Telecom first-half profit edges up 2.5%

Telecom Corp [NZX: TEL], which carved out its Chorus unit in 2011, plans to launch a new internet television offering and rebrand itself, after announcing a small lift in first-half profit.

The Auckland-based company will change its name to Spark later this year to better reflect its new business as it focuses its business on communication, entertainment and information technology services, including the launch of a new internet TV business, it said in a statement. That comes after Telecom cancelled its decade-long resale arrangement with pay-TV operator Sky Network Television this month.

Net profit increased to $167 million, or 8 cents per share, in the six months ended Dec. 31 from $163 million, or 9 cents, a year earlier. That's just short of the $172 million profit forecast by First NZ Capital.

Earnings before interest, tax, depreciation and amortisation from continuing operations fell 5.8 percent to $452 million, while operating revenue from its remaining business slipped 3 percent to $1.85 billion.

"Our investments in revamping our mass market brands, Telecom and Skinny, have delivered greater cut-through in key mass markets," chairman Mark Verbiest said. "This has given us the conviction to move beyond the Telecom name, and better reflect our digital services capability and future focus."

Under new chief executive Simon Moutter, Telecom has gone through a radical overhaul of its business into a data-driven and mobile-focused telecommunications operator and away from its traditional infrastructure business, which it shed when it demerged with Chorus. That's included a drop in staff numbers, with 5,769 full time equivalents as at Dec. 31 from 6,789 a year earlier.

Telecom expects annual EBITDA from continuing operations of between $925 million and $945 million in the year ending June 30, excluding the sale of its AAPT unit and rebranding costs.

Moutter said the company will keep focusing on its cost base during the year, and expects the migration of entertainment to the internet will create "real opportunities for new online business" as it disrupts traditional television models.

"We anticipate an improved performance in the second half of this financial year, with broadband revenues beginning to stabilise, mobile growth continuing and our Turnaround Programme delivering tangible free cash flow improvement," he said.

Telecom's board declared an interim dividend of 8 cents per share, payable on April 11, with a March 21 record date. The company intends on paying a total dividend of at least 16 cents in the 2014 financial year.

Fixed line calling led the decline in sales, with revenue falling 9.2 percent to $969 million. Mobile revenue gained 5.8 percent to $492 million and IT services increased 2.6 percent to $276 million. The company's reduced headcount cut labour costs 17 percent to $266 million in the half.

Telecom's retail segment reported a 0.3 percent decline in operating revenue to $901 million and a 5.8 percent drop in EBITDA to $328 million, as fixed line calling dropped off, offset by gains in mobile activity.

The Gen-i business's revenue fell 3 percent to $643 million and EBITDA dropped 4.5 percent to $193 million with weaker sales of fixed voice and data products. The Connect business, which was formerly the wholesale and international units, reported a 13 percent drop in sales to $294 million and a smaller EBITDA loss of $64 million.

Telecom's operating cash flow more than halved to $202 million in the period with less cash received from customers, and higher payments to suppliers including an additional payment that related to the year earlier, and the company's share of the Telecommunications Development Levy.

Capital expenditure from continuing operations rose 18 percent to $266 million as Telecom invested in an ongoing re-engineering programme and its 4G mobile network and upgraded its core data transport network.

The company expects capital expenditure of between $450 million and $460 million in the current financial year, excluding spectrum, and anticipates that will fall in subsequent years.

The shares slipped 0.6 percent to $2.415 in trading yesterday, and have gained 4.8 percent this year. The stock is rated an average 'hold' based on nine analyst recommendations compiled by Reuters, with a median target price of $2.40.

(BusinessDesk)