Control of costs helps Telecom outdo forecast

Paul Reynolds
Paul Reynolds
Careful cost control helped Telecom report operating earnings for the six months ended December ahead of what most forecasters had predicted.

The telecommunications company reported adjusted earnings before interest, tax, depreciation and amortisation (ebitda) of $869 million for the period, a 0.5% reduction on the previous corresponding period.

Adjusted revenue for the period was $2.58 billion, down 3.3% on the previous period but adjusted expenses fell 4.7% to $1.7 billion.

Increased tax knocked the profit after tax down 35% to $158 million but the company still declared a second quarter dividend of 3.5c per share, taking the six-month dividend to 7c per share.

Chief executive Paul Reynolds said a focus on operational excellence and cost control helped offset increased tax and ongoing regulatory impacts.

"We remain on track to deliver our full year earnings guidance."

Telecom had improved its group capital expenditure outlook and now expected full-year capital expenditure to be with the $950 million to $1 billion range in the financial year, down from the $1 billion to $1.1 billion previously indicated, he said.

Telecom's strategy had been updated to drive better product, platform and process results for customers, create a leaner operating model and an intense focus on free cash flow through management of capital and operating costs.

As a result, Telecom was on track to deliver its goal of $155 million of cost reduction in the 2011 full year, Dr Reynolds said.

The XT mobile network continued to grow strongly and Telecom now had more than one million customers on XT, representing about 45% of its total mobile base and 71% of its mobile revenue.

This week, the Government announced it would move into commercial negotiations with Telecom and Vodafone for its $285 million rural broadband initiative.

Telecom was still in discussions with both Crown Fibre Holdings and the Ministry of Economic Development on ultrafast broadband.

"We await further announcements," he said.

Craigs Investment Partners Chris Timms was "fairly neutral" on the result.

"The underlying operating performance was weaker than expected once you strip out the Southern Cross dividend, the settlement from Alcatel for the XT issues and a few other one-offs.

"On the positive side of the ledger, mobile connections and broadband growth are both strong. It is good to see capital expenditure revised down," he said.

 

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