Vodafone NZ profit plunges

Vodafone NZ, 2010 financial year
Pre-tax profit: $202 million (2009: $234 million)
Net profit after tax: $122 million (2009: $178 million)
Dividend to Vodafone PLC: $47 million ($2009: $0)
Cost of sales: $658 million (2009: $610 million)
Revenue: $1.607 billion (2009: 1.616 billion)

New competition, combined with the recession, seem to have equated to tougher times at the mill for Vodafone NZ.

The company’s 2010 result, filed with the Companies Office Friday and due to be made public later today, shows net profit after tax falling 32% to $121 million for the 12 months to March 31.

For 2009, Vodafone NZ made a net profit after tax of $178 million – its first fall after eight years of uninterrupted profit growth.

In 2008, net profit after tax was $192 million.

Pre-tax profit for 2010 was $202 million, down from 2009’s $234 million.

Revenue for 2010 was flat at $1.61 billion.

Forsyth Barr analyst Guy Hallwright told NBR that given Vodafone NZ's subscriber numbers had remained stable, the lower profit likely reflected pressure on arpu (average revenue per user per month).

While the Companies Office filing does not breaking out results for different lines of Vodafone NZ's business, Vodafone PLC's global annual report does offer one bright point in its regional commentary, stating that:

"In New Zealand, service revenue grew by 4.9%  as result of an increase in the fixed broadband customer base and growth in data services, the latter following increased penetration of mobile PC connectivity devices. These benefits were partially offset by the competitive and recessionary trends in the market."

Small dividend
From its accounts, Vodafone NZ appears to have paid a $47 million dividend to its UK-based parent, Vodafone PLC.

Vodafone NZ has twice before paid a dividend to its parent company: $425 million in 2006 and $631 million in 2007 - juicy payouts that were repeatedly highlighted by 2degrees founder Tex Edwards. 

Cost of competition
Cost of sales – which includes items such as advertising, marketing and handset subsidies – increased from $610 million in 2009 to $657 million.

The extra costs indicate Vodafone had to work harder, and shovel more incentives at customers, to maintain its subscriber numbers as new competition arrived from 2degrees and – patchily – Telecom's XT.

Operating expenses decreased from $432 million in 2009 to $408 million but tax expenses climbed from $57 million to $90 million. Overall, expenses edged up from $1.12 billion to $1.14 billion.

Market share holds steady
Vodafone's market share held steady in the year to March 31, with the carrier picking up 11,000 customers in the last quarter of its financial year (as XT reeled), and 9000 in the quarter before that – almost exactly balancing out earlier loses to finish the year even on around 2.5 million connections, or just over 50% market share.

The company's new financial year has proved more challenging, with Vodafone losing 25,000 customers during the quarter ending June 30.

Telecom has also lost customers, while 2degrees, going by its porting figures, could now have close to 400,000.

Shifting landscape
Vodafone faces challenges and opportunities from the redrawn regulatory landscape. It stands to lose tens of millions from the regulation of mobile termination rates, but could gain just as much if it can win (or partner to win) the government's newly contestable funding for rural broadband, and rural telecommunications services.

How the others are faring
And if it's any consolation, the competition is not looking too flash, either.

US-owned 2degrees most recent result filed with the Companies Office – for the calendar year 2009 – showed it losing $52 million, or a million dollars a week (the carrier launched commercial services in August of that year).

And Telecom made just $380 million (a 4.5% fall) on revenue of $5.27 billion.

The fat profits that drew Mr Edwards into the industry are, ironically, largely vanquished by 2degrees' very entry into the market. For consumers, at least, that's a nice outcome.

How the parent's faring
For its year ending March 31, 2010, Vodafone PLC's net operating revenue fell 2.5% to £11.5 billion. The company blamed the dip on the global recession. Revenue was up 8.4% to £44.5 billion.

Chief executive Vittorio Colao still had to face rebellious shareholders at the company's July AGM, agitating for more asset sales.

During September, Mr Colao oversaw the sale of Vodafone’s 3.25% stake in China Mobile for £4.3 billion.

UK newspaper The Times reported that "With Mr Colao focused on developing Vodafone’s businesses in Europe, sub-Saharan Africa and India, Vodafone is willing to sell controlled assets in Egypt and New Zealand and a joint venture in Australia.”

However, in a later story, The Times watered down its wording, removing the direct reference to a Vodafone NZ sale.

The Time did say that Vodafone NZ was valued by its parent at £1.2 billion ($US2.63 billion); a generous sum given the profit announced today.