Cost cutting helps ease Telecom's Australian pain

AAPT puts laser on costs, confirms A$70-80m earnings

The Australian arm of Telecom NZ, AAPT, has ambitiously forecast achieving earnings of up to A$200 million in five years even as its parent company confirmed an earnings decline that will not be reversed until 2011.

Speaking at an investor briefing for Telecom NZ in Sydney yesterday, AAPT chief executive Paul Broad was frank about the consecutive losses incurred by the division but said cost cutting and gains in its wholesale business should help the unit turn around.

"We've already said AAPT earnings will be A$70 million to A$80 million this year, and a large part of that is driven by a laser-like focus on costs and creating value by bringing services [onto our own network]."

Mr Broad said the group was already well on the way to taking out A$100 million in costs, but noted that the cultural change following AAPT's takeover of PowerTel had meant a disruption to its retail services, which has negatively affected its consumer division by about $25 million.

"The people aspects of bringing together two organisations is never easy," he said.

"PowerTel employees are seen as 'buffheads' and AAPT as 'lovers' . . . I don't know what that means, but we've culturally mapped our business to find the right mixture of people — and that's not been gone about without some pain."

But Mr Broad said the group was now making "sensible" decisions about pricing products for retail users, such as not giving away equipment like modems unless customers were locked into a contract.

His comments came as Telecom NZ chief executive Paul Reynolds revealed that the operating profit at New Zealand's largest telco would fall for the next three years before improving in 2011.

Telecom NZ plans to reduce costs by as much as NZ$300 million (A$257 million) a year by 2013 but will still record a fall of about 6% for earnings before interest, tax, depreciation and amortisation for 2009.

"Many things within our business are in good shape while others, to be frank, need fixing," Mr Reynolds said.

"We anticipate pressure on our core earnings will moderate over the next two years, followed by a return to growth."

Telecom NZ confirmed net profit for full-year 2008 remained between NZ$700 million and NZ$730 million.

The NZ-listed shares of the group fell NZ8¢ yesterday to NZ$3.72 while its Australian-listed stock also slipped, closing 7¢ down to A$3.19.

— Australian Financial Review

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