Telecom Posts NZ$713 Mln Annual Profit, Forecasts 2009 Drop

Friday 8th August 2008

Telecom Corp, the biggest company on the benchmark NZX 50 Index, posted annual earnings in the middle of its forecast range and predicted profit will drop in 2009 on waning fixed-line revenue and higher costs.

Net earnings from continuing operations fell 16% to NZ$713 million, from NZ$844 million a year earlier, the company said in a statement. Profit in the fourth quarter tumbled 30% to NZ$176 million on the same basis.

Shares of Telecom have lagged behind the NZX50 in the past five years as increased competition and regulatory changes eroded margins and drove up costs. Its profit margin in New Zealand "continues to reduce" as customers migrate away from more-profitable fixed-line services to mobile, where Telecom competes with Vodafone Plc.

"In this new environment customers have more choice and opportunities than ever before," chief executive Paul Reynolds said.

Full-year sales rose 2% to NZ$5.67 billion though operating expenses gained 5.2%. In the fourth quarter, expenses grew 7.3%, outpacing a 3.6% gain in sales.

Profit in the 2009 year is likely to decline to between NZ$500 million and NZ$540 million, a drop of as much as 30%. The company said the government-imposed operational separation of Telecom's wholesale and retail units "will continue to significantly impact operating revenues, operating costs and capital expenditure."

Regulated broadband services such as so-called naked DSL are likely to drive down prices and erode sales from traditional fixed-line calls, it said.

Telecom will pay a fourth-quarter dividend of 8 cents per share, payable Sept. 12.

By Jonathan Underhill

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