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TeamTalk lifts 1H profit 18%, forecasts annual gain in face of Spark takeover attempt

Wednesday 1st March 2017

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Network provider TeamTalk, which is under a $22.7 million hostile takeover offer from Spark NZ, lifted first-half profit 18 percent, forecast annual profit and will consider resuming dividends next year.

Net profit rose to $1.3 million in the six months ended Dec. 31, from $1.1 million a year earlier, the Wellington-based company said in a statement. Revenue dipped 0.5 percent to $28.5 million while operating costs dropped 2.4 percent to $17.1 million and finance costs halved to $488,000.

The company forecast annual profit of between $2 million and $2.4 million, and earnings before interest and tax (ebit) of between $4.7 million and $5.2 million. In 2016, it posted a $1.3 million loss. In 2018, it's targeting net profit between $4.1 million and $5.6 million, ebit between $8 million and $9.5 million, and will consider resuming dividends that year.

Chairman Roger Sowry said the board and management had made strong progress in turning the company around, with a new strategic business plan after the company struggled to integrate the rural ISP Farmside business, acquired in late 2012 for $42 million, which left it with higher debt and flat earnings. Chief executive Andrew Miller said it expects to cut second-half costs by 22 percent after restructuring Farmside late last year, and operating costs are expected to continue to reduce in 2018. 

The company's ISP segment brought in $11.3 million in revenue in the first half, a 7.9 percent drop on the same period a year earlier, with its ebit loss widening to $1.5 million from $618,000. Mobile radio revenue rose 3.9 percent to $10.6 million, with ebit up 14 percent to $926,000, while in broadband networks, revenue rose 7.1 percent to $7.4 million and ebit gained 15 percent to $2.9 million.

"This result, with the turnaround plan starting to deliver results with profit after tax up 18 percent, confirms the board’s view that Spark’s opportunistic, hostile and highly conditional proposal at $0.80c per share undervalues the company and does not represent fair value to our shareholders," Sowry said. "It is evident that Spark is attempting to capture the upside benefits of the new TeamTalk business plan for Spark’s shareholders, ahead of it being fully implemented and reflected into TeamTalk’s share price."

Spark made two approaches to the board at 60 cents per share and 80 cents per share before announcing its planned takeover in February, Sowry said, with both offers unanimously rejected by the directors. The board reaffirmed its recommendation for shareholders not to sell. Spark has said it wants to integrate TeamTalk's services into the larger group, cut costs by stripping out any duplication and review the business to see what parts of the Wellington-based network it can grow and whether any units should be divested.

The major telco will need Overseas Investment Office and Commerce Commission approval to proceed, and may waive a condition to cross the 90 percent threshold needed to mop-up hold-out shareholders if it secures control of TeamTalk, in which case it would stack the board with its representatives. Spark has previously signalled a desire to reduce its reliance on network operator Chorus's regulated copper lines and last year talked up the opportunities wireless broadband offers to grow the budget end of the market. 

TeamTalk shares gained 1.3 percent to 77 cents, and have risen 12 percent in the past year, though they spiked from 45 cents in February after Spark announced its offer. Spark shares recently traded at $3.565, down 0.7 percent this morning. 


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