New Zealand - Telecom NZ

Telecom NZ’s fourth quarter profits fall

Telecom New Zealand reported a 30 per cent drop in underlying profits in the fourth quarter as the country’s largest company by market value suffered from reduced margins in the face of stiff competition from Australia’s Telstra and the UK’s Vodafone.

However, the company’s warning that profits in the current financial year could drop as much as 30 per cent triggered a sharp sell-off in the shares, which closed 21 cents or 7 per cent lower at NZ$2.69.

Telecom New Zealand has gone through an extended period of upheaval after the government forced the company to split into three and open up its networks to rivals in an effort to enhance competition. It also sold off its yellow pages directories arm

Paul Reynolds, chief executive, said the company had delivered a good result that was in line with guidance during a period of profound change. Earlier this year Mr Reynolds, a former executive from the UK’s BT, forecast weaker earnings for three years as a result of the upheaval.

On Friday he also highlighted the “increasingly competitive nature” of the country’s telecoms industry.

The group’s mobile operations faced particularly tough conditions, with revenues declining close to 7 per cent during the latest quarter on the back of price cuts and greater competition. That weakness was partly offset by broadband and internet, where revenue rose nearly 6 per cent, after more than 40,000 net connections were added during the latest three months.

Profits from continuing operations fell from NZ$250m (US$175m) to NZ$176m (US$123m) in the quarter ended June, and were down 17 per cent to NZ$713m in the full year.

Full-year sales rose 2 per cent to NZ$5.67bn, and were ahead just under 4 per cent in the fourth quarter to NZ$1.46bn, while full-year earnings per share down 18 per cent, from 35.5 cents to 29 cents.

The company also reported a 17 per cent rise in depreciation and amortisation as part of the company’s strategy to increase capital expenditure and transition to equipment with “shorter lifecycles”. Capital spending in the current year, mainly on network development, is forecast to reach close to NZ$1.1bn.

The company declared a dividend of 8 cents per share for the fourth quarter, bringing cumulative dividends for the year to 29 cents per share.