Telecom beats expectations, raises full-year profit guidance

Telecom’s ebitda for the three months ending September 30 fell 4.1% to $447 million against the year-ago quarter. The result was in line with the company’s guidance but a little ahead of most analysts’ expectations.

Net profit after tax increased 9% to $169 million against the year quarter’s $149 million. The result included a $35 million dividend from the 50% Telecom-owned Southern Cross Cable.

NPAT was swelled by a tax credit, which delivered a one-off gain of $43 million. Without the one-off tax gain or the SCC dividend, NPAT was in line with the upper end of analysts’ expectations.

The one-off tax gain was ironic, said Telecom chief financial officer Russ Houlden, in that it result from tax law changes that will cost the company in future quarters. It relates to the abolition of the conduit relief regime, or the way that IRD treats revenue from the Bermuda-based Southern Cross Cable (co-owned with Singtel and Verizon).

Revenue for the quarter fell 6.5% to $1.356 billion, but operating expenses fell faster, coming in at $909 million or 7.7% lower than the year-ago period.

A dividend of six cents per share was recorded, as expected.

Chief executive Paul Reynolds said the impact of the recession had been modest.

Dr Reynolds credited Telecom’s relatively robust numbers to what he characterised as a strong start for the companies new mobile network, XT, whose customers stood at 242,000 (11% of Telecom's total mobile base) - 64,000 of them new to its network.

Telecom's old CDMA network lost 85,000 customers.

Results by division
Despite XT's progress - and arpu (average revenue per user) growing for the first time in two years (increasing 16% for like-for-like customers) - mobile revenue was up only modestly however, to $212 million (a 2.4% rise on the previous quarter's $207 million).

Telecom Retail ebidta actually fell 15% to $91 million.

The company's telco and services division, Geni-i was hardest hit by the recession, with ebitda falling 30% to $40 million. Gen-i did gain 1% of market share in what Dr Reynolds described as a "ruthless market" and book $286 million in new business.

At Telecom's Australian division, AAPT, revenue dipped 6% but ebitda rose 65% to $38 million, thanks in part to the negotiation of better wholesale terms with Telstra.

Chorus' ebitda was up 1.1%, with its fibre-to-the-node roll-out (now up to more than 1000 active cabinets) and other business off-setting a decline in subdivision business.

Full year guidance raised
Analysts had expected Telecom to hold its full-year guidance, but this morning the company raised its FY2010 adjusted net profit target to $400m to $440m (it was previously $370m to $410m). Ebitda guidance remains -1% to +2% compared with FY09, subject to potential economic risks.

The full year Southern Cross Cable dividend is expected to be $50 million to $80 million, versus last year's $90 million.

Holding the line on broadband
For the second quarter in a row - after six quarters of decline - Telecom held the line in retail broadband, maintaining its 57% share of a total market that grew 11%.

Crown fibre "difficult"
Dr Reynolds offered only a general update on the government's $1.5 billion fibre-to-the-home project, saying "the current structure makes it difficult for Telecom to participate effectively while balancing shareholders’ interests", but that it maintained an "open dialogue and relationship" with the government.

Telecom shares (NZX: TEL) were up 1.6% to $2.52 in midday trading.