KeyTech says future is bright — despite $2.6m fall in profits

KeyTech Ltd., the parent company of the Bermuda Telephone Company, yesterday announced 

2006/07 net income of $9.1 million — a fall of $2.6 million from the previous year.
In a statement yesterday, the company said costs relating to accounting changes after securing control of Caymans-based telecom company WestTel impacted on the results. And KeyTech added that a Government decision to reduce BTC’s local access charge — the per minute fee paid by international carriers to BTC for originating and terminating long distance calls — reduced net income by $1.8m. BTC is preparing a legal appeal of this reduction. KeyTech also made a $21m investment in capital assets — up $4.3m on the previous year — to maintain existing plant and improve its networks, and also support provision of new services. The Bermudian company now has a controlling interest in WestTel, meaning that KeyTech now accounts for losses of WestTel in excess of its percentage equity holding.

This accounting change resulted in a $1.3m negative impact on net income. Under the same accounting treatment KeyTech will report future profits in excess of its percentage equity holding.

KeyTech chief executive officer Sheila Lines was upbeat about the acquisition of WestTel as the company’s fifth subsidiary.

“We are excited by both the revenue growth to date and the potential future for WestTel,” Ms Lines said. “The controlling interest will enable fast implementation of synergies between WestTel and our Bermuda based operations.”

In its statement, the company explained that a $1.5m increase in expenses came about as a result of the launch of M3 Wireless’s easyConnect service and the development of technical and business plans to build a new submarine cable to Bermuda.

“Wireless technology is evolving rapidly, and both business and residential customers increasingly rely on fixed and mobile wireless services to meet their communications requirements,” Ms Lines said.

“Our investment in new wireless services is essential to the medium and long term competitive positioning of KeyTech.

“We also know that robust and affordable international connectivity is critical to Bermuda’s business and residential customers. Thus, when the government announced a tender process to award licences to build an additional cable in Bermuda, we pursued, and continue to purse, that opportunity aggressively.”

Ms Lines added that the $9.1m in net earnings after the impact of the outlays indicated the “diversity and strategic health of our operations”. Income from continuing operations for the prior year was $13.3m. Income from continuing operations for the current year on a comparable basis after adjusting for the accounting treatment change for WestTel, the investments in easyConnect and the international cable project, and the reduction in the local access charge, was $13.7m.

KeyTech total operating revenues for fiscal year 2006/07 were up $6.5m over 2005/06 to $105.4m. Of the increase, $5.3m is due to WestTel’s inclusion as a subsidiary in the current year and $1.2m is driven by growth in wireless and directory revenues.

An increased focus on customer services had resulted in a 90 percent satisfaction rate among BTC users in the last quarter, according to the CEO.

Total expenses grew $11.2m to $97.4m, with the consolidation of WestTel accounting for $8.1m of the growth. In addition to expenses associated with easyConnect and the international cable project, increased operational costs resulted from increased volumes of long distance voice and data traffic on Logic’s network and rising maintenance costs tied to higher fuel prices for electricity.

Contribution to net income from affiliates improved by $1.7m in 2006/07 primarily as a result of consolidating WestTel’s results in the current year. Bermuda CableVision settled a long-running copyright dispute with the Performing Rights Society which resulted in a one-time charge to earnings from affiliates of $0.3m in the year.

Excluding the one-time charge, both Bermuda CableVision and QuoVadis results improved significantly compared to the prior year.

Total cash dividends paid to common shareholders for the year was $0.60 per common share, the same level as in the prior year.

Investment income for the year was $739,841. Investment income for the prior year was $629,355.

The dividend for the common shareholders of KeyTech Limited for the quarter ending June 30 2007 will be 15 cents per share.

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