Telecom NZ looks to boost "free cash", reduce capex

Highlights of the January-March quarter for Telecom include Gen-i winning the Fletcher Building mobile contract from Vodafone, an increase in the dividend from the Southern Cross cable to $NZ23 million, from $14 million last year, and ongoing reductions in capital expenditure.

Those milestones were announced by Telecom chief executive Paul Reynolds during a conference call this morning, held to give a trading update and give guidance for the company’s full-year result, which will be announced in August.

Today’s trading update didn’t go into financial results for the quarter, but was held to update the market on non-financial milestones. Telecom has abandoned quarterly financial reporting in favour of six-monthly ones.

At today’s update, Reynolds re-iterated Telecom’s commitment to “free cash”, a theme he also emphasised at the company’s half-year results announcement in February.

The telecommunications sector in New Zealand is becoming increasingly competitive, Reynolds said.

“We’re in an environment of very little revenue growth and the focus is on free cash through reducing capital and operational expenditure.

“We have been reducing our costs and re-organising our business.”

Financial guidance for capital expenditure in the 2011 year is $900-$930 million, less than the guidance of $950 million-$1 billion previously given, and guidance for the 2012 year sees capital expenditure of $750 million.

Reynolds was particularly pleased with the latter figure, as it is an advance on earlier guidance, which didn’t see capex reduce to that rate until 2013.

Capex isn’t being reduced by wanton cost-cutting, he said, but by rigorous, careful decisions such as reducing duplicated systems and an approach to projects that sees a greater number of smaller projects with faster and more defined payback.

The lesser capex this year and next will be assisted by the completion of work regarding operational separation and the sale of the AAPT consumer business in Australia.

A key move in that direction was the restructuring of Telecom’s executive team, announced earlier this year, which has seen the management team reduced from 10 to eight roles, and the establishment of a chief product officer role.

The new role was created in part so that decision-making could be streamlined across Telecom’s product ranges and made more consistent, Reynolds said.

There will be further changes to the executive team later this year, he added, and greater alignment between Chorus and Telecom Wholesale is another goal.

Gen-i continues to perform strongly, Reynolds said, with the Fletcher Building contract and a “steady stream” of IT services work boosting the IT business.

Greater use of smartphones is boosting Gen-i’s business mobile services.

Responding to a question from an analyst, Reynolds said the decision to bring back in-house some of the roles previously outsourced to HP under the legacy outsourcing deal with EDS was also benefitting Telecom.

“We have taken back control of some of the services we thought were important.”

Outsourcing deals “need to be looked at from time to time”, he said.

Reynolds declined to talk about the Ultra-fast Broadband project in detail, beyond noting that Telecom had submitted its final bid.

A note on the guidance given at today’s presentation states: “Financial guidance does not reflect any impact from the Government’s Ultra-fast Broadband initiative, which is likely to reshape the industry.”

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