Vodafone NZ sinks into the red as finance, operating costs mount

Thursday 2nd October 2014

Vodafone New Zealand, the country's biggest mobile phone operator, reported its first annual loss since 2000 as related party finance costs from its TelstraClear acquisition and rising cost of sales weighed on the bottom line.

The Auckland-based company posted a loss of $27.9 million in the 12 months ended March 31, from a profit of $55.9 million a year earlier, according to financial statements lodged with the Companies Office. The loss is its first in 13 years, and just its third since the local unit of the British telecommunications giant was first incorporated in 1998. While revenue climbed 16 percent to $2.06 billion, with the added fixed line business of TelstraClear coming on board and accounting for about half of sales, it wasn't enough to offset increasing costs in the year.

Vodafone's cost of sales rose 20 percent to $910.5 million, its employee benefits jumped 30 percent to $314.9 million, and its interest bill, largely made up of a loan from the wider Vodafone group, which funded the $860.9 million TelstraClear purchase, increased 12 percent to $130.6 million. Higher depreciation of communication and data processing equipment and the amortisation of identifiable intangible customer base and software assets also sapped net profit.

"The financial structure of our business has also changed following the acquisition," a spokeswoman said in an emailed statement. "We’re bigger and we have more assets. As a result – and as expected – our costs have gone up."

Vodafone acquired the fixed line business in October 2012, expecting to slash back-office duplication, use TelstraClear's backhaul and transmission services, and cut its reliance on Chorus. It amalgamated that unit into the wider New Zealand group in March last year, valuing the assets at $843.6 million.

As at March 31, Vodafone New Zealand owed $1.38 billion, including $572.4 million of accrued interest, to Vodafone Group, which is due for repayment in July next year, with a further $119.2 million owing to Vodafone Overseas Finance, coming due in October 2017.

The New Zealand unit flagged $114 million in capital expenditure commitments, of which $68 million was to purchase 700 megahertz radio spectrum for 4G services in the government's auction earlier this year.

It claimed $32.1 million from the government's Rural Broadband Initiative, where it's contracted to build 154 new cell sites and upgrade 387 cell sites over six years. The RBI initiative is funded through the Telecommunications Development Levy, of which Vodafone was to pay about $14.3 million for the 2013 financial year.

BusinessDesk.co.nz

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