24 Aug 2009

Telecom profit slashed by almost half

7:47 am on 24 August 2009

New Zealand's largest listed company Telecom announced on Friday its profit has been slashed by almost half.

The telecommunications company said full-year profit has fallen 44%.

Telecom's profits on normal trading fell from $713 million last year to $483 million this year. But with one-off payments included, the profit fell further to $398 million.

Revenue fell 2% to $5.6 billion, as lower sales of its fixed line and mobile phone operations offset rises in its broadband and Gen-i information technology businesses.

Interest costs rose by one third as the company borrowed more money, while depreciation cost rose by a fifth.

Telecom chief executive Paul Reynolds the company has cut costs of $100 million in the past year.

Mr Reynolds says this year's profit will be flat, at between $370 million and $410 million. He says there will be increased broadband and mobile competition, though there will be an opportunity for the company to take a share.

Telecom executives are calling for greater self-regulation or deregulation for the company in the wake of its internal separation of assets, and pledged to increase its rate of return on capital overall.

Analysts say the profit result was signalled in advance, but the real question facing Telecom is how well it will do in the next two years.

Telecom forecasts flat growth in the current year, but a jump by 2011. Analysts say this might happen, but are unconvinced.

Telecom's challenges include a highly competitive industry, huge capital costs, aggressive regulation from the Commerce Commission and industrial strife facing one of its major sub-contractors Chrous, which handles infrastructure.

Telecom shares in New Zealand closed down 4 cents to $2.63 on Friday.