Telecom halts interim profit slide

By Phil Boeyen, ShareChat Business News Editor

Tuesday 19th February 2002

Interim net profit at Telecom (NZSE: TEL) has risen by 4%, the first time in several years the market heavyweight has posted positive bottom line growth at the half-year.

The leading New Zealand telco reported a tax paid profit of $312 million for the six months ended December, an increase on the previous year's $300 million.

Net earnings for the second quarter rose 15.8% to $161 million, due partly to a reduction in operating expenses. This boosted earnings per share for the quarter by 10% to 8.7 cents however earnings per share for the half-year result fell by 2% to 16.8 cents with more shares now on issue.

The company says net earnings and earnings per share were also affected by additional funding costs and goodwill amortisation from the purchase of the remaining shares in AAPT which took some $25 million off the interim result.

Group earnings before interest, tax, depreciation and amortisation for the half year grew 9% to $1.1 billion with the company reporting better performances across all four business divisions.

Telecom puts the half-year improvement down to growth in total revenues and solid progress on cost control. Total revenue rose to $2.845 billion compared with $2.673 billion previously.

Chairman Rod Deane says the company is performing well, given slowing rates of growth in telecommunications markets on both sides of the Tasman.

"Management has made good progress addressing costs especially in the New Zealand Wireline business. This strengthens Telecom's position in the current environment.

"At the same time, data and internet continue to be areas of significant revenue growth and that helps build the platform for Telecom businesses of the future."

The New Zealand Wireline business achieved Ebitda of $795 million, up 5.2% on the previous corresponding half year. Operating expenses fell 5.1% as the company focuses on efficiency but revenues increased by just 0.4%, reflecting slowing growth in calling market revenues.

Data revenue continued to improve, rising 11% for the period, driven by higher customer takeup of ADSL and IP network services.

New Zealand Wireless revenue was stable while cost of sales decreased by 9.2% for the half year, leading to improved gross margins. Interconnection revenue grew but cellular revenue was the same as last year.

At the end of December the company had 1.379 million cellular connections in New Zealand comprising around 38% postpaid customers and 62% prepaid customers.

Despite the growth in connections the company says average revenue per unit has continued to decline, mainly as a result of an increasing proportion of prepaid connections in the customer base.

In Australia total mobile revenue fell by 2.6% for the half year, mainly as a result of lower equipment sales offset by payments under the mobile services agreement with Vodafone.

However the company says the new resale agreement with Vodafone has improved the cost structure of Cellular One, leading to higher margins, and connections at the end of the year were up 8% compared with a year earlier.

Telecom's Internet and Directories Services business achieved Ebitda of $69 million for the half-year, up 23% on the previous period.

Directories' revenue was stable but the company's NZ ISP, Xtra, grew revenues by 36% and in Australia its Connect internet business raised revenue by 12% compared to the previous year.

Commenting on the Australian business the company's CEO, Theresa Gattung, says is improving, with a major focus on operating margins within AAPT and Cellular One, and on growing the internet and data services of Connect.

"Telecom is making steady progress in Australia, building our position in market segments of higher value to each business and streamlining many of our business processes to reduce cost and raise customer service levels."

The company has announced a dividend of 5 cents per share for the second quarter, fully imputed.

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