M2 Telecommunications profit doubles despite struggle to integrate acquisitions

Wholesales telecommunications providers have delivered solid results this morning, with M2 Telecommunications recording a 119% increase in net profit to $15.15 million, while wholesaler Vocus also recorded a 501% increase in net profit before tax to $5.69 million.

M2 chief executive Vaughan Bowen told SmartCompany this morning the result is largely due to two major acquisitions finalised over the last 18 months, although the business has struggled to bring the new businesses alongside its existing services.

The firm announced this morning NPAT grew by 119%, with EBITDA also up 136% to $31.41 million. Group revenue increased by 101% to $406.1 million.

Bowen says the company will still be looking for acquisitions in the year ahead, after a particularly tumultuous time for the information technology industry when businesses rushed to buy smaller firms to negate low organic growth.

“We are quite actively in acquisition mode again. We went through 12 months without doing much of note, and I think with a position of low net debt and good growth, we’re in the position to start looking for more complementary activities.”

“It hasn’t been a breezy 12-18 months, we’ve had these acquisitions and integrating them has its challenges, but we think we’re moving forward to the next stage.”

M2 acquired both People Telecom and Commander Communications over the last 18 months, and finalised its acquisition of voice-and-data provider Bell Networks earlier this month. Earlier this year it also purchased some assets of Clever Communications for $5 million.

However, Bowen also says the company struggled in some ways to bring those companies on board and integrate them into the existing infrastructure.

“We took on two companies that were under-performing. And not only that, but it meant very quickly that we doubled our team, we doubled our physical presence, and we took on assets like a contact centre in Adelaide.”

“We went from having a couple of nicely contactable little officers, and then having five or six different presences. It was very difficult, given the businesses were under-performing. We had to absorb those declines in business, and it hurt us a little bit. It’s been a really big step for us.”

Bowen, who was listed on the most recent BRW Young Rich list with $19 million, says the company is still dealing with how to integrate all these new assets and control them.

“We’ve gone from being a small/medium business to almost a large business. That has changes in culture, because it becomes much more difficult to maintain that egalitarian society when you’re geographically distant.”

Bowen also believes these acquisitions aren’t making up for a loss in organic growth. Instead he thinks the company’s core businesses have performed well, giving M2 scope for seeking out businesses that complement its existing services.

“We think those core businesses, those SME services, are performing very well given the environment we’re in. And we think we’re in a space to keep looking for acquisitions. We’re looking for business that would be able to come alongside our existing products.

And with the IT industry in a spin regarding the future of the NBN, Bowen is surprisingly unfazed. He says the business is “NBN-agnostic”, and that it won’t matter whether the Coalition’s plan or the NBN goes ahead.

“The coalition’s broadband model is the status quo, marginally improved, and the NBN is an exciting revolution that would improve the quality of the country’s broadband. But to us, either situation is just dealing with another supplier like we do already.”

The announcement comes as wholesale telecommunications provider Vocus has recorded a 500% increase in profit before tax, with chief executive James Spenceley saying in a statement the company is in a good position to seek out acquisitions.

Consolidated profit before tax was $5.69 million, with EBITDA up by a massive 641% to $8.15 million, entirely attributed to organic growth.

“This strong result is testament to Vocus’ wholesale business model which is underpinned by growing demand, long-term contracts and continued focus on customer service.”

“Together with our recent listing and capital raising, it underlines Vocus’ ongoing strengths, with plans for further investment in organic growth as well as potential acquisitions.”

Vocus was listed on the ASX earlier this year, and ranked sixth in SmartCompany‘s Start Up Awards for 2009.