Telecom Meets Ebitda Expectation Despite A Steep Increase In Regulatory Costs

Telecom New Zealand has today announced adjusted Earnings Before Interest, Taxation, Depreciation and Amortisation (EBITDA) of $443m for the quarter ended 30 September 2010, a reduction of 0.9% on Q1 in the previous financial year.

“Operational performance was satisfactory with good cost control offsetting significantly higher regulatory costs and intensifying competition. Telecom absorbed $16m of new regulatory costs, and the impact of the Canterbury earthquake of around $3m, to achieve EBITDA that was on target and within market expectations,” said Paul Reynolds, CEO, Telecom.

Revenue for the quarter was $1,316m, 2.9% down on Q1 in the previous financial year; whilst, at $873m, expenses improved to 4% lower than Q1 in the previous financial year.

The quarter also saw the successful completion of the sale of AAPT’s consumer business, with guidance updated to reflect the sale.

“We remain on track to deliver an improvement in free cash flow as capex reduces in comparison to last year,” Dr Reynolds said.

“The New Zealand market continues to reflect the global trend of declining overall telecommunications revenues. Growth in services such as mobile, broadband and ICT is only partially offsetting declines in traditional fixed line and voice services.

“However, the rate of fixed access line loss and fixed to mobile substitution remains somewhat less in New Zealand than many overseas countries, probably reflecting the unusually wide availability of free local calling from Telecom.

“In New Zealand , despite strong price competition, mobile revenues are growing and broadband revenues are up over 5% on last year.

“The XT mobile network continued to grow strongly during the quarter, with 839,000 customer connections at 30 September 2010, representing just under 40% of our total mobile base.

“On Ultra-Fast Broadband (UFB), Telecom is continuing to engage in detailed discussions with both Crown Fibre Holdings and the Ministry of Economic Development, and we await further announcements,” Dr Reynolds said.

Nick Olson, Telecom CFO, has also announced that Telecom will move to semi-annual reporting. The first semi-annual report will be for the six months to 31 December 2010.

“Although we are now moving to six monthly reporting, in line with our Australasian peers, we will continue to pay dividends on a quarterly basis.

“The rationale for this change is to reduce the costs associated with a quarterly reporting cycle and to create more capacity within the finance function to focus on cost reduction,” Mr Olson said.

ADJUSTED INCOME STATEMENT

Quarter ended 30 Sept 2010
$M 2009
$M Change
%
Revenue 1,316 1,356 -2.9%
Expenses (873) (909) -4.0%
EBITDA 443 447 -0.9%
EBIT 180 194 -7.2%
Net Earnings 83 163 -49.1%
EPS 4 9 -55.6%
DPS 3.5 6 -41.7%

CHORUS

Chorus reported EBITDA of $192m for the quarter, down 1% on the equivalent quarter last year.

“Chorus is now two-thirds of the way through the fibre-to-the-node programme, and last year laid more fibre than copper for the first time. A further 2,000km of fibre is planned this year,” said Ewen Powell, acting CEO, Chorus.

“2,287 roadside cabinets were installed by 30 September 2010, served by more than 26,000km of fibre. We also introduced Next Generation Home services, which includes technician visits to ensure properties are optimised for VDSL2 and Enhanced Service Delivery Points, which improve broadband speeds in the home.”

WHOLESALE AND INTERNATIONAL

Wholesale and International reported adjusted EBITDA of $37m for the quarter, a 31.5% decrease on the equivalent quarter last year.

“While Wholesale external revenue was up 8% and external EBITDA was up 15%, fully-traded EBITDA was down due to internal cost growth,” said Nick Clarke, acting CEO, Telecom Wholesale.

“The quarter featured strong access and broadband connection growth, including 19,000 new access connections and 18,000 new broadband connections . We will now focus on customer service improvements, cost control, and realising the benefits of combining the international and domestic data portfolios.”

The assessment of strategic options for Telecom International’s wholesale voice business continues.

TELECOM RETAIL

Telecom Retail reported EBITDA of $108m for the quarter, a 16.1 % increase on the equivalent quarter last year.

“EBITDA increased strongly when compared to Q1 last year, which contained high cost of sales due to the launch of XT,” said Alan Gourdie, CEO, Telecom Retail.

“The withdrawal of the unprofitable Big Time plan has caused a one-off increase in churn in consumer access and broadband. However, business access churn has continued to reduce and bundles are performing well, with 60% of broadband customers now on a Total Home bundle.

“ We continue to focus on improving retention of high value customers, and taking cost out of our business ,” Mr Gourdie said.

GEN-i

Gen-i reported EBITDA of $54m for the quarter, a 38.5% increase on the equivalent quarter last year.

“EBITDA growth was driven by reduced costs and strong IT services and mobile margin growth and we remain on track to deliver our planned EBITDA,” said Chris Quin, CEO, Gen-i.

“While mobile connections grew 9%, mobile revenues grew 2%, reflecting lower handset revenues. Underlying trends are improving, however, with voice and data up by 6.5%.

“Over the coming year we will continue to simplify our propositions to meet client needs, focus on cost-out and target growth in mobile, ‘cloud’-based services, trans-Tasman and Australia.”

AAPT

AAPT reported adjusted EBITDA of A$22m for the quarter, a 24.1% decrease on the equivalent quarter last year.

“Due to our continued focus on cost management, EBITDA of A$22m is in line with guidance when normalised for a one-off favourable adjustment that was made in the previous year’s Q1,” said Paul Broad, CEO, AAPT.

“The sale of AAPT’s Consumer division was completed on 30 September, which, in addition to the sale of shares in iiNet and Macquarie Telecom, generated A$139m in net cash.

“We will continue to simplify and align our operations to a leaner business structure, including the completion of our billing rationalisation programme in Q3. Looking ahead, our focus remains on accelerating sales growth in on-net data sales and our new SIP voice product for the business and wholesale markets.”

GUIDANCE

Financial guidance 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 billion to $1.78 billion
• Depreciation and amortisation of $1.00 billion to $1.06 billion
• Effective tax rate of around 33%
• Adjusted Net Earnings of $330 million to $370 million
• Capex of $1.0 billion to $1.1 billion

• FY12 Guidance
o Adjusted EBITDA to increase by $20m to $80m
o Effective tax rate of 25% to 28%

• FY13 Guidance
o Adjusted EBITDA to increase by $20m to $80m
o Effective tax rate of 25% to 28%
o Capex around $0.75b

DIVIDEND

For FY11 Telecom will target a payout ratio of 90% of adjusted net earnings. In accordance with this policy, a Q1 dividend of 3.5c per share has been declared, with full imputation. The discount on the dividend reinvestment plan (DRP) will be set to nil and an on-market buy back will be introduced to eliminate any increase in capital.

ENDS

BUDGET 2012:
Parliament Debate Live - Video Of Budget 2011
Keith Ng Interactive Graphic: How the Budget Breaks Down
BUDGET 2012 - FULL COVERAGE: Reports / Analysis - Press Kit - Reaction (from everybody) - Previews (from everybody) - Pre-Budget Announcements

Gordon Campbell: On the Budget’s Spreadsheet Victories

It wasn’t as if expectations were sky high, exactly. Chances are, it was always more likely that we’d be seeing Bigfoot rampage through the Beehive lock-up than catch a glimpse of a credible growth agenda from this government. More >>

Sludge Budget Report - Short The Dollar! MEMO: To international bankers FROM: C.D. Sludge Please short the dollar! It'll be good for both you and us. And you know you want to. Greexit, Eurogeddon... watch out... flight to quality and all that. Follow your instincts. The NZ Debt Management Office has been so surprised at the unprecedentedly low interest rates that it can borrow at that it has already entirely pre-funded the 2013 fiscal deficit - all $8 billion of it! More >>

Pattrick Smellie Comment: Doddling along the best we can hope forCriticising Budgets for lacking vision or imagination is like shooting fish in a barrel, but even so, this year's Budget again feels like a missed opportunity. Perhaps it's the intrusion of real world needs that means the government couldn't make better political use of the $558.8 million it expects to gather in its first partial asset sale. More >>