Hamish Fletcher

Hamish Fletcher is a business reporter for the NZ Herald

Telecom revenue hit by chase for market share

Telecom chief executive Simon Moutter. Photo / Dean Purcell
Telecom chief executive Simon Moutter. Photo / Dean Purcell

Telecom's call to "hold the line" on market share has seen its margins take a "significant hit" , says chief executive Simon Moutter.

The company's share price, shortly before 1pm, was down 0.44 per cent at $2.24.

In its results for the year ending 30 June, Telecom today reported revenue of $4.189 billion, down 8.5 per cent on the same period the year before.

Telecom net profit - including from discontinued operations - was $236 million, down 79.6 per cent.

Its net profit after tax from ordinary activities, excluding these operations, was down 23.6 per cent.

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 during a conference call.

"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. Our objectives 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," he said.

The company 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 2.326 million New Zealand mobile customers.

Around 48,000 of Telecom's new additions were pre-paid and 44,000 were on-account 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. Vodafone, since its merger with TelstraClear last year, holds around 30 per cent of the broadband market.

Despite the customer gains, Telecom said broadband revenue for the last financial year was $24 million less than in the prior period.

In the short-term, Telecom strategy will focus on market share, margins and costs while longer-term it will look for opportunities to revenue growth, Moutter said.

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 only down half a per cent over the period, the company reported. Adjustments of $127 million included one-off items such the costs of restructuring its business and asset write offs.

Adjusted net earnings from continuing operations were up 21.7 per cent to $342 million.

The company said its finance performance in the second half of the year was weaker, and adjusted ebitda over this period was down 4.1 per cent on the same period in 2012.

"Intense" price competition saw Telecom's retail business, its information technology arm Gen-i, its Wholesale and International business and AAPT all experience ebitda declines over this time, the company said.

The company's capital expenditure for the year was $465 million, an increase of 18.6 per cent on continuing operations.

In February, the company announced it was undergoing a review of its business and would cut between 930 and 1230 jobs. The company said it needed to reduce costs to remain competitive.

As at 30 June this year, 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 cloud-computing company Revera.

"The rationale for changes made to date, and for further changes, is undeniable. We know we must become, and remain, more competitive and we must continue to simplify and speed up our business to succeed in the long-term. We applaud our staff for being up for the challenge, and acknowledge that these hard decisions have incurred an emotional and financial toll," Moutter said.

Moutter during the conference call said the job cuts to date were done in a "reasonably unsophisticated way".

"We do need to more sophisticated from here because it we just keep doing that unsophisticated trimming we'll start to break some things in the business."

Moutter said he would prefer to wait until Telecom's half year results in February to discuss any further staff cuts.

Telecom had "put itself 'back in the game' and was committed to its new strategy, chairman Mark Verbiest said.

"It is going to take a concerted and disciplined effort over several years, but we believe this is the right long-term strategic path to build a more valuable company for our shareholders and contribute to a better future for New Zealand," he said.

Telecom expects its capital expenditure for the next three years to average between $400-500 million per annum.

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