Company Interview / Organic growth one contract at a time

Key points:

Comms Group secures $2.4M Vodafone contract for internet voice services.Emphasis on high-quality organic growth and over 90% recurring revenue.Strategic focus on Asia-Pacific expansion and potential acquisitions.

Peter McGrath from Comms Group (ASX: CCG) states that the company has secured a $2.4 million contract with Vodafone to provide internet voice services for an unnamed global software company. The three-year deal spans around 7,000 users across ten countries, mostly in the Asia-Pacific and Europe.

Peter highlights that this is part of Comms Group’s growth strategy, with an emphasis on achieving high-quality organic growth. Over 90% of the company’s reported revenue is recurring, which is crucial for investor confidence. The company has also announced its inaugural fully franked dividend.

Strategic growth remains a focus, including both organic expansion and potential acquisitions. Comms Group sees significant opportunities in the Asia-Pacific region and has recently obtained a licence in the Philippines, positioning itself for further growth.

Full unedited transcript below:

0:00

Wellcome's Group has secured a $2.4 million contract with Vodafone to provide internet voice services for the global software company that was announced to market yesterday. The deal spans three years, serving around 7000 users, with potential for more earnings, apparently based on usage. So let's get to the deal in detail. Combs, Group CEO and MD Peter McGraw joins me now. Thank you for joining us. So in the greater context, $2.4 million doesn't sound like too much money. Congratulations on securing the contract though. I'm not taking anything away from it, but it sounds to me like this could lead to other things. So what are they?

0:42

Yes. Well, this particular contract that we've announced is, um, one of, uh, a number of contracts that we've seen come within our global business. This is a relatively sizable one for us. And the end customer is a global software as a service, uh, provider, a branded customer. We weren't able to name the customer, but, uh, they're a key client, uh, of of ours and also of Vodafone. So it's a three year deal initially $2.4 million minimum over that period. Um, we're rolling out services in around about ten countries. The latest, uh, IP telephony services, some of those countries are in the Asia-Pacific region where we have a real strength Philippines, Taiwan, Indonesia, um, and also quite a number of countries, um, across Europe as well. Nadine, what's particularly

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important from our perspective with this is it's one of, uh, a number of, uh, these types of contracts that we expect to see, uh, us closing. It's a key part of our growth strategy, our global business. And we've been investing in this business over time. So ourselves and Vodafone have partnered with this. They're a key partner of as a key customer of ours. Um, and so so from that perspective, it's a very exciting deal that we announced yesterday. So this is one of many. So this is organic growth. You know, in your view is it quality organic growth? Peter.

2:20

It's very, very much um, quality organic growth, you know, doing we just reported our results, um, you know, a couple of weeks ago as well, across the board were, you know, about 55, 56 million revenue. And of that revenue, greater than 90% is, uh, service fees and recurring revenue. Uh, and once again, this is this new contract that we announced yesterday will add to that. And it's also services based. So, um, from our perspective, it's it's high quality revenue. It's the type of business that we're keen to be chasing. And we'd expect to see more of these corporate type deals. Come, um. Come along. Um, you know, over time, in, in both the short and the medium term. Yeah. Everybody investors, I should say, love to hear recurring revenue and above 90%. You don't get that very often. Um, and correct me if I'm wrong, but after posting that record result, uh, you're paying out a dividend now as well. What does

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that what does that tell us about, I guess strategically, your plans to grow going forward? Yeah. Look, you know, the business has been listed since 2017. We've we've made a number of acquisitions carefully. Uh, I may add, um, over the last, say, 4 or 5 years. So we've got the business now to a point that we're very happy, uh, obviously with the growth, we want to see a lot more growth. Um, but in particular this year, what was a standout for us, I think, was a cash flow conversion. We were both cash flow positive. Um, at the operating level, I think around about 3.8 million. And at the, um, cash flow, free cash flow line, we were cash flow positive at 3.5 million. So we're a very much a CapEx light business. We we focus on generating high returns, about 50% gross margin across the board. We have the latest products and technology that we offer our customers, our business customers,

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typically mid-market, uh, mid-market and enterprise customers. Um, and, and we're able to convert a lot of that, uh, margin then to the bottom line within the business. Our underlying EBITDA was about 6.6 million for the for the year. So, um, as a result, you know, having a low CapEx type model, uh, our CapEx was only about 300 K for the year. We're seeing a lot of that cash flow that we're generating, um, really building up our cash balance at bank at year. Remember, 3.6 million cash at bank and so, you know, we're keen to reward our shareholders. A key goal for us is to to to generate strong cash flows and strong shareholder returns. So yes, we've announced the dividend. It's our inaugural dividend. We're very pleased with that. Uh 0.2 $0.05 um fully franked. Um, so, you know, that's a start for the business, uh, to give, to give a good return to our

5:19

shareholders. So a couple of things in there, because you did say you've acquired very carefully. Um, you do have that $3.6 million in the bank and presumably, you know, could grow. Um, does that, like like you're growing organically. Are you ruling out any further acquisitions? No. In fact, with the at the recent update that we gave, um, to the market, we talked about strategic growth options as well. Um, you know, we want to see our business, uh, be bigger than it is today. You know, we just under 60 million as a as I said earlier. But we'd like to see, you know, the business be quite a bit, uh, bigger. Uh, we don't want to grow for growth's sake obviously, which we go after contracts that are profitable. We prefer term contracts, you know, two years, three years, four year term contracts. Um, I mentioned before, we have a great suite of products in what we call the

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secure modern workplace solutions area, communications and collaboration. So we're very modern, um, if you like a modern provider of both telco, uh, and managed IT services. And we spent quite a bit of time the last 2 or 3 years expanding across into Asia. Uh, and we today, which was one of our key announcements, um, for the full year, we have, uh, arrangements in place in around about 13 countries in Asia where we can provide core services to multinational corporates who who are putting in the latest unified communication services. So as part of that, we now see our backyard not just being Australia but being into Asia Pacific, obviously a strong home base in Australia, but then expanding into the Asia Pacific, where we have quite a lot of business today. We have a lot of partners. Um, and so our kind of universe, if you like, for strategic growth options,

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is much larger. So we keen to see growth options in that secure modern workplace solutions area that's secure IT environments for for corporates. Um, it's a specialty that we have. And also within the unified communications space, we were rolling out the likes of Microsoft Teams calling and Cisco WebEx Solutions, zoom calling, etc. across the Asia Pacific. Now, um, and then I would just add, um, one of the countries that we bring on board was the Philippines and we were the first. We are the first foreign company to have been awarded a license in the Philippines. We now announce that probably about 2 or 3 months ago. It's a big growth market for us. We have quite a lot of business there today, so we're really position ourselves carefully in these markets for further growth that we see, uh, as we move forward. It's really interesting. And yet you've put, um, you've put targets for your revenue growth as well at there

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on the table in your most recent update, just looking at your shareholder register. Um,

8:25

you talk to us about, about the quality of your shareholders and the feedback that they're giving you on the strategic thrust of the business.

8:33

Look, a lot of our shareholders are in the business because, um, they they like the kind of the strategic direction that we've been taking. They can understand that, um, the whole, uh, collaboration and unified communications It's a fairly specific area, but it's an area, um, that's particularly, um, important for large corporates. Almost all of the large corporates out there and governments and local governments and the like, uh, are putting in unified communication solutions to enable them to work better with their staff, with their customers, with their suppliers. And so we, we we started doing this back in 2018. Um, and we always had a global outlook, uh, where many companies were just focusing on Australia. We were at that stage focusing on the Asia-Pacific region. Um, and I think it was a testament to that. We won this large contract with Vodafone Group plc out of

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London, the head office of that business, to be their core provider globally. And that was about 2 or 3 years ago. So our shareholders are on average, and many of them see that. They know that, you know, this is a game where you want to be patient. Um, I think the announcement yesterday with the contract win was was a reaffirmation to many of them. And then we have a number of shareholders who've been with the business for a few years. We have a fairly tight register, Nadine. Um, but we're still keen obviously to, to attract more and more shareholders to the business. A key focus, as I think, is, you know, we're predominantly annuity revenue. We've seen good solid growth, uh, of more recent time or over the last 4 or 5 years. Um, and, and we're in a market where there's huge growth potential. Um, and, you know, we're a very reliable and robust provider, uh, with very high levels of customer service, both

10:33

within Australia and into the Asia-Pacific. So, you know, that's an exciting story for for a lot of our shareholders. And you've got a bit of skin in the game yourself. I can see as well. So I have some skin in the game and many of the directors do and many of the staff do as well, which is a good thing to see.