Telecom lifts 4Q underlying earnings

Telecom lifts 4Q underlying earnings as international network costs fall

By Paul McBeth

Aug. 20 (BusinessDesk) – Telecom Corp., the second-biggest company on the New Zealand stock exchange, lifted fourth-quarter underlying earnings as a strong currency and falling market prices cut the cost of charges on international networks.

Earnings before interest taxation depreciation and amortisation rose 2.4% to $428 million in the three months ended June 30, the Auckland-based company said in a statement. So-called intercarrier costs dropped 20% to $229 million in the quarter. Net profit halved to $42 million, reflecting changes to the tax treatment of depreciation and a higher tax bill. Sales fell 2.8% to $1.34 billion.

“Telecom has halted the significant earnings decline of the previous two years and achieved notable improvements in the trajectory of each of its businesses,” said chief executive Paul Reynolds in a statement. “Our transformation and turnaround programme is on track.”

Full-year earnings fell 4.5% to $382 million, beating analyst estimates.

Telecom has had a tough year after problems with its much-vaunted XT network forced the phone company to pay compensation to its customers and the deadlock with the government over the future of its copper network in a fibre world forced it to cut forecast earnings over the coming three years. The company’s share price slumped as low as $1.81 on the NZX this year, and has recovered to $2.10 over the past month.

The company kept its EBITDA guidance for 2011 at between $1.72 billion and $1.78 billion, with the following two years to increase by $20 million to $80 million each year. The guidance doesn’t reflect the impact of the government’s ultra-fast broadband initiative, which Telecom says will likely “reshape the industry”.

The fight over fibre saw Telecom put forward a proposal for the company to carve out its network business as a means to participate in the government’s fund to roll-out fibre throughout the country. The bid goes beyond government’s UFB plan, and includes rural areas.

Reynolds didn’t give anything away on how its negotiations are going with Crown Fibre Holdings, saying they are continuing to engage with the government over their proposal. The demerger has the credit rating agencies on edge, with Moody’s Investors Service and Standard & Poor’s keeping the company on a negative outlook.

Telecom announced a 6 cents-per-share dividend with no imputation credits for the quarter.

Chorus, the company’s network business flagged for a potential demerger, posted no change in its EBITDA at $192 million in the quarter, as rising operating costs kept pace with an increase in revenue.

The wholesale and international unit earnings dropped 6.5%, carrying on the trend of declining fixed-line voice services.

The retail unit boosted earnings 15% to $110 million in the quarter as it cut its spend on advertising and reduced the mobile cost of sales.

Gen-i’s EBITDA surged 40% to $67 million in the quarter as it boosted its IT services revenue by rolling out new products for clients, while Gen-i IT solutions earnings were flat at $17 million in the quarter.

Australian unit AAPT, which had its retail arm sold for A$60 million last month, lifted quarterly earnings 3.7% to $28 million as it slashed 23% from its intercarrier costs.

Telecom’s backroom technology & shared services unit reported no earnings for the quarter, while the corporate unit posted an increased loss of $20 million in the period from $11 million a year earlier.

The phone company received a $5 million quarterly dividend from its Southern Cross joint venture, taking its full-year return to $63 million, down from $79 million in 2009

(BusinessDesk)

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