2degrees' seven-year slog delivers maiden profit

Challenger telecommunications provider Two Degrees Mobile has produced its first net profit since launching in the New Zealand market in August 2009, while raising its operating earnings by 43 percent for the second year in a row.

Accounts lodged with the Companies Office today show 2degrees posted a pre-tax profit of $9.4 million in the year to Dec. 31, to which it was able to add a tax credit of $4 million to produce net profit of $13.4 million, compared with a loss of $33.1 million in 2015.

On an earnings before interest, tax, depreciation and amortisation basis, earnings rose 43 percent to $113.3 million from $79.3 million in 2015. The company first reported an ebitda surplus in 2012, at $3.8 million.

The company was "very proud" to achieve ebitda growth above 40 percent two years in a row, 2degrees chief executive Stewart Sherriff said. "I don't think you can find another company, certainly not in New Zealand, with service revenue of over $700 million that managed to increase ebitda 43 percent year-on-year."

Since establishment, 2degrees had clocked up total accumulated losses of $396.8 million to the end of 2015 as it invested heavily in a national mobile network that now covers 97.5 percent of the country and moved into fixed line telephony and broadband services to allow it to compete across the full range of telecommunications services, barring entertainment content.

Sherriff said that while two to three years ago, he would have said "content is king" for a telco, the company's experimental offering of Sky Network Television's Neon service had "not really worked". Premium sports content of the kind currently only available through Sky was the main content play in the New Zealand market, which had prompted 2degrees's ongoing opposition to the proposed merger between Sky and the local operations of Vodafone.

The result was achieved on a 23 percent increase in total revenue to $702.7 million, while cost of sales rose 22 percent to $395.6 million and other expenses at $297.4 million were up 6.3 percent.

Foreign exchange rate movements worked in the company's favour in the year under review, delivering $862,000 in gains, against an $8.9 million loss reported in the previous year.

The company showed 19 percent growth in postpaid subscriptions, adding a net 59,600 customers during the year for a total of 372,300, although average revenue per user, at US$36.95, was down 2 percent, according to figures published by Trilogy International Partners, a Toronto Stock Exchange-listed company that became the majority shareholder in 2degrees in a transaction completed in February that allowed the 62.9 percent of 2degrees owned by Canadian shareholders to be sold into the new entity.

Fourth quarter reporting from Trilogy to the TSX in March showed that growth in total prepaid subscribers - initially the company's only offering when it started New Zealand operations - slowed to 2 percent for a total of 1.44 million accounts in 2016. Total subscribers for its relatively new 'wireline' offerings doubled to 55,700.

Also driving the result was a 32 percent increase in equipment sales growth, partly reflecting increased adoption of the company's Equipment Installment Plan.

(BusinessDesk)