Telecom yesterday posted a better than expected after-tax profit of $80 million for the quarter to December, but brokers were lukewarm to the result and highlighted concerns over languishing growth for the year ahead.
Telecom reiterated earlier guidance its full-year to June earnings before interest, tax, depreciation and amortisation (ebitda) would be in a range of $400 million to $440 million, but in the lower half of that range.
Following the announcement, Telecom shares were down slightly at $2.30.
Brokers expect there to be further financial fallout for Telecom over its two and a-half day XT service outage, beyond the $5 million compensation package announced last week.
The $80 million quarterly result, down almost 24% on last year's headline profit, was above the forecast of Craigs Investment Partners of a $63 million profit and below the prediction of Forsyth Barr of $85 million.
For the same period last year, Telecom booked a $105 million profit, but it was written down due to one-off abnormal costs, which dragged the final figure to $22 million.
Revenue was down 6.5% to $1.3 billion compared to the same time last year, while adjusted earnings before interest, tax, depreciation and amortisation declined 1.4% to $872 million, but expenses were down 10% to $890 million.
Craigs broker Peter McIntyre said gains at the operating line were eroded by a higher tax charge and, once an unexpected $9 million Southern Cross dividend was taken out, the result was closer to $70 million.
"Arguably, the result was a little better than we expected but quality is still poor. Telecom will need to spend more on mobile COS as the year progresses and, ultimately, can't save its way to sustainable operating growth," he said.
Forsyth Barr broker Suzanne Kinnaird said the before-tax result was in line with expectations but noted the $9 million Southern Cross dividend.
"There's nothing positive in this result that we have seen yet, being flat to slightly weaker than expected," she said.
Ms Kinnaird reiterated earlier forecasts of Forsyth Barr that Telecom would not have any profit growth during the full-year 2011.
Telecom chief executive Paul Reynolds said the XT mobile network grew during the quarter to 467,000 connections, but the figures did not include January or any indication of how many customers Telecom might have lost when the network went down.
"A strong focus for XT is to restore customer confidence," Dr Reynolds said.
The company was working to improve the reliability of the network.
He said 57% of the connections were postpaid and 47% were new acquisitions.
The quarter saw average data revenues per user increase 19% and roaming revenues increase 111%, on the previous year.
"Telecom's delivery of the turnaround remains on track, with ebitda growth in the second quarter.
"The quarter saw progress on a range of fronts, including the addition of 60,000 customers in mobile, Telecom Retail attracting 64% of broadband connection growth, reduced fixed-line churn and the success of our cost-out programme," Dr Reynolds said.
