Patient 2degrees trims loss but gives no profit timeline

The company says the result is in line with expectations and a 20 per cent improvement on last year's loss of $45.2 million. Photo/File

Challenger mobile telephone operator Two Degrees Mobile pared back losses in the year to December 31 and reported positive operating earnings for the second year since its establishment five years ago.

Financial statements filed with the Companies Office show the company made a net loss for the year of $35.9 million, down 20 per cent on last year's loss of $45.2 million.

The result was consistent with 2degrees' business plan that sees the early heavy investment in infrastructure and market penetration give way in a period of years to positive earnings.

Statutory earnings before interest, tax, depreciation and amortisation came in at $35.3 million, compared with $3.8 million in 2012, the first time the company had produced a positive out-turn on an ebitda basis.

While he would give no guidance on current year earnings or how many more years of losses were expected before turning profitable, chief executive Stewart Sherriff said the results were in line with expectations and experience of shareholders who had rolled out competitive mobile networks in more than 20 other countries.

"We are very patient people," said Sherriff. The result was earned on gross revenues of $308.7 million, 22 per cent higher than the year before, while total expenses, including finance costs, for the year were up 15 per cent for the year, to $343.7 million.

Cost of sales, primarily the cost of subsidising mobile handsets to acquire customers, rose from $55.4 million in 2012 to $73 million last year, while equipment and other revenue at $45.7 million compared with $34.2 million a year earlier.

Sales and marketing costs at $49.2 million were up almost $10 million on the previous year. "Our challenge going forward is that, after five years, we have got a fixed opex line," said Sherriff.

Variable costs changed on a per subscriber basis, so the job now was to keep controlling those costs while growing revenue lines, especially in the post-paid business consumer market where 2degrees has been slow to gain traction, in contrast with its swift penetration of the lower margin pre-paid market.

Of the total estimated market for mobile telecommunications services of about $2.4 billion, 2degrees now commands about 14 per cent of total spend. Margins were stabilising and the company was "on a trajectory to world class margins".

Sherriff said the experience of a third mobile operator's impact on competition in New Zealand market should be used as "a lesson for other industries". He said confidence in the company's future was apparent from the fact that the Bank of New Zealand had succeeded in syndicating last year's ground-breaking $165 million credit facility to four other banks. BusinessDesk