Signs of stabilisation in Telecom result

Telecom's full-year result was "fairly vanilla", analysts said yesterday.

The telco reported a 43.9 per cent fall in full-year net profit to $398 million, or in adjusted terms a 32 per cent fall in net earnings to $483 million.

Adjusted earnings before interest, taxation, depreciation and amortisation (ebitda), down 6.5 per cent to $1.77 billion, were in line with guidance.

Adjusted revenue for the year to June 30 dropped 2 per cent on the year before to $5.59 billion, while adjusted expenses rose 1 per cent to $3.82 billion.

The decline in revenue was mainly due to falls in retail and Australian unit AAPT, offset by growth in the wholesale and international unit. Telecom shares closed down 3c on $2.64.

ABN Amro analyst Geoff Zame said the results were within the company's guidance and his own forecasts.

"The theme is that the revenues are still weak. Broadband revenues are pretty disappointing but mobile revenues have stabilised, quarter-on-quarter. The ARPUs [average revenue per user] are finally not going backwards," said Zame. "There are some early signs of stabilisation."

Tristan Joll of Goldman Sachs JBWere said the result was a little bit softer than he had expected, but not a cause for concern.

Joll said what would be of interest over the next few months would be how the momentum in the mobile area was continued.

Telecom said it was maintaining its guidance for adjusted ebitda in the 2010 financial year to a range between a fall of 1 per cent and a gain of 2 per cent, compared with 2009, subject to potential risks arising from the economic downturn. The guidance range given for the coming year is quite achievable, according to Zame.

"I think there's bigger questions beyond [the 2010 full year] if they don't get sufficient revenue growth."

He said the company had made early gains on the cost front - Telecom said it had cut $100 million in costs - "but it gets harder from here".

Zame said the fixed-cost nature of telecommunications meant that if revenue growth was not maintained, it flowed through to the bottom line.

"So people are looking to see whether the business can produce some revenue growth. At the moment it's just not happening."

Forsyth Barr analyst Guy Hallwright was confident that Telecom would get more revenue growth over the next 18 months, driven by XT.

"I don't think there's a problem on the revenue side with what they're expecting," said Hallwright.

Joll said the next couple of quarters would indicate whether questions needed to be asked about the guidance.

- ADDITIONAL REPORTING: NZPA