Telecom makes $1b paper profit, announces $300m share buy-back

Telecom has reported a $1.06 billion net profit after tax for the six months to December 31.

However, much of the result was a paper profit. Adjusted income was $240 million after one-off items related to the Chorus spin-off were stripped out (a 51.9% year-on-year increase).

Forsyth Barr had expected adjusted profit of $210 million - although research director Guy Hallwright cautioned the result would "not be particularly useful" for investors as it includes just one month of standalone operation, and five months of Chorus results. Craigs IP had expected $228 million.

Revenue was down  8.5% to $2.32 billion.

Ebitda was $1.65 billion (nominally up 90.6% year on year) but with $1.14 billion ebitda generated from operations discontinued since demerger.

Telecom will buy back 200 million ordinary shares during the 2012 calendar year, worth around $300 million.

A fully-imputed 9c dividend was announced, as expected.

Telecom shares [NZX:TEL] were up 1.16% to $2.175 in early trading.

Other result highlights:

• Total mobile customers fell by 92,000
   
• 639,000 customers are still on Telecom's old CDMA network (down from around 1 million six months ago). The CDMA network is due to close on July 31. Telecom said the customers represent 11% of its mobile revenue. The Skinny sub-brand has recently been launched to hurry-along the transition to Telecom's new W-CDMA network (marketed as "XT" to most customers)
   
• Mobile ARPU [average revenue per user] increased by 8.6% to $29.18
   
• Chief executive Paul Reynolds said over the past month, only 300,000 had actively used the CDMA network
   
• The introduction of the iPhone 4S had helped Telecom add a net 27,000 connections in the post-paid (contract) segment of the mobile market

• EBITDA benefitted from a decision to capitalise postpaid mobile cost of sales (handset subsidies) over the life of a contract
   
• NZ broadband was up 5% during the half, "through a combination of a 7000 increase in connections during the half and a 2% increase in ARPU [average revenue per user]
   
• Traditional line and calling revenue fall by 12% or 4% adusted to the sale of AAPT's retail business in Australia
   
• The dividend Telecom received from the Southern Cross Cable, in which it holds a 50% stake, fell to $26 million from a year-ago $39 million
   
• 90% of residential broadband customers are now on bundled plans like Total Home, up from 82% a year ago. Dr Reynolds said the increased bundling had reduced churn
   
• Telecom's headcount is down 6% from a year ago (or 400 full-time-equivalents), adjusting to the sale of Gen-i's software development division (of around 118 staff) to India's Infosys (for $5 million)
   
• Gen-i’s EBITDA was up 17%
   
• The Gen-i result included 6% revenue growth in IT Services and 13% growth in mobile, but a decrease in data revenue "relates mainly to Gen-i’s exit from a contract in Australia with a large financial institution". Gen-i declined to name the institution for "privacy reasons," but it is widely assumed to be CBA, where the Telecom division declined to pitch for a new contract and has been gradually winding down its presence.
   
• Including the 118 staff who moved to Infosys, and 125 roles that were centralised into Telecom’s corporate centre, Gen-i reduced its headcount by 505 over the period
   

De-merger related items were:

• A $863m non-cash gain upon de-merger of Chorus
• A $28m non-cash reclassification following the simplification of the corporate structure
• $110m debt restructuring costs
• $47m de-merger costs