Telecom boosts FY guidance as 1st-qtr profit gains 9% on tweaks to tax rules

Friday 6th November 2009

Telecom Corp., the country’s largest listed phone company, boosted its full-year earnings guidance after posting a 9.4% increase in first-quarter profit on a gain from changes to tax law.

Net profit rose to $163 million, or 9 cents a share, the three months ended Sept. 30, from $149 million, or 8 cents a share, a year earlier, the Auckland-based company said in a statement. It expects to make a full-year profit of between $400 million and $440 million, up from its previous $370 million to $410 million range. Operating revenue declined 6.5% to $1.36 billion and earnings before interest, taxation, depreciation and amortisation shrank 4.1% to $447 million.

Telecom’s profit rose after the government revised tax legislation which abolished the conduit relief programme, increasing “the value of certain tax credits arising from tax paid in New Zealand and overseas in respect of offshore companies by $43 million,” it said in a statement.

The shares rose 2.8% to $2.55 on the NZX today and have climbed 11% this year.

Chief executive Paul Reynolds said the company’s XT mobile network had a “strong start” and helped underpin the result.

“Telecom saw a net increase of 64,000 mobile customers during Q1, with 242,000 customers on XT at the end of its first full quarter of operation,” he said in a statement. “We are delighted that the great customer experience offered by XT encourages customers to use their mobile services more, with an increase of 16% in average revenue per user on like for like customers.”

In presentation notes released to the NZX, the company said 36% of its XT customers were newly acquired. Reynolds said Telecom was in discussions with the government over the $1.5 billion nationwide roll-out of a fibre network to improve New Zealand’s internet capability.

“The current structure makes it difficult for Telecom to participate effectively while balancing shareholders’ interests,” he said. “Discussions have emphasised our support for the government’s vision and our belief that given the right structure we can partner with government to deliver ultra-fast broadband faster and more cost effectively, to more New Zealanders, than anyone else.”

Underlying earnings from the company’s Chorus division rose 1.1% to $188 million as it shed $1 million from its labour costs as it cut back the number of contractors. The unit faced industrial action earlier this year after it contracted out its northern region lines work to Leighton Holdings’ Visionstream.

The phone company received a $35 million dividend from its 50% share in the Southern Cross cable, down from $39 million last year, and it expects full-year dividends of between $50 million and $80 million. It spent $33 million on maintaining the cable in the first quarter to improve its capacity to support additional demand from retail customers.

Telecom’s wholesale and international revenue increased 3.4% to $61 million amid lower fees from rival companies as mobile termination rates declined. The retail business’ earnings slumped 15% to $91 million, primarily due to the cost of the XT launch, though this was compounded by the ongoing decline in the company’s fixed-line customer base.

Gen-I’s EBITDA tumbled 30% to $40 million as customers reduced the number of lines they use through new technology, eroding the profitability of traditional voice revenues.

Telecom’s Australian unit, AAPT, which has traditionally been an area of weakness for the business, boosted its underlying earnings 61% to A$29 million after it received “favourable pricing from third party carriers” and slashed its intercarrier costs by A$34 million.

The company’s Technology and Shared Services unit, which has now been allocated revenue from the Telecommunications Service Obligation, had an EBITDA of $1 million, while the corporate division saw its earnings shrink 18% to $28 million.

Businesswire.co.nz

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