TELECOM DELIVERS SOLID RESULT IN CHALLENGING OPERATING ENVIRONMENT

7 May 2010

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Telecom New Zealand has today announced adjusted Earnings Before Interest, Taxation Depreciation and Amortisation (EBITDA) of NZ$1,336 million for the nine months to 31 March 2010, down 1.9% on the equivalent nine months in the previous financial year and in line with guidance.

The quarter contained a Southern Cross dividend of $14m, versus $40m in Q3 FY09. 

While adjusted revenue for the nine months fell by 7.7%, to $3,936m, adjusted operating expenses fell faster, to $2,600m, a 10.4% decrease on the equivalent nine months. 

“Telecom delivered a range of positive outcomes in the quarter, including 128,000 growth in XT connections, and 7% mobile revenue growth in Gen-i,” said Paul Reynolds, Telecom CEO.

“New Zealand’s broadband speeds are now measurably faster than Australia and Singapore, and our cost-out programme remains on track.

“Full year earnings guidance has been maintained.

“This result has been delivered in a very challenging operating environment, including increased competition, the continued impact of the economic slowdown, further regulatory interventions and issues with our XT network.

“With the results of the independent review of XT now before us, our focus is on further improving the resilience of the network and translating that effort into further growth in customers,” Dr Reynolds said. 

Fixed broadband market growth was stronger than Q2, with Telecom Retail’s market share steady at 57%.

“In terms of regulation, we have seen further interventions added to an already very complex regulatory model.

“In addition, while preparing for the radically different, fibre-based world envisaged by the government’s UFB initiative, we are continuing to deliver an operational separation model designed for a copper world.

“Our strong focus is therefore on aligning this copper world regulation with a fibre world, to deliver the best result for Telecom shareholders and New Zealanders.”

Telecom has also announced a review of its international wholesale business.

“Following a strategic review of Telecom’s international wholesale business, we have separated it into its voice and data components.  We are now considering strategic options for the voice component of this business.  Options being considered include merger, divestment or retention,” Dr Reynolds said.

 

ADJUSTED INCOME STATEMENT

 

Nine months ended 31 Mar

2010

$M

2009

$M

Change

%

Revenue

3,936

4,265

-7.7

Expenses

(2,600)

(2,903)

-10.4

EBITDA

1,336

1,362

-1.9

 Depreciation & amortisation

(777)

(656)

18.4

EBIT

559

706

-20.8

  Net finance expense

(133)

(149)

-10.7

  Share of associates’ profit/(losses)

1

-

NM

  Income tax expense

(87)

(144)

-39.6

Net Earnings

340

413

-17.7

Net earnings attributable to shareholders

338

411

-17.8

EPS

18

23

-21.7

DPS

18

18

-

 

ECONOMY

Telecom has assessed the impact of the slowdown in the New Zealand economy at up to $10m during the quarter, making the year-to-date impact up to $30m. 

“The impact of the economic slowdown is evident in the market-facing business units, with the impact for Gen-i seen in several industry segments, including real estate, manufacturing, finance and business services,” said Russ Houlden, CFO, Telecom.

“The impact for Retail was primarily in the small and medium enterprise sector and Chorus has reported lower revenues from slower subdivision development activity.”

 

CHORUS

Chorus reported EBITDA of $188m for the quarter, a 1.1% increase compared with the equivalent quarter last year.

“Local services revenues are increasing as UCLL grows and internal revenues have also increased as Wholesale consumes more cabinetised lines,” said Mark Ratcliffe, CEO, Chorus. 

“Chorus also delivered its response to the Government’s Ultra Fast Broadband initiative and supported Compass and CallPlus to launch UCLL services in the quarter.”

 

WHOLESALE AND INTERNATIONAL

Wholesale and International reported EBITDA of $60m for the quarter, a 10.4% decrease on the equivalent quarter last year.

“During the quarter a major Ethernet backhaul deal was secured,” said Matt Crockett, CEO, Telecom Wholesale.

“Two new customers were secured as future mobile virtual network operators (MVNO) on our WCDMA network and we saw higher PSTN and broadband connection growth.  EBITDA was down as the rate of increase of internal costs outpaced revenue growth.”

 

TELECOM RETAIL

Telecom Retail reported EBITDA of $113m for the quarter, a 0.9% increase on the equivalent quarter last year.

“A focus on cost means that internal expenses fell faster than operating revenues, which resulted in earnings growth,” said Alan Gourdie, CEO, Telecom Retail.

“Access churn in the ‘home’ segment remains at relatively low levels. Office churn levels are stabilising as more than half of all office lines are now in contract.  Performance of our bundled offers has been strong, with 47% of broadband customers and 24% of access customers now on the Total Home bundles.  Consumer Prepaid and Mobile Broadband growth were significant features of Retail’s XT performance.”

 

GEN-i

Gen-i reported EBITDA of $58m for the quarter, a 1.7% decrease on the equivalent quarter last year.

“A continued focus on lowering costs, and growth in mobile and Australia helped to offset the decline in traditional telco revenues,” said Chris Quin, CEO, Gen-i.

“IT Services margins were preserved despite market contraction and we launched new products including ReadyCloud, Gen-i enterprise management and Voice Connect on Fibre.  We also saw a pleasing 7% revenue growth and 6% connections growth in mobile as clients saw the strength of an integrated mobility proposition”

AAPT

AAPT reported EBITDA of AUD$24m for the quarter, flat on the equivalent quarter last year.

“AAPT’s result was driven by a continued focus on removing cost from our business.  EBITDA in Australian dollars was flat as cost reductions matched declines in revenue,” said Paul Broad, CEO, AAPT.

“During the quarter, we launched a range of new IP-centric Ethernet business products, supporting our data and internet drive, as well as an exclusive deal with leading global content delivery provider, EdgeCast.

“We also broke new ground in the Australian consumer broadband market, launching the first 24/7 Unlimited product.  Broadband continues to drive orders for higher value plans and 43% of the consumer base now has at least one service on contract.”

 

GUIDANCE

Telecom is maintaining its guidance for adjusted EBITDA in FY10 to be between -1% and +2% compared with FY09. It is now expected to be near the lower end of the range.

Guidance for adjusted group net earnings is $400m to $440m for the year.  It is also expected to be in the lower half of the range and is subject to any changes in tax legislation.

FY11 to FY13 EBITDA guidance was restated on 15 April 2010.  It assumes retention of AAPT and does not reflect any impact from the Government’s Ultra Fast Broadband initiative, which is likely to reshape the industry.

  • FY11 Guidance
    • Adjusted EBITDA of $1.72 to $1.78 billion
    • Capex of $1.0 to $1.1 billion

 

  • FY12 Guidance
    • Adjusted EBITDA to increase by $20 to $80 million

 

  • FY13 Guidance
    • Adjusted EBITDA to increase by $20 to $80 million
    • Capex around $0.75 billion

 

DIVIDEND

A Q3 dividend of 6c per share has been declared, with no imputation credits. The discount on the dividend reinvestment plan (DRP) will be set to nil.

Telecom has announced that for FY11 it will target a payout ratio of 90% of adjusted net earnings.  The dividend is expected to be fully imputed.  The (DRP) will be retained with nil discount and an on-market buy back will be introduced to eliminate any increase in capital.

 

- ENDS -

 

Contacts at Telecom NZ media relations:

Mark Watts, +64 (0)272 504 018

or

Ian Bonnar, +64 (0)27 215 7564

 

Forward-Looking Statements

This release includes forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 regarding future events and the future financial performance of Telecom.  Such forward-looking statements are based on the beliefs and assumptions of management from and information currently available at the time such statements were made.

These forward-looking statements are not guarantees or predictions of future performance, and involve known and unknown risks, uncertainties and other factors, many of which are beyond Telecom’s control, and which may cause actual results to differ materially from those expressed in the statements contained in this media release. Factors that could cause actual results or performance to differ materially from those expressed or implied in the forward-looking statements are further discussed in the management commentary and in the risk factors and forward-looking statement disclaimer in Telecom’s annual report on Form 20-F for the year ended 30 June 2009 filed with the U.S. Securities and Exchange Commission. Except as required by law or the listing rules of the stock exchanges on which Telecom is listed, Telecom undertakes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

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