Demerged Telecom posts $1 billion half-year profit

UPDATE: 92,000 lost connections will have little impact on revenue, say Reynolds.

UPDATE: At Telecom's earnings call this morning, the company’s CEO Paul Reynolds, announced it had lost 92,000 prepaid connections in the six months to December last year.

Reynolds claims the lost connections have had little revenue impact as many were low-revenue CDMA customers.

There are 639,000 customers still using Telecom’s CDMA network, which is due to be shut down in July. According to its earnings report, 11 percent of Telecom’s mobile revenue in the half year came from this group.

Reynolds says the 639,000 figure is misleading as it was taken over a six month period, and that the current monthly figure is “only” around 300,000 active connections.He adds that an active connection only requires the minimal of activity to be counted.

“There is a long tail of little or no use connections on the CDMA network,” says Reynolds.

Telecom says the company will push customers towards transferring to the XT network by offerring cheaper alternatives through its Skinny offshoot, and by creating more marketing geared towards older CDMA users.

There are 1,392,000 connections on the XT network as of 31 December 2011, according to Telecom.


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Telecom New Zealand has reported a net profit after tax of just over $1 billion for the six months to 31 December as the telco issued its first financial results since the demerger of Chorus.

The accounting period included five months of trading before the demerger of Chorus on 30 November 2011, and one month of trading post-demerger. The result includes a large non-cash accounting adjustment relating to the demerger of Chorus, as well as several other one off items.

Telecom CEO Paul Reynolds cautioned that year-on-year financial comparisons were complicated due to the demerger timing and the associated accounting impact.

"However, the ongoing operational improvement in Telecom’s continuing business is clear after adjusting for the significant non-cash accounting and other impacts of the demerger," he said.





Telecom New Zealand reported and adjusted financial result highlights

$m	Reported		Adjusted
	H1 2012	Change percent	H1 2012	Change percent
EBITDA – continuing operations	519	3.6 percent	488	0.2 percent
EBITDA – discontinued operations	1,137	NM	321	NM
Total EBITDA	1,656	90.3 percent	809	N/A
Net Profit after Tax	1,006	NM	240	51.9 percent
Capex	325	-32.3 percent	325	-32.3 percent

Telecom says the adjusted results remove the impact of a number of one-off items, the most significant of which relate to the demerger, to provide a clearer view of the underlying operational performance of the business.

The largest adjusting item is an $863m non-cash gain on the demerger of Chorus - the majority of this gain relates to the difference between the historic cost and the fair value of assets transferred to Chorus on demerger.

Telecom has also announced an on-market buyback of shares to return surplus capital to shareholders of up to $300m.

Other headline figures are:

Mobile

• Prepaid customer base is down by 92,000 connections, with 639,000 remaining on the CDMA network (due to be shut down in July).
• Mobile revenues up 12 percent compared to first half of prior financial yer, ARPUs (Average Revenue Per Users) up nine percent.

Fixed line

• NZ Broadband revenues were up five percent during the half, through a combination of a 7,000 increase in connections during the half and a two percent increase in ARPUs.
• Telecom’s traditional access and calling revenues continued to decline at around four percent during the period, in line with worldwide trends.
• Telecom and Gen-i’s fixed access market share is 64 percent.