Telecom fell harder than analysts expected during the second quarter, leading to a disappointing half-year result. A rebound is not seen until after its 3G network launches in June.
Net profit for the half year to December 31 was $163 million, 59.9%on the prior year's $397 million as high capital expenditure enforced by regulatory change, and its catch-up effort in 3G, continue to weigh heavily on Telecom’s bottom line.
Ebitda fell 16.3% to $783 million for the first half verus the previous corresponding period's $983 million.
The $783 million ebitda includes two one-off items: a $33 million ($25 million tax affected) charge on un-used equipment left over from its false-start 3G network upgrade based on a mix of GSM850 and 2100MHz W-CDMA gear (abandoned in October for W-CDMA 850MHz), and a $68 million goodwill impairment relating to AAPT's purchase PowerTel, "as it's carrying value is no longer supported by forecast earnings".
The result was within Telecom’s guidance for a 5% to 8% ebitda decline for its full 08/09 financial year. ABN Amro analyst Geoff Zame says that forecast has “a lot of fat in it”, and expects Telecom to stay comfortably within that range for the year.
First half revenue was up 0.4% to $2.837 billion as a 19% gain in IT services revenue and a 9% gain in broadband revenue helped offset weakness in mobile and other areas.
Telecom Retail had a defensive quarter, with ebitda down 13% to $176 million, and revenues down 7%, partially offset by a 3% cut in expenses. Division head Alan Gourdie says the highlight was reduced churn in the home fixed-line market thanks to the “Street Fighter” (door knocking) campaign that saw churn drop from 11% in the last quarter to 6% in Q2.
The loss-making Ferrit was culled after the quarter closed on December 31. Telecom says putting down the Ferrit will save it around $1 million a month. An energetic cost-cutting campaign also sees $7 million due to be saved by off-shoring more call centre jobs to Manila.
Gen-i saw revenue up 5% but ebitda down 3% to 118 million during the second quarter, with Telecom's IT services division yet to be impacted by any decline in infotec spending with the slow-down. While telco solutions were down, Gen-i's IT solutions sales boomed, with major deals including Ministry of Education and Fonterra wins.
Telecom’s mobile division returned another anaemic result. Mobile revenue fell a futher 6.3% to $399 million for the quarter. Forsyth Barr analyst Guy Hallwright says the division is at least six months away from any higher revenue, which will only come once the new 3G network is launched in June.
AAPT's ebitda for the first half was $A31 million, down 16.2% from $A37 million in the previous corresponding period.
First-half revenue fell $A69 million to $A491 million, largely down to a 24% drop in demand for AAPT's consumer services.
The Australian division also took a $68 million writedown on PowerTel, a fixed-line operator bought by AAPT in January 2007 for $A320 million to boost AAPT's presence in the business space.
A Q2 dividend of 6 cents was confirmed, payable in March.
Telecom chief executive Paul Reynolds says the company's full year net profit guidance of $460 million to $500 million remains unchanged.