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Two Degrees reports $33.1M full-year loss on 43% revenue growth

Wednesday 1st June 2016

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Two Degrees Mobile, New Zealand's third-largest telecommunications company, reported a net loss of $33.1 million for the year to Dec. 31 on 43 percent revenue growth, cracking half a billion dollars of annual turnover for the first time after purchasing internet service provider Snap last year to expand to a full-service offering.

Revenue of $569 million compared to $397.6 million the previous year, but cost of sales rose 68 percent to $323.7 million, while increased equipment and finance costs and foreign exchange losses contributed to total expenses rising 18 percent to $279.6 million to produce a pretax loss of $35.6 million, compared with $33.8 million. A tax credit of $2.5 million helped narrow the net loss from the previous yar's loss of $33.6 million.

At a briefing for journalists, chief executive Stewart Sherriff declined any comment on speculation about the potential for an ASX capital-raising of up to $150 million, widely reported and not denied by the company early last month.

As CEO, his job was to formulate plans and seek board approval for them, while funding them was a board decision. So far, 2Degrees had raised capital from high net worth personal investors, a Maori incorporation, vendor finance and more recently from a $200 million bank facility for which Bank of New Zealand was the lead manager.

"They raise the money," said Sherriff of the board, while his job was to "spend it."

"In this industry, you can always use more capital," he said, but at present, operating cash flow was capable of funding network capability and current plans were "fully funded", despite the $200 million debt facility being close to fully drawn down.

"These are very sophisticated investors," he said of the original US backers, who were willing to continue funding strong revenue growth in pursuit of eventual profitability.

Sherriff focused on the company's earnings before interest, tax, depreciation and amortisation measure, which showed an improvement from $58 million reported last year to $78.5 million this year, a 35 percent improvement. The company didn't provide a breakdown of its ebitda calculation.

Net cash flow from operations remained positive at $36.3 million last year, compared to $40.2 million in 2014, while net negative cash flow from investing activities rose to $95.2 million from $55.1 million.  The statutory accounts say that was mainly caused by a $23.6 million increase in fixed asset purchases and $9.9 million committed to the cash component of the shares and cash deal that saw 2Degrees pay $28.3 million for Snap in April 2015.

In slides accompanying today's briefing, 2Degrees highlighted the growth in its monthly paid mobile subscriptions, now standing at 56 percent of revenue, the second year that monthly paid has outstripped revenues from pre-paid, and the fact that in its fixed line, ISP business, its revenue is split evenly between enterprise and residential customers.

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