Telecom lifts third quarter profit

Friday 8th May 2009

Telecom, New Zealand’s largest telecommunications company, posted a 14% gain in third-quarter profit on increased Southern Cross Cable dividends, a smaller tax bill and lower mobile costs. The shares fell as Telecom reiterated its forecast for weaker full-year earnings.

Net profit rose to $159 million in the three months ended March 31, from $140 million a year earlier, the company said in a statement. The latest period included a $40 million dividend from cable company Southern Cross and a 52% drop in tax expenses.

The company kept its guidance for a full-year profit of between $460 million and $500 million, as enforced operational separation continues to impact on revenues.

The introduction of new competitors “may lead to downward pressure on prices and declines in traditional access and calling revenues,” it said.

The shares slipped 2.5% to $2.75 on the NZX 50 index. The average recommendation on the stock is ‘hold’, based on estimates from 12 analysts.

“The stronger performance in this quarter reflected the Southern Cross dividend and a significantly lower cost of sales in mobile,” said chief executive Paul Reynolds in a statement. The impact of the global economic slump “on Telecom’s operations has remained consistent at up to $10 million each quarter this financial year,” he said.

Telecom lifted operating revenue 1% to $1.4 billion in the latest quarter. Earnings per share jumped 12.5% to 9 cents. The company will pay a third-quarter dividend of 6 cents per share.

Its second-quarter profit slumped 92% as one-time charges and falling sales dragged down its bottom line.

The telecommunications company yesterday agreed to increase filtering on its new XT mobile network at an undisclosed cost to avoid a High Court injunction after Vodafone Group, the world’s largest mobile phone company, claimed the new network was interfering with its own network.

Telecom is spending $574 million on the rollout of its W-CDMA network, which operates on a frequency of 850MHz. Vodafone’s network runs on 900MHz.

The company said there was “evidence of a market slow down” over the past three quarters, especially in calling, broadband, mobile and subdivision revenues. Bad debt remained constant compared to 2008.

Telecom expects group capital expenditure to rise to $1.2 billion for the year ending June 31 2010.

Businesswire.co.nz

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