TeamTalk bemoans subsidy to rivals, cuts annual earnings guidance on telco levy

Wednesday 27th February 2013

TeamTalk, which bought the rural telecommunications provider Farmside last year, has cut its annual earnings guidance, blaming the downgrade on the government-imposed levy to pay for servicing unprofitable customers in remote areas.

The Wellington-based company made a net profit of $1.7 million, or 7.2 cents per share, in the six months ended Dec. 31, from $5.4 million, or 23.3 cents, a year earlier. TeamTalk sales slipped 0.8 percent to $16.7 million from a year earlier.

Earnings before interest, tax, depreciation and amortisation were $5.1 million, including a $247,000 contribution from Farmside. TeamTalk now expects annual ebitda to fall short of last year's $8 million, which it previously expected to match. The company's shares fell 1.4 percent to $2.90 in trading today.

The downgrade comes after the company made a provision of $600,000 to cover the cost of the Telecommunications Development Levy - the replacement for old Telecommunications Service Obligation to cover the costs of non-commercially viable customers. TeamTalk now expects to fork out about $500,000 a year to cover the levy.

"The grandiose sounding Telecommunications Development Levy is in fact little more than a tax on the industry in order to subsidise the rural initiatives being undertaken by Vodafone and Chorus," TeamTalk said in a statement.

"We had initially thought that a number of niche services, such as is typically sold by our group, could be exempt from this levy, however it has recently been clarified that this is not the case," it said.

The company will also take a hit to its annual net profit due to one-off costs, including the amortisation of some intangible assets, from the Farmside acquisition.

TeamTalk is upbeat about the second half of the year, and still plans to pay annual dividends of 20 cents per share. The board declared an interim dividend of 10 cents, with a record date of April 19, payable on April 27.

BusinessDesk.co.nz

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