Telecom 4th-qtr profit tumbles 56% on costs of new networks, weaker sales

Friday 21st August 2009

Telecom, the biggest company on the NZX 50 Index, posted a 56% slump in fourth-quarter profit caused by costs to exit its CDMA mobile network and weaker revenue from its retail and AAPT units.

Net profit fell to $78 million, or 4 cents a share, in the three months ended June 30, from $176 million, or 10 cents a year earlier, the Auckland-based phone company said in a statement.

The final quarter’s results drove down annual profit by 44% to $400 million. Telecom kept its 2010 earnings forecast unchanged, predicting adjusted EBITDA will be between 1% lower and 2% higher than in 2009.

The company maintained its muted outlook as it contends with government-enforced operational separation and the arrival of new competitors weighing on revenues. Annual profit beat forecasts at Forsyth Barr, which had predicted a 45% to $391 million.

The company will pay a final dividend of 6 cents a share, down from 8 cents a year earlier, bringing annual payments to 24 cents.

The shares fell 1.1% to $2.64 and have gained 18% so far this year. Depreciation and amortisation jumped 20% to $917 million in the latest year, as the company prepares to switch off its CDMA mobile network having launched its wireless mobile XT network.

Depreciation and amortisation are forecast to climb to $1.06 billion in the current year. Revenue from its retail business, which includes fixed and mobile calling, fell 6.1% to $1.98 billion.

The mobile market has been an area of contention, with Two Degrees Mobile Ltd. entering the market earlier this month.

The new mobile network has spearheaded a campaign to drop mobile termination rates, which are currently under review by the Commerce Commission. In its last submission to the regulator, Telecom offered to cut its termination rates, but claimed the Commission had underestimated the level of competition in the market.

Still, broadband revenues were up for the business, climbing 5.7% to $276 million. In June, the regulator reaffirmed its final decision that Telecom can charge its competitors for access to the sub-loop unbundled copper service that connects broadband customers to a local distribution cabinet.

The same month, IT and Telecommunications Minister Steven Joyce pushed out the timetable for the company to unbundle the local loop and backhaul services. The telecommunications company’s Chorus arm has been embroiled in an industrial dispute with around 900 Downer EDI and Transfield contractors after it awarded Leighton Holdings’ Visionstream unit a contract to provide lines coverage for the country’s northern region, including Auckland.

The Engineering, Printing and Manufacturing Union has called for a nationwide strike over the issue. Telecom also had to contend with $101 million of impaired assets when it wrote down the fair value associated with its PowerTel acquisition and some its mobile network equipment.

Businesswire.co.nz

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