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Vodafone NZ narrows full-year loss after refinancing

Operating profit jumped to $50.2 million in the 12 months ended March.

Jonathan Underhill
Tue, 06 Sep 2016

Vodafone NZ had a full-year operating profit that almost tripled as a result of lower depreciation, amortisation, and wage costs, while lower interest costs narrowed its net loss.

Operating profit jumped to $50.2 million in the 12 months ended March, from $17.2 million a year earlier. Gross profit fell to $1.04 billion from $1.05 billion but was more than made up for by a 4% drop in operating expenses.

The net loss narrowed to $18.3 million from $90.5 million, reflecting a 40% reduction in finance costs to $82.7 million, after it refinanced debt to its parent and issued $300 million of equity.

The accounts show it refinanced $1.5 billion of loans and accumulated interest from Vodafone Group with a $1.15 billion loan from Vodafone Overseas Finance, another member of the group.

They also show the New Zealand company issued $300 million of ordinary shares to Vodafone Europe, almost tripling shares on issue. Its ratio of financial assets to financial liabilities rose to 31% from 29%.

Vodafone NZ took on debt to acquire TelstraClear from Australia's Telstra for $840 million in 2012, saying at the time that it expected to reap savings through ending management and back-office double-ups and by using TelstraClear's backhaul and transmission services.

However, it didn't count on aggressive competition from newly appointed Telecom boss Simon Moutter, who slashed broadband prices at the nation's dominant provider to prevent customers "simply leaving us on price."

"Being the market leader, that caused a re-evaluation of the entire sector," Russell Stanners, Vodafone NZ chief executive says.

"Consumer fixed broadband has been an area where our revenue's down so is Telecom's (now Spark), because of these significant price moves. The consumer broadband market is still intensely competitive."

Last year, Vodafone acquired WorldxChange, adding an internet-based telecommunications business with customers including the Reserve Bank, the Earthquake Commission, and IAG Insurance. While no price was disclosed at the time, the 2016 accounts show the cash consideration was $20.6 million.

"In a highly competitive industry, it is important we continue to grow, be nimble, bring innovative ideas and products to the market quickly, and provide Kiwis with world leading mobile technology and superior wireless and fixed broadband services," Mr Stanners says.

Revenue rose to about $2 billion in the latest year from $1.96 billion a year earlier, and Mr Stanners says he is pleased to get that growth "particularly in the market we operate in". Still, the cost of sales rose to $954 million from about $912 million.

Depreciation costs fell to $206 million from $244 million a year earlier, while amortisation fell to $136 million from $153 million. Employee benefits declined to $281 million from $296 million.

In July, Sky TV shareholders voted in favour of the proposed merger with Vodafone NZ to create a media and entertainment provider with combined 2016 revenue of more than $2.9 billion and more than 3.7 million separate mobile and fixed connections and television subscriptions.

Under the proposal, Sky will buy Vodafone NZ from its parent company for $3.44 billion, which will be funded by a payment of $1.25 billion in cash and the issue of new Sky shares at a price of $5.40 per share. Vodafone becomes the 51% majority shareholder in Sky, in what amounts to a reverse takeover, with Mr Stanners to become chief executive of the merged company.

Sky will borrow $1.8 billion from Vodafone to fund the purchase, repay existing debt and use some for working capital.

The merged companies are expected to generate cost and capital expenditure savings of about $415 million, or 52c per share, after integration costs, as they rationalise overlapping functions and use Vodafone NZ's technical and network capabilities to improve the efficiency of sales and marketing.

The combined group may also generate revenue synergies of about $435 million after integration costs and will seek further revenue gains by monetising entertainment content on mobile devices, they have said.

Vodafone NZ didn't declare a dividend.


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Jonathan Underhill
Tue, 06 Sep 2016
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Vodafone NZ narrows full-year loss after refinancing