Telecom half-year profit falls 32%

Half-year to December, 2010

• Net profit after tax: $164m (-32%)
• Ebitda: $868m (-0.5%)
• Revenue: $2.58 billion (-0.3%)
• Southern Cross Dividend: $39m (year ago: $44m)
• Dividend: 3.5 cents per share, fully imputed

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Telecom this morning reported net profit for its half-year to December of $164 million, a 32% drop over the year-ago period.

The result was at the bottom end of expectations of four analysts polled by NBR earlier this week, whose picks ranged from $164 million to $174 million.

Adjusted net earnings were $158 million, down 35%. 

Ebitda fell 0.5% to $868m, at the mid-point of expectations.

Revenue fell 0.3% to $2.58 billion.

The company pinned its earnings fall, in part, on regulatory and tax changes. The phasing out of the old Telecommunications Services Obligation (which saw uncontested funds going 100% to Telecom for servicing commercially non-viable customers) wiped $27 milliion from Ebitda. The TSO is being replaced by the new, contested, Rural Broadband Initiative (RBI).

Legislative tax changes meant Telecom paid $87 million tax, against $34 million in the year-ago period.

The company said it was on track to meet its full-year earnings target of $330 million to $370 million. Ebitda guidance is also unchanged at $1.72 billion to $1.78 billion.

Southern Cross dividend down
A Southern Cross Cable dividend of $39 million was recorded, versus $44 million for the previous period.

More Alcatel-Lucent dosh
At Telecom's results presentation, chief executive Paul Reynolds said the result included $14 million in "supplier settlements", presumably a second major payment from Alcatel-Lucent in relation to last year's XT outages. The money came on top of a $27 million payment in the previous quarter.

Spending less
The company said it now expects full-year capex to be within a range of $950 million to  $1 billion range, down from the previously forcast $1 billion to $1.1 billion.

No UFB update
As expected, the company offered no update on ultrafast broadband (UFB) negotiations with Crown Fibre Holdings, which are ongoing (earlier this week, Communications Minister Steven Joyce told NBR that contracts were "weeks rather than months" away).

Jump in mobile customer numbers
Total Telecom mobile connections increased by 21,000 for the half-year (mirroring Vodafone's recent gain) as a 40,000 net gain in the final three months of the year offset a 19,000 net loss in the September quarter.

The company said it now had more than 1 million XT connections, representing 46% of its cellular base and 71% of its cellular revenue.

However, total NZ mobile revenue fell $15 million or 4% against the year-ago period as handset revenues and voice revenue fell faster than data revenue rose.

Retail broadband share was given as 53% against the previous 57%. Dr Reynolds said while some retail market share was lost, Telecom Wholesale held its share.

There was little immeidate information in a sharp reversal in Telecom Wholesale's fortunes. The unit's ebitda fell 58%. The company said that was because of internal cost changes, and that "headline ebitdat" saw 9% growth.

Ebitda also fell at Telecom's fully-owned Australian subsidiary, AAPT, as expected after the sale of its retail business.

IT services strong
The company said IT services revenue jumped 10%, while Ebitda at IT and telco services division was up 6%.

Telecom shares (NZX: TEL), which have come off an 11-month high this week, were down 0.46% to $2.18 in early afternoon trading.