Telecom may write down Australian unit by $900 mln, CSFB says

By NZPA

Tuesday 23rd July 2002

Telecom may write down the value of Australian unit AAPT by up to $900 million when it reports its annual results next month, according to one broking house.

Credit Suisse First Boston Australia in tandem with New Zealand counterpart First NZ Capital said in a research note yesterday the company would halve the value of AAPT's goodwill in doing so.

Under the company's new accounting standards, Telecom has to decide whether the unit's goodwill effectively exceeds AAPT's reasonable fair value, CSFB said.

There has been speculation since May that Telecom will write off or write down the $1.7 billion goodwill component of its investment in AAPT.

Telecom values AAPT on its books at $2.5 billion.

"Given what's happened with telecoms stock internationally in terms of the valuations that people are prepared to put on them, Telecom would probably look to write down the amount of goodwill it had on AAPT," analyst Guy Hallwright said.

"On our own valuation, a writedown of $850 million to $900 million would be necessary, but we don't know how much they will write it down by because it will depend on how much they internally value AAPT, and of course that won't be the same as us."

Under its accounting standards Telecom has to test annually whether the value of its goodwill and other intangible assets has been impaired.

CSFB forecast a fourth quarter after-tax profit for Telecom of up to $160 million, bringing Telecom's net profit to $640 million for the year ended June 30.

That is slightly above Multex Global's $628 million forecast net profit.

CSFB currently rates Telecom stock a hold.

Telecom spokesman Andrew Bristol said today the company did not comment on analyst comments.

Telecom said earlier this year it was reviewing the valuation of AAPT, the third largest telco in the Australian market.

The review involved the future cash flows expected to be generated by AAPT, and evaluating the extent to which those support the carrying value of the goodwill.

AAPT earned $16 million in Australia in the nine months ended March 31 on sales in that market of $1.4 billion.

Telecom has struggled to lure business customers from Telstra, which rivals estimate has 95 percent of Australia's telecommunications industry profits.

The company reviews the carrying value of all its significant assets at least annually.

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