Reynolds in for the long haul as Telecom sheds its skin

Telecom chief executive Paul Reynolds says he intends to stay on and lead the company through and beyond its demerger process, ending at least one of the many uncertainties ahead.

The Scotsman, who has had an up and down ride since joining Telecom in June 2007, today presented a disciplined final report of the company as it heads into a new era.

Telecom’s bottom line profit was severely impacted by asset impairments with net earnings of $166 million for the year to June 30 down 57% on the 2010 full year.

However, stripping out the non-cash items and one-off expenses, the adjusted net profit of $388 million was up 1.6% on last year’s $382 million and ahead of the company’s guidance.

The asset impairments included a $257 million write down on the value of its copper lines due to the regulated move to a fibre-oriented structure. Other one-off items were $42 million of costs relating to the Christchurch earthquakes and $29 million of spending on broadband bidding and demerger expenses.

Mr Reynolds would not be drawn on offering any details of the company’s pending separation, expected later this year.

But he did confirm he would stay on to lead the new Telecom, with Mark Ratcliffe having previously been confirmed to head the spun-off Chorus.

“If you have any doubt, this has been a humongous progress and the leadership challenge up to and beyond the demerger is what I’m here for,” he said.

“I’m committed to take Telecom through the other side."

The work to demerge Chorus by the end of the calendar year continues apace, he said, with more information to be made available to shareholders shortly.

Telecom’s full year underlying earnings were helped by continued cost cutting measures with some $195 million achieved in cost out initiatives during the year, and a strong second half of earnings.

Adjusted net earnings for the six months to June 30 were $230 million, up 66% on the same period last year.

Mr Reynolds said a lot of the focus had been on improving margins across all of Telecom’s business units.

"These results represent a strong operating performance in an increasingly competitive environment," he said.

The soon-to-be separated Chorus boosted earnings before interest, tax, depreciation and amortisation (ebitda) by 5.1% to $806 million, after winning new contracts.

Telecom's wholesale and international businesses reported ebitda of $119 million, down 42% reflecting a shift in product mix as Chorus’ fibre-to-the node programme nears completion.

The retail business boosted earnings 21% to $493 million after wholesale broadband input prices were reduced.

The Gen-i unit increased earnings 6.3% to $237 million.

And the Australian AAPT unit reported a 34% fall in ebitda to $71 million having sold its consumer division which generated $A139 million.

Mobile revenues grew by 5% in the second half as the company targeted higher value customers. Total mobile subscribers decreased by 95,000, with the decline mainly made up of low value pre-paid CDMA customers going inactive from the obsolete network.

Telecom said the imminent demerger meant it could not provide market guidance for the current fiscal year.

The company declared a fourth-quarter dividend of 7.5 cents a share and a special dividend of 2 cents.

Telecom shares rose 2.9% to $2.68 after the announcement, outperforming an overall market down 1%.