TeamTalk lifts first-half profit 18%

Network provider TeamTalk, which is under a $22.7 million hostile takeover offer from Spark NZ, lifted first-half profit 18%, forecast annual profit of $2-2.4 million and will consider resuming dividends next year.

Net profit rose to $1.3 million in the six months ended Dec. 31, from $1.1 million a year earlier, the Wellington-based company said in a statement. Revenue dipped 0.5% to $28.5 million while operating costs dropped 2.4% to $17.1 million and finance costs halved to $488,000.

The company forecast  earnings before interest and tax (ebit) of between $4.7 million and $5.2 million. In 2016, it posted a $1.3 million loss. In 2018, it's targeting net profit between $4.1 million and $5.6 million, ebit between $8 million and $9.5 million, and will consider resuming dividends that year.

Debt reduced from $35.47 million six months ago to $33.8 million.

Chairman Roger Sowry said the board and management had made strong progress in turning the company around, with a new strategic business plan after the company struggled to integrate the rural ISP Farmside business, acquired in late 2012 for $42 million, which left it with higher debt and flat earnings. Chief executive Andrew Miller said it expects to cut second-half costs by 22% after restructuring Farmside late last year, and operating costs are expected to continue to reduce in 2018.

The company's ISP segment brought in $11.3 million in revenue in the first half, a 7.9% drop on the same period a year earlier, with its ebit loss widening to $1.5 million from $618,000. Mobile radio revenue rose 3.9% to $10.6 million, with ebit up 14% to $926,000, while in broadband networks, revenue rose 7.1% to $7.4 million and ebit gained 15% to $2.9 million.

"This result, with the turnaround plan starting to deliver results with profit after tax up 18%, confirms the board's view that Spark's opportunistic, hostile and highly conditional proposal at 80c a share undervalues the company and does not represent fair value to our shareholders," Mr Sowry said. "It is evident Spark is attempting to capture the upside benefits of the new TeamTalk business plan for Spark's shareholders, ahead of it being fully implemented and reflected into TeamTalk's share price."

Spark made two approaches to the board at 60c a share and 80c a share before announcing its planned takeover in February, Mr Sowry said, with both offers unanimously rejected by the directors. The board reaffirmed its recommendation for shareholders not to sell. Spark has said it wants to integrate TeamTalk's services into the larger group, cut costs by stripping out any duplication and review the business to see what parts of the Wellington-based network it can grow and whether any units should be divested.

The major telco will need Overseas Investment Office and Commerce Commission approval to proceed, and may waive a condition to cross the 90% threshold needed to mop up hold-out shareholders if it secures control of TeamTalk, in which case it would stack the board with its representatives. Spark has previously signalled a desire to reduce its reliance on network operator Chorus's regulated copper lines and last year talked up the opportunities wireless broadband offers to grow the budget end of the market.

TeamTalk shares gained 1.3% to 77c, and have risen 12% in the past year, though they spiked from 45c in February after Spark announced its offer. Spark shares recently traded at $3.565, down 0.7% this morning.

(BusinessDesk)