Telecom writes down copper network by $257M, profit slumps 57%
By Paul McBeth
Aug. 19 (BusinessDesk) – Telecom Corp., which plans to carve itself in two to tap government funding for a national broadband network, wrote down the value of its ageing copper lines by $257 million, more than halving the company’s annual profit.
Net profit was $166 million, or 9 cents per share, in the 12 months ended June 30, compared to $382 million, or 20 cents a share, a year earlier, the Auckland-based company said in a statement. Sales slipped 2.8% to $5.12 billion, in line with a Forsyth Barr forecast.
The company wrote down the value of its copper network as a result of winning a large chunk of the government’s $1.35 billion fund to build an ultra-fast broadband network through most of the country. That means some of Telecom’s products which would have run on the traditional wires won’t now be launched, leaving some copper assets “stranded,” it said.
The country’s biggest phone company continued to strip out costs from the business at a fast pace, reducing operating expenses by 5.8% to $3.3 billion, excluding the impairment.
Chief executive Paul Reynolds said work to carve out the Chorus network unit “continues apace” and information will be sent to shareholders shortly. The company put forward structural separation as a way to tap tax-payer funding for the network, in return for shedding some of its regulatory burdens.
“We are well prepared for the fibre future and the imminent changes to industry structure,” Reynolds said.
Chorus boosted EBITDA by 5.1% to $806 million as it attracted more customers and boosted sales.
Earnings in Telecom’s wholesale and international businesses dropped 42% to $119 million as rising operating costs and inter-carrier costs outstripped revenue growth.
The retail business boosted earnings 21% to $493 million after wholesale broadband input prices were reduced. Mobile revenues bounced back from last year’s troubles during the glitch-plagued launch of the XT network, even as it lost 95,000 customers as inactive customers on its obsolete CDMA network fell off Telecom’s books.
The Gen-i unit increased earnings 6.3% to $237 million. The Australian AAPT unit reported a 34% fall in EBITDA to $71 million having sold its consumer division in the period.
Telecom got a $71 million dividend from its 50%-owned Southern Cross undersea cable, from $63 million a year earlier.
The company said it plans to challenge an Inland Revenue Department notice on the treatment of tax and penalties on earnings from offshore subsidiaries amounting to $34million. If no agreement can be reached, the argument is likely to head to court, it said.
Telecom said it will pay a quarterly dividend of 7.5 cents a share, plus a special dividend of 2 cents a share, taking the annual pay-out to 20 cents. That beat Forsyth Barr’s estimate of 16 cents.
Due to the pending split, Telecom removed its guidance for the 2012 financial year.
The shares fell 1.5% to $2.605 in trading yesterday and have gained 22% this year.