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Telecom to keep cutting costs following financial results

Telecom Corp, which carved out its network operator unit Chorus at the end of 2011, reported a 0.5 percent decline in adjusted annual earnings to the bottom of its guidance range, and is predicting an unchanged dividend payment in 2014.

Adjusted earnings before interest, tax, depreciation and amortisation slipped to $1.04 billion in the 12 months ended June 30, from $1.05 billion a year earlier, the Auckland-based company said in a statement.

Telecom gave guidance of $1.04 billion to $1.06 billion in May, saying it was facing intense rivalry on fixed-line services and a margin squeeze in the Gen-i corporate services segment. Revenue fell 8.5 percent to $4.19 billion.

The board declared a final dividend of 8 cents per share with a Sept. 20 record date, payable on Oct. 4. That takes the annual return to 16 cents per share, the same level it is flagging for 2014.

The company's dividend policy is to pay out 85 percent of adjusted net earnings, implying next year's will be unchanged at $342 million.

Statutory profit plunged to $236 million, or 13 cents per share, from $1.16 billion, or 60 cents, a year earlier when it still recognised earnings from Chorus. Telecom had $127 million in restructuring costs and asset impairment charges, the top end of its forecast of $100 million to $130 million.

Telecom is going through a radical overhaul of its business into a data-driven and mobile-focused telecommunications operator, stripping out costs. The company slashed its workforce by 16 percent this year to 6,622.

"We are realistic about the performance improvements that must be achieved," chief executive Simon Moutter said.

"We will target a leading position in the mobile market, ensuring we are competitive on costs, and improving the relevance of our marketing efforts, especially in key segments such as young urban customers."

The shares dropped 2.8 percent yesterday to $2.25, and are down 1.1 percent this year, lagging behind an 11 percent gain for the benchmark NZX 50 index. The stock is rated an average 'hold' based on 10 analyst recommendations compiled by Reuters, with a median target price of $2.27.

The company's retail unit reported a 1.4 percent fall in EBITDA to $718 million and a 5.2 percent slide in sales to $1.83 billion as price competition ate into its margins in both mobile and broadband services.

Telecom's mobile customers dropped 11 percent to 1.82 million, including the closure of its obsolete CDMA network. Retail access lines rose 4.4 percent to 976,000 and broadband connections climbed 5.2 percent to 630,000.

Gen-i reported a 4.9 percent fall in earnings to $370 million and a 5.5 percent decline in revenue to $1.26 billion as customers consolidated their lines and moved to internet protocol based services. The corporate services sector also faced heightened price competition.

Telecom's wholesale and international business lifted EBITDA 1.4 percent to $224 million, despite an 8.8 percent fall in sales to $594 million as intercarrier costs fell and it quit low-margin customer arrangements.

The Australian AAPT unit reported a 16 percent drop in earnings to $74 million on a 22 percent slump in sales to $515 million, with the decline heightened by a stronger kiwi dollar.

The unit, which had its consumer division sold in 2010, lost customers amid market consolidation in the Australian Federal government's National Broadband Network roll-out.

The technology and shared services unit narrowed its EBITDA loss to $287 million on a 15 percent decline in revenue to $57 million, reflecting asset impairments, lower supplier rebates and new trading arrangements with Chorus hitting revenue.

Capital expenditure rose 19 percent to $465 million in the financial year as it bought 3G mobile spectrum, began re-engineering its internal IT infrastructure and made an early investment in an optical transport network to upgrade the core network.

Telecom expects annual capex of between $400 million and $500 million over the next three years, with spending in 2014 likely to be at the top end of the range. That excludes any purchase of new spectrum, with a government auction expected later this year.

By Paul McBeth - BusinessDesk