UPDATE: Telecom's XT the answer to poor mobile performance, Q4 profit sinks 56%

Friday 21st August 2009

Telecom, the biggest company on the NZX 50 Index, hinted at a spike in uptake for its new XT network after a weaker-than-expected performance in its mobile business saw fourth-quarter profit sink 56%.

Net profit fell to NZ$78 million, or 4 cents a share, in the three months ended June 30, from NZ$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. Mobile revenue shrank 3.5% to $193 million in the quarter, taking its annual earnings for the segment to $783 million from $833 million a year earlier.

Telecom is undergoing a “transformation” as it prepares for regulatory changes with the enforced operating separation of wholesale and retail businesses.

The company also faces government intervention in its mobile and internet pricing. The introduction of new competitors in the mobile and broadband markets capped the company’s outlook prior to the announcement.

“The mobile figures, on the whole, disappointed expectations somewhat,” said Alan Moore, who manages the equivalent of $300 million for Milford Asset Management.

“They may be holding back a wee bit for when things are looking better again.” Chief executive Paul Reynolds said the uptake of its XT network had exceeded expectations since its launch in May, with 165,000 customers by Aug. 14, a third of whom were new connections, and that a number of blue chip organisations will join their ranks in coming months.

He was coy around breaking down the numbers on data device and phone usage. “We will have more detail on XT in the first and second quarters,” he told an analyst briefing in Auckland. “It’s too early to know the XT effect on the market, but growth in the (fourth) quarter slowed.”

The shares slipped 1.1% to NZ$2.64 on the stock exchange today, and have gained around 18% this year. Telecom kept its 2010 earnings forecast unchanged, predicting adjusted EBITDA will be between 1% lower and 2% higher than in 2009, although its outlook for 2011 through 2013 is more upbeat, with annual growth of between 4% and 6% predicted. Annual profit beat forecasts at Forsyth Barr, which had predicted a 45% slide 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.

Depreciation and amortisation jumped 20% to $917 million in the latest year, as the company prepares to switch off the CDMA mobile network which it is replacing with XT network.

Depreciation and amortisation are forecast to climb to $1.06 billion in the current year. “Once they get this transformation behind them, and get passed things like depreciation that weigh on the bottom line, they can get back to growth,” Moore said.

Revenue from its retail business, which includes fixed and mobile calling, fell 5.1% to $487 million in the quarter, with a 13% decline in sales from calling.

The Chorus division, which currently faces industrial action after it contracted out its northern region lines work to Leighton Holdings’ Visionstream, lifted revenue 1% to $197 million in the three months ended June 30 as the unit began selling the unbundled local loop to wholesale customers.

Telecom’s wholesale and international revenue was unchanged at $293 million as an increase in local service was offset by declines in mobile termination rates and regulated broadband prices. Gen-I revenue shrank 8.4% to $381 million as increased competition drove down prices.

AAPT earnings continued to decline, with a 12.4% fall in revenue to $226 million. Still, the Australian arm of the group managed to cut operating expenses 14% to $204 million. Chief financial officer Russ Houlden told analysts in Auckland the company had managed to save $67 million of a target $130 million by cutting costs, including a NZ$15 million saving from the use of call-centres in the Philippines.

Businesswire.co.nz

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