Plunge in profits for Vodafone

Telco’s margins squeezed in competitive mobile and broadband market as it waits for new CEO to take over

Vodafone New Zealand is treading water until its new chief executive Jason Paris takes over the reigns in November, analysts say. The company posted an annual profit of $39.9 million in the year to March 31, down 16 per cent from $47.6m a year earlier.

Its revenue rose 0.2 per cent to $2.03 billion in a period when mobile customer numbers rose 3.2 per cent to 2.56 million and broadband customer numbers increased 3000 to 426,000. Earnings before interest, tax, depreciation and amortisation fell 5 per cent to $403m, lagging behind rival Spark’s 2.2 per cent ebitda gain to $1.04b in the June year.

Milford Asset Management senior analyst Frances Sweetman said Vodafone’s annual result was disappointing. “Revenue was flat which is a bit disappointing but not surprising given the Spark mobile result was very strong.

“Spark grew mobile revenue by 7 per cent and it’s continued to take share over the last 12 months, and Vodafone has obviously suffered as a result of that,” she said. “It was an increase in operating expenses that pushed profit down.”

Vodafone puts the drop in profit

down to rising device costs, its wage bill and tighter margins. Its device costs for handsets and modems rose 4 per cent to $366.4m, while other direct costs including content, managed services and regulatory fees increased 2.9 per cent to $190.1m.

The mobile operator’s wage bill rose 4.4 per cent to $257.2m, underpinning an increase in indirect operating costs such as IT and network maintenance, leases and advertising to $688.4m from $659.5m in the prior 12 months.

“Vodafone has been losing share to Spark in the key mobile market, and that is a big portion of their profitability . . . they are almost treading water until Jason [Paris] comes in and provides them with a new direction,” Sweetman said.

Russell Stanners, the current chief executive of Vodafone New Zealand, leaves next month. Paris, who is Vodafone’s director for convergence and acceleration, for Asia, the Middle East and the Asia-Pacific, will start in the role on November 1.

Sweetman said Vodafone had likely bided its time ahead of its new CEO signing on, and had matched Spark’s popular unlimited data and calling mobile plan. “Spark owned that plan in the whole market for most of this year and that’s been a big driver of Spark’s revenue growth and profitability improvements in mobile, and now Vodafone has matched that offer.

“It feels like they’re somewhat matching the competition but perhaps waiting for a new direction.”