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TeamTalk affirms annual earnings guidance as rising costs dent first-half profit

Thursday 21st February 2019

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TeamTalk expects annual earnings to be largely in line with last year after reporting an 11 percent decline in first-half profit as investments in its telecommunications network drove up operating costs. 

Net profit shrank to $1.9 million in the six months ended Dec. 31 from $2.1 million a year earlier,  with revenue largely flat at $17 million while operating costs were up 7 percent at $7.9 million. 

Chief executive Andrew Miller said the result was in line with the telco minnow's plans, with $3.6 million of capital spending on the digital radio network indicative of a wider investment plan to upgrade TeamTalk's infrastructure. The company still expects annual profit of roughly $4.4 million in the year ending June 30, in line with the previous year. 

"When we issued guidance for the current year, we highlighted that there would be an increase in operating costs associated with our investment in capability to complete the company’s transformation and to position the business for future growth. The half-year result reflects exactly that," Miller said. 

TeamTalk more than doubled its capital expenditure to $6.8 million in the June 2018 year as it rolls out a new digital radio network and upgrades its fixed-line network in Auckland and Wellington CBDs.

The company completed its exit from rural broadband service, Farmside, last year, selling the unit to Vodafone in two tranches after struggling to integrate the business. 

TeamTalk lowered its net debt to $11.4 million as at Dec. 31 from $20.2 million a year earlier, having raised $8.2 million in a placement and rights issue last year.

That's the lowest net debt the company's had in more than a decade, and the board plans to restart dividend payments at the end of the current financial year. 

Chair Roger Sowry said those investments will help produce greater shareholder returns in the medium- to long-term. 

"We intend to maintain a dividend distribution of 50-70 percent of net profit after tax following the completion of our major capital projects," Sowry said. 

TeamTalk is halfway through its digital radio rollout and on track to have it completed by June this year.

The Citylink fibre programme in Wellington is on schedule to be upgraded by June next year, which it wants to support the roll-out of 5G mobile technology. 

Spark New Zealand is betting on 5G mobile technology shifting more broadband usage to wireless networks and off fixed-line connections.

Managing director Simon Moutter on Wednesday said a key plank supporting the economics of that investment is in leveraging off the government-sponsored ultrafast broadband network, which has made fibre accessible to almost all urban areas around the country. 

TeamTalk's fibre network pre-dated the UFB build and Moutter said he sees 5G leveraging off fixed-line networks, including those offered by fibre companies such as Chorus, which provide backhaul to the mobile technology. 

TeamTalk shares last traded at 79 cents, and have declined 11 percent over the past year. 


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