Zintel warns of falling profits

Telecommunications firm Zintel is warning half-year profits will be significantly down on the same period a year ago.

Chairman Nick Gordon told the Zintel AGM in Auckland today that during the first four months of the current financial year, to the end of July, profitability was considerably lower than last year.

For the half year to September 30 the company expected a significant reduction in profit, year on year, he said.

The group has two businesses in both Australia and New Zealand -- Zintel Communications which manages and bills customers for toll-free calls, and Zintel Enterprise which imports and distributes Ericsson Enterprise telephony products.

In the year to March, NZAX-listed Zintel posted a net profit after tax of $3.2 million, compared with $3.4 million a year earlier. Total operating revenue rose 15 per cent to $40.5m.

Today Mr Gordon said the reduced profits so far this financial year were due to increased overheads as the senior management team was strengthened, and because Enterprise in this country was running at break even, at best, during the first half.

The Enterprise order book was now filling and restructuring benefits were expected to start flowing through during the second half year to next March, and beyond.

Revenue at the 54-staff Zintel Enterprise in New Zealand was lumpy, relying on winning a small number of large contracts each year, while overheads remained similar each month of the year.

Zintel Enterprise in Australia, which had reduced year on year losses, was to be sold after a review of the business and its future prospects.

The decision was disappointing when the Australian market was substantial, but the board felt a greater concentration of efforts and resources on the profitable Zintel Communications in Australian would produce greater returns for shareholders, Mr Gordon said.

The group was still investing in Zintel Communications in Australia, which was profitable although profit peaked two years ago and had not yet produced the growth in revenue or bottom line anticipated.

"However with greater focus and better operational execution, we believe much potential still exists."

Zintel Communications in this country was the original business started 11 years ago and was increasing market share in the 0800 toll-free market. It remained the backbone of the group both in terms of profitability and cash flow.

Zintel had considered paying a higher dividend as the company had almost $6m cash in the bank, but acquisition opportunities could arise as the telecommunication industry restructured, Mr Gordon said.

Should no acquisitions materialise, that position would be reviewed.

Zintel shares were down 2c to 66c around noon today, having ranged between 60c and 90c in the past year.

- NZPA