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Current as of 19/12/14 10:40AM NZST

Hamish Fletcher

Business reporter for the NZ Herald

Telecom gives up revenue to hold line

Company's focus on keeping customers at the expense of making more money now is prudent approach, says analyst.

Chief executive Simon Moutter says the long-term value of the business will be determined by the ability to win key markets. Photo / Dean Purcell
Chief executive Simon Moutter says the long-term value of the business will be determined by the ability to win key markets. Photo / Dean Purcell

Telecom's decision to try to hold on to market share at the expense of revenue is prudent, says one analyst.

In its results for the 12 months ending June 30, Telecom yesterday reported revenue of $4.19 billion, down 8.5 per cent on the same period the year before.

Net profit, including from discontinued operations, was $236 million, down 79.6 per cent.

When excluding these operations, profit was down 23.6 per cent, the company said. Once adjustments were taken into account Telecom's net earnings for the period were $342 million, up 21.7 per cent.

Chief executive Simon Moutter said the financial results were impacted by the company's strategic decision to hold the line on market share.

"The long-term value of this business will be determined by the ability to win key markets," Moutter said.

"We've made the strategic decision this year to hold the line on market share.

"That's had an expected impact on this year's financial results with significant hits to margins," he said.

"Our objective was to grow share on mobile and hold share in broadband and I'm pleased to say that we've delivered on both of those."

Total mobile revenue was $926 million, down 1.5 per cent. Mobile usage revenues, which Moutter said the company focused on, were up 3.5 per cent.

Broadband revenues for the year were $431 million, down 13.8 per cent. Broadband revenues in its retail division fell by $24 million.

The company did, however, pick up customers in both the mobile and broadband markets.

Telecom added 92,000 mobile customers in the second half of the year. This puts its total mobile customers at around 1.8 million. As at June 30, Vodafone had around 2.3 million New Zealand mobile customers.

After "several years of decline" Telecom said it held market share in the broadband space at 48 per cent and added 18,000 customers in this area during the second half of the year.

Forsyth Barr senior equity analyst Blair Galpin expected the company to record further revenue declines in the present financial year. "Simon [Moutter's] running hard to stand still in some respects to offset those declines as much as he can through cost reductions," Galpin said.

"So I think what he's trying to do is, where he can, absorb revenue decline through cost reductions [to] keep hold of customers, so that when things effectively really kick off with mobile he's in a much better position, [rather] than to churn the customers just to make a bit more money now," he said.

Galpin said Moutter could have held on to another $50 million of revenue each year but the churning of more customers would have made the company a very different business in the longer-term.

"So I think what he's doing is the prudent thing," Galpin said.

One way Telecom reduced costs was through staff cuts.

In February, the company announced it was undergoing a review of its business and would slash between 930 and 1230 jobs.

The company said it needed to reduce costs to remain competitive.

As at June 30, Telecom employed 6622 full-time equivalent staff, down 1281 from the same time in 2012.

The bulk of this cut came in the second half of the year when the company axed 1059 jobs.

Telecom did, however, pick up 151 staff over this time when it acquired the cloud-computing company Revera.

Telecom's earnings before interest tax depreciation and amortisation (ebitda) from continuing operations was $922 million, down 14.6 per cent in the 12 months to June 30.

Adjusted ebitda was down only half a percent over the period, the company reported.

Moutter said the company did not have enough certainty to issue formal ebitda guidance for the present financial year.

Telecom boss rings up $3.4m pay packet

Telecom chief executive Simon Moutter's remuneration package was $3.4 million for the 2013 financial year. He joined the company last August.

This package was made up of a base salary of $1,194,231. He also earned short-term and equity incentives of $488,000.

As well as this, he earned $1 million in performance rights, which are subject to the achievement of certain performance criteria set by the Telecom board. Half the performance rights will vest in September 2014, and the rest in September 2015.

He was also awarded $750,000 in performance rights that have no criteria attached to them, vesting in September this year and September 2014.

Telecom paid more than 3060 staff over $100,000 each in the year to June 30. Its annual report records all payments over $100,000 to employees, or former staff, for that financial year. These include redundancies or long-term performance incentives.

More than 30 staff received payments of more than $500,000 and seven received between $1 million and $1.99 million.

- NZ Herald

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