TPG Telecom — the renamed Vodafone Hutchinson Australia (VHA) that went on to swallow the former TPG in a merger — reported its first half results on Friday, and they require some history to effectively dissect.
Due to the timing of the merger, the accounts released to the ASX included four days of TPG Corporation — the new name of the former TPG — due to the merger being approved by the NSW Supreme Court on June 26. However, the merger implementation date was July 13 and it was at that time the company’s debt was restructured.
Consequently, the new TPG Telecom reported not only statutory results, but it also prepared pro forma results as though the old TPG had been part of it since the start of the half, as well as pulled out standalone results for the former Vodafone and TPG businesses.
On a standalone basis, the former VHA reported a AU$210 million drop in revenue to AU$1.5 billion for the half. This flowed onto AU$546 million in earnings before interest, tax, depreciation, and amortisation (EBITDA), which was a decrease of AU$46 million on the corresponding period last year. This then led to AU$71 million in EBIT, but AU$188 million in financing costs undid all the prior good work to leave VHA with a net loss of AU$117 million, which was a AU$27 million reduction on the AU$144 million loss posted during the first half of 2019.
Three-quarters of the fall in revenue was pinned on a AU$157 million reduction in handset revenue for VHA.
The company added that the decrease in EBITDA was partially due to a 200,000 reduction in prepaid mobile subscribers and a 62,000 decrease in postpaid mobile customers. Half of the prepaid reduction was due to the impact of coronavirus, the company said, with AU$38 million of the hit to EBITDA being ascribed to the pandemic.
TPG Telecom said it had seen an 80% reduction in roaming, as well as a 30% reduction of prepaid connections, and 20% reduction in postpaid connection due to COVID-19, and the impact is set to continue for the rest of the year. It added the pandemic has also hit the former Vodafone’s store footprint and call centres, as well as its costs related to bonus data and calls. The pandemic also saw the company suspend late payment fees and hold out on sending debt collectors.
When the numbers from VHA rolled up into TPG Telecom, the new entity recognised a AU$226 million deferred income tax credit, which left the new company with a post-tax profit of AU$83 million.
In the four days that the former TPG contributed to the above figure, it recorded AU$27 million in revenue, AU$9 million in EBITDA, and AU$4 million in net profit. The TPG Telecom figures also included AU$30 million in merger expenses.
Pretending that the two telcos have been together since the start of Vodafone’s fiscal year would have resulted in revenue being AU$2.7 billion on a pro forma basis, AU$918 million in EBITDA being posted, and theoretical net profit being AU$140 million.
Of the above numbers, the old TPG chipped in AU$1.25 billion of revenue, AU$391 million of EBITDA, and AU$138 million of the net profit.
Across the first half, Vodafone and the old TPG paid AU$204 million in spectrum payments.
In its last set of results as a standalone company, TPG reported a steady half to January 31.
Since the merger, TPG Telecom has upgraded 445 mobile sites and spectrum held by TPG Corporation has been integrated into Vodafone’s network. The company is also working on extending TPG fibre to 700 Vodafone mobile sites as it begins to shift MVNO customers with former TPG brands onto the Vodafone network directly.
“Customers began experiencing the benefits of the merger from day one, and over the past six weeks, we have delivered significant boosts to data speeds and performance for customers from these deployments,” former VHA and now TPG Telecom CEO Iñaki Berroeta said.
“By using our own mobile network, we’ll be able offer customers more inclusions for less, with new customers to receive 50 per cent off their plans for six months and existing migrating customers to receive two months’ free access.”
The company wants its 5G network to hit 85% population coverage by the end of next year, with Berroeta adding that the company has 1,200 sites in planning and is working on 5G standalone mode.
While labelled a merger of equals, in accounting terms, Vodafone is swallowing up TPG while simultaneously bringing a ton of baggage and discarding another ton on its current owners.
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