Vodafone profit hit by higher costs and entry of 2degrees

The emergence of 2degrees into the market and higher operating costs are blamed for decreased margins. Photo / Kenny Rodger

Mobile phone giant Vodafone New Zealand's annual result revealed the telco brought in $56 million less this year than last.

The company's financial statements, posted on the Companies Office and audited by Deloitte, showed its net profit for the year ending March 31 was $121.6 million, down $56.1 million from $177.7 million in 2009.

Its profit before tax was down $32.4 million from $234.9 million to $202.5 million this year.

Operating revenue was also down, from $1.6 billion last year to $1.59 billion this year, down about $8.4 million.

ABN Amro telecommunications analyst Geoff Zame said Vodafone New Zealand's revenues had remained broadly unchanged year-on-year, and the emergence of 2degrees into the market and higher operating costs were to blame for decreased margins.

"I'd say, it's arguably a reflection on the cost of growing the fixed-line business, which is now an integrated company that is more complex and costly to serve.

"Their cost of sales have gone up by $50 million and that may reflect incentives around handsets to retain customers, so that would be a combination of 2degrees and [Telecom's] XT.

"It's a good result in the environment, remember the tax expense was higher, there were a few one-offs there. If you strip that out, yes it's still down but they have managed to hold revenues broadly unchanged. The operating profit is down close to 6 per cent, there has clearly been some margin pressure."

Zame said the reduction of mobile termination rates - the charges mobile operators impose to connect calls and send texts to each other's networks - would further impact the company's profitability. He said the result showed Vodafone was "still producing healthy numbers".