable, but I can't go into too much more detail. There are obviously differences between buying an MVNO that's on the Optus network or one that's not on the Optus network. Some of those are even more attractive. So there's incentive to do some of those sorts of things. But with that, we can't go into too much more detail other than to say that, that is sustainable and that's something that we want to pursue, if we can.

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Andrew Levy, Macquarie Research - Analyst [18]

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Okay. Understood.

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Peter J. O'Connell, amaysim Australia Limited - Founder, CEO, MD & Director [19]

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Thank you. The -- did you want to talk about cash conversion?

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Gareth M. Turner, amaysim Australia Limited - CFO [20]

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Yes. So the cash conversion, so that is something that we watch as well, and I know a lot of people do. You'll see in the appendix to the presentation, there's a calculation of it. A lot of noise, obviously, our numbers with AASB changes and so on. You can see those percentages that we've reported at the moment, which were 73%, I think it is, right? That's what it's telling me. It's difficult to predict exactly what that's going to look like for the balance of the year. But I think gone are the days of showing a cash conversion above 100% like amaysim used to do in the past. I think that was very unique, and we're sort of normalizing at around about the 70-something percent mark. We think that's a reasonably normal level. In fact, it's probably maybe a little bit higher, that could come down in the second half. But that's sort of the expectation around cash conversion. It's around about that somewhere between 50% and 75% level is probably normal.

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Andrew Levy, Macquarie Research - Analyst [21]

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And then 5G?

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Peter J. O'Connell, amaysim Australia Limited - Founder, CEO, MD & Director [22]

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Okay, 5G. Yes, Andrew, I'll answer that one. I mean 5G, yes, that definitely represents an opportunity for us. I'd just remind you that as we said when we were actually doing the capital raise in early June '19, that we -- our customers tend to be medium followers. We obviously have a small group who are fast followers in the new handsets and new tech. But we don't mind staying in 4G. We're in a position where Optus built a superb 4G network, providing excellent data speeds. And a lot of our customers like that and will continue to like it a little bit longer than the early adopters of 5G. We saw this in the 3G to 4G conversion where we stayed in 3G for an extra year marketing quite heavily. That worked incredibly well for us. Then we're able to take that 3G base into 4G. We are hoping the same will happen with 5G.

We're monitoring a lot of new advances, both in handsets and in content and services. What we're seeing at the moment is we're starting to see very strong push and development in B2B services. The B2C area is a little bit quieter, but they will come with a rush. All of the handset providers, all the OEMs are working on it, working closely with content and services. And we monitor also what services we should have that we don't -- haven't traditionally had. Whether we should be actually playing in that space, we'll continue to monitor that as we get to it. But I'd still say the 5G model will be an opportunity because it's new handsets, a lot more data use. There will be new services come in, but the model's not yet clear. It will be another 6 to 12 months, we think, before we can identify it more clearly.

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Operator [23]

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(Operator Instructions) Okay, I have no further questions at this time. I'll hand back to yourself, Peter, for any closing remarks.

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

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No, thank you. I mean we're very pleased with the result. We think it's an excellent result. But as Andrew Levy pointed out, where it is a turnaround of the mobile business and steady state in energy with some potential upside in future period on subscription once the regulatory environment settles down. And so we're looking forward to the next 6 months. And we'll talk to you again at that period.

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Operator [25]

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Ladies and gentlemen, that does conclude today's conference call today. Thank you for all participating. You may now disconnect.