Telecom's profit announcement yesterday was a good reality
check for the company with pressures from the legacy business
continuing to drag on it, Craigs Investment Partners broker
Chris Timms said.
The competitive pressures in fixed line and mobile were
obvious in the result.
''There are some positive signs the strategy is having an
impact and the company has increased its confidence in cost
out but this will take time to flow through,'' he said.
Telecom, which is changing its name to Spark, reported
operating earnings of $452 million from continuing operations
for the six months ended December, down 5.8% on the $480
million reported in the previous corresponding period.
Revenue was down 3% to $1.85 billion and earnings before tax
were down 9.6% to $208 million.
Net earnings from continuing operations were down 12.5% to
$147 million from $168 million but when $20 million of
earnings from discontinued operations were included, the
reported profit was up 2.5% on the pcp at $167 million.
Telecom also announced it would launch ShowmeTV this year
which would be provided over the internet. Forsyth Barr
broker Suzanne Kinnaird said she had expected a strong result
from Telecom. While it was in line with expectations it was a
''little disappointing'' overall.
Forsyth Barr's current forecasts for the full year were in
line with expectations.
''We have assumed a lower cost base for New Zealand
operations than Telecom has yet achieved. However, its
long-term aspirations of $200 million to $300 million of
costs savings from 2016 are at the high end of our
The main concern was the continued trend towards a rapid fall
in high margin calling towards lower margin mobile and other
The launch of a new internet television service would be
expensive in terms of content acquisition and development but
that was unlikely to hit until the 2015 year, she said.
Mr Timms said Telecom appeared likely to deliver slightly
below his full-year expectations with the company providing
mid-point operating earnings of $935 million from continuing
Telecom chairman Mark Verbiest said it had been focused for
nearly a year on a long-term strategy and it was gathering
''Over the last year, we have moved quickly and decisively,
putting several critical foundations in place and making a
number of bold market moves.
''We have gained greater traction on our cost
competitiveness, increasing the projected free cash flow
benefits we believe will be generated by our `turnaround
programme', a centrally driven series of business improvement
The investments in revamping the mass market brands - Telecom
and Skinny - had delivered in key markets. That had given the
company the conviction to move beyond the Telecom name to
better reflect the digital services capability and future
Earnings for the group were flat but lead indicators and
revenue performance, especially in mobile, were encouraging,
Mr Verbiest said.
As expected, the ongoing fall in legacy fixed data and voice,
together with choices made during 2013 to put market share
ahead of short-term financial performance, had continued to
affect earnings in New Zealand.
''We expect to see the positive lead indicators from the half
year begin to flow more into our financial results from the
second half onwards and into the 2015 financial year,'' he