AAPT's big picture not so flash

Billing system migration problems hurt Telecom's Aussie business

Telecom New Zealand has slashed annual earnings expectations for its Australian business, amid problems migrating retail customers to its new billing system, after delivering a disappointing first-half result.

Despite the setbacks, the company said it was on track to complete this year the integration of AAPT, Australia's third-biggest telephone company, with business telecommunications provider Powertel which it acquired for A$357 million in April last year.

The telecommunications company cut its forecast for annual earnings before interest, tax, depreciation and amortisation for its Australian business by A$10 million to A$80 million.

Fronting his first financial result since taking over at the embattled telco in September, chief executive Paul Reynolds blamed the downgrade on problems migrating customers to new management software and continued margin pressure at its corporate information and communications technology arm.

"The integration of Powertel and AAPT is progressing well and the targeted cost benefits are being achieved," Reynolds said on Friday.

"[But] we have been experiencing a higher than expected level of calls into our call centres, causing delays in the migration plan."

Telecom NZ's Australian business posted a A$21 million loss from operations for the half-year ended December 31, against revenue growth of 9.9 per cent to A$632 million on increased usage of local service, data and broadband services associated with the Powertel acquisition.

The group, New Zealand's largest listed company, reported a 12.6 per cent drop in overall net profit to NZ$397 million.

Operating revenue was up just 1.1 per cent to $NZ2.8 billion while earnings before interest, tax, depreciation and amortisation slid 2.3 per cent to $NZ935 million.

Declining revenue at its New Zealand mobile and fixed-line arms and higher costs associated with its forced operational split into three units — wholesale, retail and networks — dragged on the result.

The split is timed for March 31.

"Looking at the big picture I am clearly disappointed with the results even though they are within guidance," he said.

"But we're already on the way to delivering a transformation."

He reaffirmed Telecom NZ's 2007-08 net profit guidance of A$680 million to A$720 million, but admitted earnings at its New Zealand business would be at the lower end of its previous forecasts.

"We do expect the results in Q3 to deteriorate and in Q4 to improve a little. The Q3 EBITDA decline will be exacerbated by the shift of the low sales Easter holiday period from Q4 last year to Q3 this year," Reynolds said.

Telecom NZ's Australian shares slid A11¢ to A$3.49 on Friday.

— Australian Financial Review

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