Infratil’s Vodafone expectations at low-end of guidance
Infratil’s purchase of a half-share of Vodafone NZ doesn’t look likely to deliver an early present for investors who backed the company-changing deal.
Infratil said earnings from Vodafone NZ were likely to come in towards the bottom end of the forecast it made before buying its half-share of the business from Britain’s Vodafone Group at the end of July. However, the NZXlisted firm signalled no buyer regret and chief executive Marko Bogoievski said analysts might be surprised by its ambitions for the telecommunications firm.
In May, Infratil forecast that Vodafone NZ would contribute an operating profit of between $460 million and $490m during its current financial year, ending in
March. While that guidance has not shifted, Infratil said when releasing its interim result yesterday that the figure was expected to be ‘‘towards the bottom end of that range’’ and similar to the operating profit Vodafone NZ had reported in previous years.
Last year, Vodafone NZ had an operating profit of $463m.
Infratil reported a 17 per cent drop in its overall net profit to $88m for the six months to September, and a 4 per cent drop in its ‘‘net surplus’’ after minority interests to $56m. The result included its first two months of operating profit from Vodafone NZ, worth $39m.
Bogoievski said Vodafone coming in at the bottom end of its guidance would ‘‘not really be the point’’.
‘‘The point is what sort of messaging will we have around the middle of next year around how we are intending to reposition the business and what sort of capital expenditure is involved in that and what might it mean for our industry leadership.’’
Infratil and Canadian investor Brookfield bought Vodafone NZ for $3.4b and Infratil reiterated yesterday that it was expecting a percentage equity return on its $1b investment that would be in the ‘‘midteens’’.
Nothing Infratil had seen since it completed its purchase at the end of July had materially changed its view of the market potential of Vodafone, or its ability to deliver, Bogoievski said.
‘‘I think it is fair to say that business has got more upside than when we first looked at it and commensurately more risk.
‘‘The risk part is more about the level of execution required to deliver the upside.’’
Bogoievski said analysts’ would probably be surprised by how bold Infratil and Vodafone’s management teams’ aspirations were for reshaping the business and positioning it as an industry leader. ‘‘It is great for New Zealand in terms of ... products and services and technology in the future.’’
In September, Vodafone said it would invest $10m up to the end of March, and more in following years, to pay for a new team of ‘‘well-over 100’’ New Zealand-based customer-service experts to improve customer support. It is trying to rationalise billing and support systems that proliferated because of past acquisitions, that included its purchase of TelstraClear in 2012, and past ‘‘relatively slow progress on digitalisation and process simplification’’.
Chairman Mark Tume said it would take several years before Infratil knew if Vodafone NZ would provide the returns it expected, but it was ‘‘reasonable to infer’’ from the market response to the deal that it was a worthwhile transaction.